To avoid late enrollment penalties, seniors who are eligible for Medicare usually sign up at their earliest opportunity. Seniors rarely have a reason not to enroll. Retirees earned Medicare’s hospitalization benefits by paying FICA taxes during their working lives. They are not required to pay a monthly premium to receive those benefits.
While seniors must pay a monthly premium for coverage of medical services not provided during a hospitalization, Medicare is often a more affordable alternative than private insurance. In fact, seniors who are eligible for Medicare are generally ineligible for subsidized private insurance policies sold in the Affordable Care Act marketplace. Seniors must usually pay full premiums for private insurance if they do not sign up for Medicare.
There is nevertheless a role for private health insurance after a senior becomes eligible for Medicare. Seniors can opt to obtain Medicare coverage by purchasing a Medicare Advantage plan through a private insurer. Whether that is a wise option can be a difficult question to answer.
What Medicare Choices Are Available?
The federal government offers three basic Medicare options. Medicare Part A provides coverage for hospitalization, including inpatient care and stays in short-term skilled nursing facilities. Seniors who sign up for Part A are not usually required to pay for the coverage, although they must pay a deductible for each hospital stay before the coverage begins. They must also make a copayment for each additional day of inpatient care after a 60-day hospital stay.
Medicare Part B covers most necessary medical services that are not provided during hospitalization, including examinations by doctors, lab tests, outpatient surgical procedures, physical therapy, medical equipment, and some home-based care. Seniors pay a monthly premium for Part B coverage. They are also responsible for an annual deductible and for copayments.
Medicare Part A and Part B together are often called Original Medicare. Medigap (or Medicare Supplement) plans are available for seniors who are covered by Original Medicare. Medigap plans are sold by private insurers to cover some of the costs that seniors would otherwise pay out of their pocket.
Medicare Part D provides prescription drug coverage. Various Part D plans are available to seniors who have Part A and/or Part B coverage. Different plans cover different drugs and require different copayments. Lower copayments are generally linked to plans that offer generic drugs while higher copayments are required by plans that cover name-brand or high-cost drugs.
Medicare Advantage (Part C) combines Part A and Part B coverage into a single plan. Most (but not all) Medicare Advantage plans include drug coverage. When drug coverage is part of a Medicare Advantage plan, it is unnecessary to enroll in a Part D plan. Medigap coverage is unavailable to seniors who are insured by a Medicare Advantage plan.
Is There an Advantage to Having a Medicare Advantage Plan?
Medicare Advantage plans must comply with rules established by the agency that administers Medicare. Insurers must provide complete Part A and B coverage. Most plans also include drug coverage. Some cover vision, hearing, dental, and other services that are unavailable through Medicare.
Most Medicare Advantage plans are based on a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO). Some are based on fee-for-service payments or other structures that are authorized by Medicare. Most Medicare Advantage plans reduce the insurer’s cost by offering services through a network of doctors in either an HMO or PPO. Medicare Advantage plans sometimes offer lower costs to consumers by restricting the choice of healthcare providers. Medicare Advantage plans often require a smaller copayment than Original Medicare and must cap out-of-pocket expenses that a senior incurs each year.
One advantage of Original Medicare is that seniors can choose any doctor who accepts Medicare payments. Consumers do not need prior authorization to obtain services when they choose Original Medicare. Seniors who purchase a Medicare Advantage plan must obtain primary services from a network physician. They might need to obtain prior authorization for some services. They might also need to obtain their primary physician’s referral to obtain services from out-of-network specialists. Those services might be more expensive than services obtained within the network.
Choosing a Medicare Advantage Plan
Medicare Advantage is not the only way to obtain coverage that extends beyond Original Medicare. Seniors who have not retired may retain their employer-provided insurance plans. Veterans may be eligible for healthcare services from the Veterans Administration or insurance through TRICARE. Still, given the high costs of prescription medications, most retirees opt for Original Medicare plus Medicare Part D or a Medicare Advantage Plan that includes drug coverage.
Choosing a plan can be frustrating. While the cost and benefits associated with Medicare Part D are straightforward, Medicare Advantage plans are available with a variety of coverages at different price points. In addition, a Medicare Advantage plan can (and usually will) change its coverage terms and premium from year to year.
Seniors who choose a plan should begin by making a list of their current prescriptions. They should compare plans to determine which ones cover the senior’s medications. They should then compare the copayment that each plan requires the insured to pay for each of those drugs. Finally, they should compare the deductible associated with each plan and the premium they will need to pay to obtain that coverage.
Seniors should also consider the networks that are associated with different plans. A senior who has a relationship with a particular doctor or clinic might want to learn whether that provider is part of a Medicare Advantage plan’s network. Seniors should also consider whether they need the add-on coverages that plans offer, including vision or dental care.
As a recent analysis in Forbes suggests, the choice of a plan “comes down to your specific needs and how well a plan can balance them.” Medicare offers a plan comparison tool that allows seniors to compare costs and plan benefits offered by Medicare Advantage plans within their zip code. That tool is a good starting point for seniors who want to decide whether Original Medicare plus Part D coverage is a better investment than a Medicare Advantage plan.
Fortunately, seniors who are unhappy with their choice are not locked into a plan for the rest of their lives. Seniors can switch to a new Medicare Advantage plan by joining it. When coverage begins, they will be automatically disenrolled from their current plan. However, seniors can only switch to a new plan (or switch to Original Medicare) during an annual open enrollment period.