Decoding health insurance options can be daunting for people age 65 and over. Those who have paid 10 years of Social Security taxes qualify for Medicare at age 65; they are automatically signed up if they are receiving Social Security payments unless they take steps to opt out. Standard Medicare comes in two parts: A and B. Part A covers a portion of hospitalization expenses, and Part B applies to doctor bills and other medical expenses like lab tests and some preventive screenings.
But some seniors may find better value in Medicare Part C, or Medicare Advantage. Such plans are run by private insurance companies but regulated by the government, and must offer coverage that's comparable to original Medicare parts A and B. Most also include prescription drug coverage, which for seniors who keep original Medicare is an optional add-on, called Part D.
Some Medicare Advantage plans cost nothing more per month than original Medicare, while others come with a higher monthly premium. (Any additional premium is added to what you would otherwise pay for Medicare Part B—about $105 per month in 2013, which for most people is automatically deducted from their Social Security checks.) Medicare Advantage plans are similar to private insurance that self-employed individuals buy on the open market, in that they have different monthly premiums, copays, coinsurance, and out-of-pocket limits. The tradeoff for a lower premium (or none) could be higher copays or coinsurance.
Whether or not a Medicare Advantage plan costs more, it could be better or worse for you than original Medicare. Consumers have to carefully review the details of each plan and make a clear-eyed appraisal of their circumstances, including their health, budget, and tolerance for financial risk.
You may want to get Medicare Advantage instead of original Medicare if....
- You take prescription drugs. As stated, original Medicare doesn't cover prescriptions unless you pay extra to add Part D coverage. (The average monthly cost of Part D will be $40 in 2013.) By contrast, about 82 percent of Medicare Advantage plans include drug coverage, according to the Kaiser Family Foundation, a nonprofit, nonpartisan research institute. In some cases your monthly premium will exceed the amount you'd pay for part D. The federal government, and brokers like PlanPrescriber.com, have online tools where you can check how much you'll pay for the drugs you need. (U.S. News & World Report has a revenue-generating agreement with eHealthInsurance, which owns PlanPrescriber.com.)
- You want a cap on your out-of-pocket health spending. Original Medicare has no out-of-pocket maximum. You keep paying a portion of the cost of services as you use them. Medicare Advantage plans, by law, have a out-of-pocket maximum of no more than $6,700 per year. Once you hit that limit, the plan pays for all covered expenses. In 2013, 48 percent of Medicare Advantage plans have a $3,400 cap or less, according to the Kaiser foundation. Keep in mind you might not hit that cap: average out-of-pocket Medicare spending was $2,536 in 2006, or about $3,000 in today's dollars, according to the latest analysis by Kaiser.
- You want an alternative to enhancing your Medicare coverage with private "Medigap" (Medicare Supplement) insurance. Medigap plans cover or help cover certain deductibles, coinsurance and out-of-pocket costs of original Medicare. Some Medicare Advantage plans, but certainly not all, will be more cost-effective than adding Medigap coverage to original Medicare. Scrutinize the plan details if this is your reason for considering Medicare Advantage.
- You want an alternative to the 20-percent coinsurance charged by original Medicare for most services. Medicare Advantage plans structure costs differently and may offer a lower (or higher!) coinsurance or may charge copays instead, which are fixed costs you pay for services. A tradeoff could be a higher monthly premium.
- You want coverage for vision, dental, assisted living facilities, or nursing home care. Original Medicare doesn't cover these services. Certain Medicare Advantage plans do.
You should think twice before going with Medicare Advantage if....
- You want the broadest possible choice in doctors and other medical providers. More doctors and other providers accept original Medicare than private Medicare Advantage insurance. Private plans tend to be restricted to a home network, like a HMO doctor network. If you travel frequently, you may want to consider staying with original Medicare for this reason.
- You can't afford or don't want to pay additional monthly premiums. Medicare Advantage plans, like other private health plans, typically charge premiums; the average was about $30 a month for an HMO and $32 to $64 for a PPO, according to the Kaiser foundation. Again, these premiums don't include your Part B premium of about $105 per month in 2013 (or higher if you are high-income).
- You want maximum flexibility when seeking medical specialists. Under original Medicare, you don't need prior authorization from a primary-care doctor to see a specialist, whereas Medicare Advantage plans that are designated HMO's could require you to see a primary-care doctor first. PPO plans would allow you to see a specialist without a referral, but seeing a out-of-network doctor or specialist would cost you more. Most Medicare Advantage plans are either HMO's or PPO's.
- You're still employed and covered by your employer. You might end up paying an unnecessary premium for Medicare Advantage or could lose your employer-provided coverage. Check with your Human Resources department and the Social Security Administration for specifics.
- You have employer-sponsored retiree health benefits that supplement original Medicare. These benefits wouldn't help with Medicare Advantage, so check with your Human Resources department before signing on a Medicare Advantage plan.
- You qualify for Medicaid or a Medicare Savings Program. Low-income Medicare beneficiaries have other options and should contact their state Medicaid office.
Comparing costs. Medicare Advantage plans differ greatly on how much they pay for different services. To get a handle on the pros and cons of any plans you're considering, try to estimate which medical services you may need in the coming year—and what they'd cost under each plan's terms. To give an idea of typical medical needs, here are statistics compiled by Kaiser on Medicare patients for 2006:
- More than eight in 10 saw a doctor, with a median six visits per patient in a year.
- One in five were hospitalized that year.
- Three in 10 went to the emergency room at least once.
- Less than one in 10 (8 percent) used home health services. The median number of visits was 17.
If you decide to buy a Medicare Advantage plan, you must enroll between October 15 and December 7—the period known as open enrollment—in order for your coverage to start the first of the following year. (Original Medicare has its own separate enrollment periods, for seniors who aren't automatically enrolled.) Because of government regulation, Medicare Advantage premiums are not influenced by age, health status, or the method by which a consumer signs up (through an insurance agent, for example, or directly through an insurer). Monthly cost—and plan availability—does vary from county to county. For 2013, the average person has about 20 plans to choose from, according to the Kaiser foundation.
Select resources on Medicare and Medicare Advantage
- Medicare Advantage plans are rated by the federal government on a scale from one to five stars based on the quality and accessibility of care, consumer satisfaction surveys, and other measures. Plans are given bonus government funding if they earn three or more stars. The star ratings are the only national, official grading system for Medicare Advantage plans.
- Guide to Medicare by the Kaiser Family Foundation. Kaiser is a nonprofit, nonpartisan research organization that focuses on health care issues.
- SHIP counselors are State Health Insurance Assistance Program workers who offer free information on local health care options.
- 800-MEDICARE is the government's official 24-hour help line.
- PlanPrescriber.com, a private broker that has a business agreement with U.S. News, offers numerous Medicare Advantage plans through its website and call center (888-245-4509).
Updated on 12/5/12