It’s true: Original Medicare does cover most health care expenses, but it comes with significant deductibles and coinsurance payments that can quickly add up. As a result, many American seniors will opt to defray these costs with a Medicare Supplement Insurance (Medigap) or Medicare Advantage Policy.
In our most recent blog post- 2015 Medicare Open Enrollment Checklist– we discussed the services provided by Original Medicare and some important considerations for augmenting this coverage for the upcoming year. This week, we’ll compare Medigap and Medicare Advantage plans and review some important considerations that could make deciding between the plan types easier.
“Begin at the beginning…”
A useful starting point is to review the coverage that is included in Original Medicare, along with the associated costs.
2016 Medicare Cost Summary
|Medicare Part A (Hospital Insurance) premium.||Most people do not pay a monthly premium for Medicare Part A coverage if you or your spouse paid Medicare taxes while employed. Check your Social Security statement to determine if you qualify.|
|Medicare Part A inpatient deductible and coinsurance.||
|Medicare Part B premium.||Most people will pay $104.90 per month, but premiums may be as much as $389.80 per month for those couples with incomes exceeding $428,000.|
|Medicare Part B deductible and coinsurance.||$166 per year. After meeting the deductible, you generally pay 20% of the Medicare-approved amount for most physician services.|
Seniors that would like to reduce their out-of-pocket medical costs have a few options. One way is to keep Original Medicare and purchase supplemental insurance to help cover these costs. Medicare Supplement Insurance, also known as Medigap, are insurance plans issued by private insurance carriers that are designed to work exclusively with Original Medicare.
Medigap plans can be used with any doctor or hospital that accepts Medicare, and offer a standardized set of benefits. Plans are labeled by letter and sold by private insurance companies. Each plan of the same letter provides an identical set of benefits, thus making price comparisons quick and easy.
Here are a few additional things you should know about Medigap insurance:
- Insurance companies issuing Medigap insurance policies are allowed to use medical underwriting to decide whether to accept your application, and to determine your annual premium. Applicants that apply for a Medigap policy at the same time they sign up for Medicare Part B coverage (generally age 65, unless deferred because of creditable coverage provided under an employer or union health insurance plan) can purchase a Medigap plan without being penalized for health problems.
- You must sign up for Medicare Part A and Part B.
- A Medigap policy covers only one person and is guaranteed renewable. The insurance carrier cannot cancel your Medigap policy as long as you pay the premiums, despite adverse changes in health.
- Medigap polices sold today do NOT cover prescription drugs, dental, vision care, or hearing aids, though some Medigap policies sold before January 2006 do include prescription drug coverage. Those with older Medigap policies should make certain that the drug coverage provided qualifies as “creditable coverage”, as this allows participants to disenroll in the plan’s drug coverage and sign up for a Medicare Part D drug plan without financial penalty.
- Medigap Plans C, D, E, F, G, H, I, J, M and N will pay 80% of the cost of medically necessary emergency care provided outside the USA, after a deductible of $250. Foreign travel emergency coverage has a lifetime limit of $50,000.
A second option to reduce health care costs is to get your Medicare benefits through a Medicare Advantage plan instead of Original Medicare. Like Medigap plans, they are offered by a host of private insurance companies and must provide at least the same benefits as Original Medicare. Unlike Medigap plans, they are not standardized and often provide benefits such as vision care, dental and prescription drugs that Original Medicare and Medigap plans do not. Medicare Advantage plans are structured as a Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO), but also include a Medicare High-Deductible Health Plan and Medical Saving Account (MSA) option, and a Medicare Special Needs Plan for those with qualifying medical conditions. As coverage may vary greatly among plans, comparison shopping is somewhat more challenging.
Here are a few additional things you should know about Medicare Advantage insurance:
- Medicare Advantage plans are a replacement of Original Medicare. You are still enrolled in Medicare Parts A and B, but coverage is provided by the Medicare Advantage plan and not Original Medicare.
- Medicare Advantage plans have different rules and costs than Original Medicare. You might pay more for some services and less for others.
- Medicare Advantage plans use networks of doctors and hospitals, so restrictions may be placed on how you receive care. It is important to check the plan’s network to ensure it meets your needs.
- You must sign up for Medicare Part A and Part B.
- You can join a Medicare Advantage Plan even if you have preexisting conditions, with the exception of End-Stage Renal Disease.
- Medicare Advantage Plans have an annual limit on out-of-pocket costs. You pay nothing for covered services after this limit is reached.
- Medicare Advantage Plans must offer emergency coverage outside of the plan’s service area, but they are not compelled to offer coverage outside of the United States.
If you have coverage from an employer or retiree health plan, you should never enroll in a Medigap or Medicare Advantage plan without first checking with your employer. It is important to understand whether and how your existing coverage works with Medicare, so you avoid duplicating coverage or losing valuable benefits under your employer’s plan.
Important Considerations: Medigap and Medicare Advantage Plans
|Do I have the ability to go to the doctor or hospital of my choice?||Yes, as long as they accept Medicare. One exception is Medicare Select plans, which require you to obtain care in the plan’s network.||No. Most plans have a network of participating doctors and hospitals.|
|Do I have coverage outside the US?||It depends. Original Medicare does not provide coverage outside the US. Several Medigap plans do provide coverage.||It depends. Medicare Advantage plans may cover care provided outside the US.|
|Will the plan reduce my out- of- pocket costs?||Yes. Medigap plans are designed to reduce the costs you pay when visiting a doctor or hospital.||It depends. Medicare Advantage plans have copayments and coinsurance that may be higher or lower than those in Original Medicare.|
|Does the plan cover any extra services?||No. Some older Medigap plans may cover prescription drugs, but coverage for vision, dental or prescription drugs is not included in newer plans.||Yes. Many plans will cover prescription drugs, dental and vision. The monthly premiums may be considerably lower than those for Medigap plans.|
|Do I need additional coverage?||Generally, yes. A Medicare Part D drug plan is often purchased separately.||Typically no. Many plans include prescription drugs. If you have a plan that does not, a Part D plan is generally recommended.|
As a reminder, you don’t need to go it alone. There are many resources available. Medicare and your state’s Health Insurance Assistance Program (SHIP) can be reached by calling 1-800 MEDICARE (1-800-633-4227).
The Medicare Rights Center maintains a free telephone line (1-800-333-4114) and can explain the differences between Original Medicare and Medicare Advantage plans, and help in selecting an appropriate plan type.
A little research goes a long way. We hope you find this guide helpful in selecting a plan that works for you.
John Male, CFP®
The Gassman Financial Group
G&G Planning Concepts, Inc.
The Retirement Maven ™
9 East 40th Street, Suite 1500
New York, NY 10016
Tel: 212-221-7067 Ext. 17