Which is Right for You?
You have made the decision that you need to sign up for Medicare Parts A & B, but you know that you need to fill a few holes present in original Medicare. What’s the best way to do this?
It is important to note that this discussion will not include retiree coverage from a former employer, the government, or military service. You can read more about how those interact with Medicare here.
There are two main ways to protect yourself financially when you are Medicare eligible. The first is a Medigap (sometimes called a Medicare Supplement). The second is a Medicare Advantage (sometimes called a Part C or MA/MAPD plan).
Medigap plans are offered by private insurance companies as extra insurance that fill the gaps left by Medicare. Since you are still on Medicare, you can see any doctor you want, and the cost not covered by Medicare is picked up by the extra insurance.
Advantage plans are offered by private companies that replace original Medicare. These plans typically include additional benefits to Medicare such as dental, vision, & hearing coverage, prescription drug coverage, and OTC benefits. In exchange for these benefits, enrollees agree to see only medical providers the insurance company has contracted with (in-network providers).
Those are the main differences between the two. Now let’s dive a little deeper.
Pros of a Medigap Plan
No Networs=Freedom to choose your doctors. This is one of the key features of Medigap plans. Because they are secondary insurance to Medicare, you can go to any doctor or hospital that accepts Medicare. By law, if they accept Medicare, they must also accept your Medigap plan (regardless of the insurance company that you bought the plan through). This can be crucial if you travel a lot, or if you simply want access to the best care from top-rated facilities around the country.
Comprehensive medical coverage.. You will pay extra each month for a Medigap plan, but outside of that, there is very little out of pocket cost. The most popular Medigap plan (Plan G) covers all out of pocket cost except the first $240 a year.
Guarenteed renewability. Medigap plans are guaranteed to be renewed, een if you have health problems. This means the health insurance companies can not cancel your plan or kick you off as long as you continue to pay the premiums.
Cons of a Medigap Plan
Monthly premiums. Medigap plans require monthly premiums in addition to the normal Part-B premium. A female turning 65 and signing up without underwriting can expect to pay about $100 a month. Compare this to the national average of $18 a month for a Medicare Advantage plan.
You will need additional policies.. Medigap plans to do not include drug plans and this will need to be added separately at a cost. While you will have more options to choose from when you don’t bundle your coverage like with an Advantage plan, the cost will be one more thing to budget for each month.
Additionally, with Medigap plans there is no included dental, vision, or hearing coverage, which is often times added on to Medicare Advantage plan. Insurance for these is an added cost that you will need to consider.
Pros of Medicare Advantage
Lower monthy premiums. The national average for monthly premiums is around $18, but there also a lot of plans that are $0 a month.
Bundled Care. Medicare Advantage is sort of a one-stop-shop for all your health care needs. The bundled approach of Medicare Advantage means that you can use the same insurance coverage at both the doctors and the pharmacy.
Additional benefits.. Unlike with Medigap plans, Medicare Advantage plans often include dental, vision, and hearing coverage, gym memberships, and prescription drug coverage, at no additional cost. Some also offer over-the-counter benefits.
Limited discrimination for pre-existing conditions. Unless you purchase a Medigap plan when you first enroll in Medicare, companies have the ability to either deny you coverage or increase your rate. With Advantage plans, you pay the same rate as everyone else in your area, and with the exception of having end-stage renal disease, you can not be denied for any health reason.
Cons of Medicare Advantage
Limited networks. Medicare Advantage plans commonly come in either an HMO or a PPO (you can read more about those here). These will typically require you to use providers that your plan has already contracted with. While you may be able to use a service outside of your network, you plan may require that you pay more or that you pay the entire cost of the service. This can be very restrictive for people who want to travel or if you want to have access to better facilities outside of your network.
Higher out of pocket cost for care. MA plans come with low monthly premiums compared to Medigap plans, but in exchange, they also come with out of pocket cost when you do need medical care. The total out of pocket cost vary between plans, but range between $3,800 to $8,850. Unfortunately, prescription drug cost do not count towards this max out of pocket and is a separate cost that you also need to consider. This can make budgeting with a Medicare Advantage plan much more difficult as you can potentially spend up to your max out of pocket very quickly if you have a serious health issue. This max out of pocket also resets each year, so if something bad happens in November and then again in January, you can very quickly get into financial trouble.
Yearly contract. Advantage plans are renewed every year. With this renewal comes a change of benefits every year. These changes can be both beneficial negative. Sometimes networks will change and the doctor you had been seeig is no longer able to see you without additional cost. Doctors and entire health systems can end their contract with a specific Medicare Advantage plan at any time of the year. Unfortunately, if you are enrolled in an Advantage plan, you can not do the same. If your doctor stops accepting your plan mid-year, you will need to either find an alternative doctor or pay the high out of network cost until you are allowed to change plans again.
Managed care. To understand managed care you need to understand first how Medicare Advantage companies make their money. When you have original Medicare, prices for certain procedures are already determined. Medicare pays when that procedure is done. This is called a fee-for-service program.
When you enroll in a MA plan, the government gives that MA company all of the money they expect to spend on you (including the Part-A and Part-B premium amounts) each month. This is around $1,000 a month. The MA company gets to keep this money no matter what. They can either use it to cover your medical cost, or pad their bottom line.
Usually, MA companies will look for low-cost providers for all of the procedures you need and they can require that you get pre-authorization from their plan before allowing you get a procedure. They take a much more active role in your health care, which can be a bad things for some beneficiaries.
Little flexibility with coverage options. Because MA plans are bundled, it can be difficult to find the plan that perfectly fits your unique needs. It can be hard to find a plan that covers all of your medications while also giving you access to the doctors you want.
Summary
So which best? This is one of the most important decisions you will make when you start your transition onto Medicare. During your IEP (read more about that here) you have the option buy a Medigap plan at the lowest possible rate and cannot be denied coverage, regardless of your health issues. If you’re going to go with a Medigap plan, this is definitely the best time to do it.
But what if you can’t afford the almost $200 a month for the Medigap plan, plus the prescription drug coverage, and the dental, vision, and hearing coverage you also want? That is something that you need to consider. My advice is that if you can’t afford $200 a month, you really can’t afford an $8,850 max out of pocket. I almost always suggest a Medigap plan for as long as you can afford to pay for one.
Other considerations include how much you like to travel, are you comfortable seeing the doctors in your area, are you comfortable having to negotiate with the insurance company on a procedure you want or need? This becomes a very personal decision that only you can make.
It is important to have these discussions and to consider your option thoroughly before you enroll in Medicare so that you are taking the right steps forward.
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