Choosing Between Medicare Advantage and Medigap
How to make the right decision during Medicare Open Enrollment
(This article previously appeared on SquaredAwayblog.bc.edu.)
My Aunt Carol in Orlando, Fla., wrestled with this decision for some five hours in sessions with her Medicare adviser which she followed up with multiple phone calls — and a raft of additional questions.
“You have to ask these questions. You really have to think about it,” she said. “It’s confusing.”
Essentially, every 65-year-old American enrolls in Medicare, and many get additional coverage.
One form of additional coverage is through supplements to traditional Medicare (Medigap), which include a Part D prescription drug plan and/or a Medigap private insurance plan to cover some or all of Medicare’s co-payments, deductibles and other out-of-pocket costs.
The other is through Medicare Advantage, a managed care option that typically provides prescription drug coverage and other services not included in the basic Medicare program.
So which to choose?
Consumer choices have proliferated since private plans were added to Medicare 40 years ago. The typical beneficiary today has about 18 Medicare Advantage options, a multitude of Medigap plans for people who choose the traditional route and 31 prescription drug programs, according to the Kaiser Family Foundation.
This primer is for new enrollees like my aunt and compares the primary advantages and disadvantages of traditional Medicare and Medicare Advantage plans. But everyone is unique, and it’s impossible to simplify a process that requires each individual to research his or her best options based on the severity of their health issues, their preferences and financial situation and the policies available in their state’s insurance market.
Monthly premiums are the easiest information to compare, and cash-strapped retirees too often base their decisions largely on the premium they’ll have to pay every month.
But potential out-of-pocket costs, such as copays and deductibles, might ultimately prove more important, especially as retirees age and are more likely to incur high medical bills.
Considering both the premiums and out-of-pocket costs complicates the choice between lower-premium Advantage plans and higher-premium Medigap plus a prescription drug option.
Part A hospital coverage is free for most people, but everyone enrolled in Medicare pays the Part B premium – the base amount is $104.90 per month in 2015, but higher-income people pay more — which covers doctor visits, outpatient care, lab work, scans, medical equipment and other services.
In traditional Medicare, beneficiaries pay deductibles and co-pays, typically 20 percent for office visits and other Part B services, and the program does not limit out-of-pocket spending by beneficiaries.
Medigap plans — also known as Medicare Supplemental Insurance — cover some or all copayments and deductibles, and about one-third of traditional Medicare enrollees have Medigap, according to Kaiser. Premiums average about $200 per month, can go as high as $500 and do not include prescription drug coverage. Most people who choose traditional Medicare get a Part D drug plan, which averages $38 a month.
Growing numbers of Medicare beneficiaries are flocking to Advantage plans (also known as Part C), because the additional premium for these plans, on average about $41 a month for plans with prescription drug coverage, is much lower than premiums for a supplemental Medicare Part D prescription drug plus a private Medigap plan.
Advantage plans, typically offered by HMOs, limit out-of-pocket costs to $6,700 or less annually and often provide prescription drug coverage. A 2013 study by Kaiser found that the vast majority of Medicare beneficiaries have access to at least one Advantage plan in their area that includes prescription drug coverage, but only half choose them.
The bottom line on premiums: the average Advantage Plan premium plus the Part B premium equals $146 per month, when prescription drug coverage is included. This is half of the $343 in total premiums a beneficiary would pay for the Part B premium plus a Medigap and a Part D drug plan, according to Kaiser’s estimates.
Medicare Advantage's Extras
Medicare Advantage plans offer additional services that can include everything from dentures and dental care to eyeglasses and gym memberships — as determined by the insurance company. Advantage plans typically require no cost-sharing for preventive mammogram and prostate screenings and some waive traditional Medicare’s requirement of a three-day hospital stay to qualify for rehabilitation in a skilled nursing facility.
Medicare Advantage premiums are lower because these plans manage patients’ care, limit choice and also receive government subsidies to induce retirees to enroll in them. Medigap plans often provide more coverage of out-of-pocket costs — in exchange for higher premiums.
Traditional Medicare has deductibles and co-pays and places no limit on beneficiaries’ out-of-pocket expenses.
To defray these out-of-pocket costs, 10 Medigap plan options, established by law, are currently available. Each option covers varying percentages of the Part A and Part B copayments and deductibles, ranging from 50 percent to 100 percent per service; only two (Medigap K and L) have explicit limits on annual out-of-pocket expenses.
To view a chart of copayments, deductibles and plan coverage, click here and scroll to page 11. Drug plans also have their own out-of-pocket limits.
Advantage plans have deductibles and copays, which are capped at $6,700 per year. Insurers can offer plans with lower out-of-pocket maximums, but only half of Advantage plans were below the cap in 2010. The average Advantage limit was $5,014 in 2015, up 16 percent from $4,313 in 2011, according to Kaiser.
Out-of-pocket costs for hospital stays vary widely, depending on the length of the stay and the type of physician network — health maintenance organizations (HMOs) are the least expensive and preferred provider organizations (PPOs) are the most expensive — just as they are in employer health care plans.
To determine the limits on Advantage plans requires digging into each individual policy. These limits, as well as the premiums, can also change from year to year; the monthly premiums are in addition to the $6,700 cap.
Medicare experts say that people who want no out-of-pocket risk should purchase a Medigap F policy, which covers 100 percent of all out-of-pocket copayments and deductibles for Parts A, B, hospice care, and even skilled nursing facility care. But it will cost them a higher premium. Medigap F has a second option with a deductible, which is $2,180 in 2015.
Physician access is a critical issue for people who are loyal to a longstanding primary care physician or a lineup of specialists with a deep understanding of their medical problems. Beneficiaries enrolled in traditional Medicare can see any doctor who accepts Medicare’s payment rates.
Medicare Advantage plans, like HMOs or PPOs, require patients to use the insurer’s network of doctors, labs, specialists and other services — or pay extra to see an out-of-network physician.
Here’s an example of an issue that can arise: a Boston-area resident diagnosed with cancer will want access to the world’s top oncologists at the Dana Farber Cancer Institute – but Dana Farber isn’t necessarily in their Advantage plan’s network.
People living in low-population areas with fewer doctors may also have more difficulty finding the right doctor under an Advantage plan. Advantage plans can also change the providers in their networks anytime during the year – not just during the open enrollment period.
When my Aunt Carol met with her benefits counselor, they looked up every one of her doctors in the Advantage plans she was considering. Her primary care physician was not in the plan she liked, which would force her to change plans, or change her doctor.
For many people, simplicity is an appeal of Medicare Advantage plans. The coverage — Parts A, B, sometimes D, and the extras – comes neatly wrapped in one package.
In contrast, traditional Medicare coverage requires beneficiaries to keep track of their Medigap coverage and a Part D drug plan. And picking from Medigap’s alphabet soup of policy options – A, B, C, D, F, G, K, L, M, and N — can be confusing.
One advantage of traditional Medicare is that the government-set terms in Medigap policies change slowly. Advantage plan coverage, on the other hand, can change from year to year, requiring people to “shop” every year to renew or select a new plan when the open enrollment period comes around between October 15 and December 7.
Insurers can also stop selling a plan in a beneficiary’s state-regulated insurance market, forcing a retiree to find a new plan. Some Medicare experts point out that if an individual’s health deteriorates suddenly and the new options in the Advantage plan don’t cover their needs, they must wait to purchase a new plan during the next enrollment period.
In making a decision, new Medicare beneficiaries should be aware of a basic rule in their favor: they have guaranteed acceptance into any Medigap policy in their market only when they initially enroll in Medicare. Medigap insurers are, however, permitted to reject them if they start out at age 65 with a Medicare Advantage plan and then decide later to switch to traditional Medicare with a Medigap policy.
Perhaps people over 65 have figured this out, because a Health Affairs study in January by Kaiser researcher Gretchen Jacobson found that the majority of new enrollees in Advantage plans are ones switching over from traditional Medicare. Advantage plan enrollees who want to return to Medigap should be able to find a plan but should make sure they have a Medigap option before letting go of their Advantage plan.
Employer Retiree Health Care
For the minority of Americans whose employer or union still offers health insurance to their retirees, the design of Medigap coverage typically complements traditional Medicare and covers copayments and deductibles.
Your Local Insurance Market
Insurance markets are regulated by each state, and there are 50 markets with different regulations, policy terms and market dynamics. This creates real differences in the options available from one state to the next. Industry dynamics also drive costs. In one study, a merger of two national insurance companies resulted in premium increases of 7 percent in the typical insurance market.
There’s a lot to research before the open enrollment window closes on Dec. 7 — time to get to work!