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A question often asked by seniors is whether it is better to buy a Medicare
Advantage plan or a Medicare Supplement (Medigap) plan? Before I discuss the
pros and cons of these types of plans, I want to first clarify the function of each
of them because they actually serve two very different purposes. This was
covered in previous articles, but it bears repeating to put the two programs in
their proper perspectives.
If you are enrolling (or are enrolled) in Medicare, you have two basic choices
for how to get your medical coverage. The first is Traditional Medicare which
includes Part A (Hospital) and Part B (Other Medical) coverage. Close to 70%
of seniors choose this option. The second choice is Medicare Part C, also known
as Medicare Advantage (MA). MA plans are offered by private insurance
companies that contract with the government to provide the same services as
Traditional Medicare. Many MA plans offer benefits not covered by Traditional
Medicare for an additional monthly premium, such as dental, vision, hearing,
and health / wellness programs.
To enroll in an MA plan, you must first enroll in Medicare Parts A and B and
pay the Part B premium ($121.80 per month in 2016 for new enrollees), and then
pay any additional premium charged by the plan. The government has a tool
called Medicare Planfinder that will allow you to compare MA plans based on
benefits, premiums, estimated cost, and quality rating.
Traditional Medicare will pay for the costs of your hospitalization, skilled
nursing facility care, doctor visits, outpatient services and more, but there will
be costs to you as well. For example, each time you are admitted to the hospital
as part of a new benefit period, you will need to pay a fixed deductible amount
of $1,288 in 2016. You will generally need to pay 20% of all costs for doctor
visits, outpatient services, medical equipment, lab work, and other Part B
services. These charges can add up to significant costs over the year and strain
the budgets of seniors on fixed incomes.
That is where Medigap plans come in. For a fixed monthly premium, seniors
enrolled in Traditional Medicare can buy a Medigap plan from a private
insurance company that will pay for some or all of these costs. So unlike MA
plans which are an alternative to Traditional Medicare, Medigap plans
are a supplement (in addition) to Traditional Medicare.
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With MA plans there will also be costs to you in the form of deductibles, co‐
payments and co‐insurance. On average, these costs are expected to be no
more than you would pay if you were in Traditional Medicare. However unlike
with Traditional Medicare, you cannot buy a Medigap plan to pay for your MA
costs. Instead, MA plans have Out‐Of‐Pocket maximum amounts such as
$6,700 (or in some cases lower). Like with regular health insurance, once your
costs for the year reach the out‐of‐pocket maximum the MA plan will pay for
all of your remaining eligible costs for the rest of the year.
Traditional Medicare Plus Medigap
Pros:
The main benefit of enrolling in Traditional Medicare and buying a Medigap
policy is that you have the freedom to visit any doctor that participates in the
Medicare program. There are very few doctors that do not. You will not need a
referral to see a specialist or need to worry about network considerations.
There are no geographic restrictions within the United States, so if you move
your plan moves with you.
The Medicare program has changed very little from year to year and you will
likely not need to deal with much change each year. With a Medigap plan, your
monthly costs will be predictable and you will minimize your unexpected
medical costs. Since claims are submitted and paid electronically, your
paperwork will be largely eliminated.
Cons:
The main disadvantage of Traditional Medicare plus a Medigap plan is that it is
usually somewhat more expensive than enrolling in an MA plan. Medigap will
pay for much or all of your share of the medical charges, and so you will end up
paying less to your provider than with an MA plan. But the tradeoff is that you
pay for this benefit in the form of a monthly premium to an insurance
company, and this premium can increase as you age.
For most people the Medigap premium will be more than their total MA
premiums plus claims. Of course this is a generalization – someone that needs
a lot of medical services will be better served with a Medigap plan that covers
the costs than with an MA plan that leaves costs for the patient.
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So to summarize the pros and cons of Medicare Advantage plans:
Advantages:
Can be a cheaper alternative
May offer valuable additional benefits
Usually includes drug coverage
Disadvantages:
Restrictions on doctors you can see
Can potentially have large expenses
Expenses are less predictable
Plan can change each year
Bottom Line
So which of the alternatives is better for you? It will really depend on your
situation. If you want the freedom to visit any doctor of your choice and can
afford to pay a little more up front, Traditional Medicare plus Medigap will give
you the best access to care. You will also know what your medical expenses are
each month and will have minimal paperwork.
Medicare Advantage can be a good choice for you if you are used to similar
health insurance policies that have doctors’ networks and maximum out‐of‐
pocket costs. It will be more difficult to predict your yearly medical costs if you
get sick, but it is similar to other health insurance that you may have had
before you retired. The plan may provide additional benefits that are not
covered by Medicare at a reduced cost to you. Choose a plan with a broad
network that includes all of the doctors that you usually visit. Many plans have
a lower out‐of‐pocket maximum (they cost more) and this can limit your
exposure to unexpected costs.
