You’ve probably heard a lot about Medicare Advantage products from television ads featuring sports legends or other celebrities hawking the benefits of Advantage plans, such as dental and vision coverage, rides to and from your medical appointments, and even home-delivered meals. Of course, that all sounds great (it would be a pretty bad commercial if it didn’t!), but the reality is a lot more complicated, and if you’re like most people you may not be very clear on exactly what Medicare Advantage is or how it works. So let’s take a look at the Medicare Advantage product and why you may – or may not – be interested in it.
What Is Medicare Advantage?
Medicare Advantage, also frequently referred to as Medicare Part C, is a completely different way to receive your Medicare benefits from original Medicare. Under original Medicare as established by Congress, you have separate health coverage under Part A (hospitalization), Part B (medical expense), and Part D (prescription drug). Parts A and B are administered through the Centers for Medicare and Medicaid Services (CMS), while Part D is administered by various private insurance companies that have contracted with CMS to offer prescription drug plans for Medicare beneficiaries. Under this model of coverage, you could be covered under several different combinations of Parts A, B, and D. For instance, you might be retired and have all three, or you might have Parts A and B, but decline Part D if you have other creditable drug coverage. However, if you are over 65 and still working, you might choose to decline Part B in favor of your employer’s medical coverage but still need prescription drug coverage, in which you could sign up for Part D, even without Part B. (It’s important to note that if you choose to forego any part of original Medicare, you need to have some other creditable coverage in order to to avoid late penalties on your Medicare premiums.)
Medicare Advantage is a relatively new way of conveniently rolling up all of your separate benefits under A, B, and D into a single health plan that’s administered through a private insurance company. Under this model, private insurers contract with CMS to provide these plans to Medicare beneficiaries in much the same way they do with Part D drug plans. These plans are based on the same provider networks as traditional Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) insurance plans and work the same way. Under these plans, each insurer has its own provider network of doctors and pharmacies, and you are generally required to see in-network providers and will pay lower copays and coinsurance than if you go out of network. However, one of the risks of joining an Advantage plan is that these networks can change frequently, and your favorite doctor or pharmacy that was in network last year might exit the network next year, leaving you with some difficult choices.
Types of Medicare Advantage plans:
- Health Maintenance Organization (HMO) – A Health Maintenance Organization that is contracted with Medicare provides you with access to a network of doctors and hospitals that coordinate your care, with an emphasis on prevention.
- Health Maintenance Organization with a Point of Service Option (HMO POS) – This is a Health Maintenance Organization that provides a more flexible network allowing you to seek care outside of the traditional HMO network under certain situations or for certain treatment.
- Preferred Provider Organization (PPO) – A Preferred Provider Organization provides access to a network of doctors and hospitals that coordinate your care.
- Private Fee-For-Service (PFFS) – A Private Fee-For-Service plan is a type of Medicare Advantage plan in which you may go to any Medicare-approved doctor or hospital that accepts both Medicare and the plan’s payment (or terms and conditions).
- Medicare Special Needs Plans (SNPs) – A Special Needs Plan is a Medicare Advantage plan with coverage designed especially for Medicare beneficiaries with certain chronic conditions (like diabetes) or qualify for other means-tested assistance, such as Medicaid.
- Medicare Medical Savings Account (MSAs) – A Medical Savings Account is a combination of a high-deductible health plan and a bank account where your plan deposits a certain amount of money per year.
Why Would I Want Medicare Advantage?
For most seniors, the biggest selling point of a Medicare Advantage plan is a guaranteed annual out-of-pocket maximum for covered services. Under original Medicare, there is theoretically no limit to your potential out-of-pocket exposure once you exceed the allowed benefits under Parts A and B. This annual maximum is set by CMS and applies to all Medicare Advantage plans. The out-of-pocket limit for 2021 is $7,550 for covered in-network services and $11,300 for out-of-network, although insurers are free to offer more competitive caps if they choose, and many do. This particular benefit may be attractive to seniors with fixed means who cannot afford a supplement.
In addition to the standard Medicare benefits and the out-of-pocket maximum, many plans also offer additional benefits beyond what original Medicare covers, such as dental or vision coverage, hearing aids, gym memberships, over-the-counter discounts, and other perks. These are typically he benefits that you hear athletes touting in TV ads. These perks will vary widely by plan and may or may not be valuable to different people.
Are There Any Downsides?
Those are the selling points that an agent may frequently use to try and market Advantage plans, but there are several tradeoffs to consider before making the decision to switch to one of these plans. The most immediate is that if you currently have original Medicare with a supplement (Medigap) plan, you’ll have to give that up and disenroll from your supplement because it’s currently illegal to have a supplement in conjunction with an Advantage plan. That means that whatever deductibles and copays your Advantage plan has will be out-of-pocket and there won’t be anything to help with those, and there generally are copays that don’t exist under original Medicare and Medigap. There are also plan premiums associated with Advantage plans that must be paid in addition to your regular Part B premium, although some plans offer premiums as low as $0. However, those may change from year to year. Also, due to the network-oriented nature of these plans, the quality of plans available to you will depend heavily on where you live and may vary from county to county and year to year.
When considering an Advantage plan, it’s important to understand the limitations ans risks associated with moving back and forth between Medigap and Advantage plans. Generally, if you are eligible for Medicare you will qualify for an Advantage plan with no health underwriting required. Conversely, Medigap supplements are generally underwritten, meaning that outside of limited circumstances you will have to answer health questions and be approved as part of the enrollment process. The older you get and the more health issues you develop, the harder it will be to pass Medigap underwriting. If you are in good health and see a doctor very infrequently, the relatively small office copays of Advantage plans may look attractive in comparison to the monthly premium of a supplement, but if you develop a health condition down the road that requires more frequent doctor visits, those copays can quickly add up to much more than the cost of a good supplement. And if that condition also makes it difficult to pass underwriting, you may find yourself with limited options.
So What Should I Do?
Deciding which option is right for you is very fact-specific for each client, and there is no one-size-fits-all answer. That’s why it’s critical to talk to an experienced agent that you trust before making these decisions. When discussing Advantage plans with clients, all other things being equal, we generally recommend starting out with a good supplement if you can afford it, because it’s almost always easier to go from Medigap to Advantage than vice versa. However, to be clear, we are not advising against Advantage plans – on the contrary, they are the best choice for some people. If you think you might be interested in an Advantage plan, contact us and we will be glad to sit down and discuss it with you to help you make the right choice.
There is never a fee or obligation, and we will never recommend a plan that isn’t in your best interest.