If you’ve recently become eligible for Medicare, you may be confused about your options for coverage, particularly whether you should choose original Medicare or Medicare Advantage. Both offer healthcare coverage, and it’s possible that premium costs are not significantly different. But actual coverage and your out-of-pocket expenses can differ significantly depending on what you choose. Which is best for you? The answer depends on what you need in a healthcare plan.
Parts of Medicare
Before looking at whether original Medicare or Medicare Advantage is right for you, it is important to understand the different parts of the program. Original Medicare consists of Part A and Part B, which are administered by the federal government. Part A covers hospital expenses while Part B covers doctor visits and medically necessary services. You can also add Part D to original Medicare. This portion covers prescription drug costs. Part D is operated by private insurance companies that have contracted with the federal government.
Medicare Advantage, also called Part C, is administered and sold by private insurance companies and provides enrollees with the same coverage as original Medicare, plus extras depending on the plan. Extra benefits might include prescription drugs, dental and/or vision care. Medicare Advantage is also regulated by the government even though it’s sold by private companies.
Most people must sign up for Medicare, meaning there isn’t automatic enrollment. You have a window that lasts for seven months to sign up, which starts three months before the month you turn 65 and ends three months after that month. If you don’t sign up during this initial eligibility window – and you’re not eligible for a special enrollment period because, for instance, you’re still working and have qualifying coverage – then you’ll pay a penalty fee for late enrollment if you decide to sign up later. How much you’ll pay depends on different factors.
The rules for Medicare Advantage are similar. You still need to sign up during your initial eligibility window. But if you go ahead and enroll in original Medicare and then decide later that you want Advantage, you can enroll during the open enrollment period, which runs from October 15 through December 7. In some areas of the country, there may not be a Medicare Advantage plan available. A report by the Kaiser Family Foundation found that in 147 counties throughout the country, there were no Medicare Advantage plans available. But these plans are becoming increasingly popular – about a third of Medicare enrollees now choose Advantage over original.
Original Medicare allows you to use any healthcare provider that accepts Medicare payments. There is no network and you do not need referrals to see a specialist. Medicare Advantage plans may require you to visit a healthcare provider in a specific network, and you could be required to get a referral to visit specialists. These plans can also change networks at any time throughout the year. If you visit a healthcare provider outside of the network, your claims can be denied, or you may have to pay a higher price for the care. If a network provider leaves the plan, you may need to travel to get to the closest network provider. Original Medicare with Part D may be a better option if you live somewhere with fewer medical providers, such as a rural area, since you’re not guaranteed to find a covered provider under Medicare Advantage. The tradeoff for Advantage is that premiums might be lower with better coverage, assuming you find and like the providers who take your insurance.
Medicare Part A is free if you meet the employment requirements – and nearly everyone does – but you must pay a premium for Part B coverage. The standard premium for Part B costs $134 a month in 2018. If you need drug coverage or added benefits that aren’t covered by original Medicare, then you’ll also need to buy Part D and/or a Medigap supplemental policy as well. There are no out-of-pocket maximums in original Medicare, meaning you’ll pay the standard coinsurance amount of around 20 percent for Part B services for all of your care for the year. There’s no limit to how much you might have to pay out of pocket.
Medicare Advantage plan costs vary greatly depending on the plan you choose. Factors that could affect the cost of your plan include:
- Copayments and coinsurance rates
- Added premium charges on top of the Part B premium
- Network availability and provider charges
- How often you need care or prescription medications
- Your annual deductible and out-of-pocket cap
Although Medicare Advantage plans can charge cost-sharing that is higher or lower than that charged by original Medicare, they cannot impose cost-sharing for chemotherapy services, renal dialysis services or skilled nursing care that exceeds the cost-sharing allowed under original Medicare. Medicare Advantage plans also have an out-of-pocket maximum, which means you won’t have to spend more than the amount specified in your plan for the year. In 2018, the out-of-pocket cap for Advantage plans is $6,700, but your specific cap varies by plan and could be much lower than the one set by the federal government.
Original Medicare on its own covers healthcare that is medically necessary and does not provide coverage for prescription drugs. You must add Part D and/or Medigap to cover additional costs. Medicare Advantage plans cover the same medically necessary health services as original Medicare but may come with additional benefits, such as prescription drug coverage, vision, dental and hearing. These added benefits may boost your monthly premium rate, but it’s a good investment if you need them. Paying out of pocket for things like dental cleanings and hearing aid exams can add up throughout the year.
What to Review Before Choosing a Plan
Choosing health insurance can be daunting, especially when you’re comparing Medicare Advantage to its original counterpart and you don’t have a lot of wiggle room when it comes to your budget. There are definite pros to choosing Advantage, but original works well for many enrollees. Here are a few more things to keep in mind as you research:
- If you have retiree or employer health coverage, you will lose it if you choose a Medicare Advantage plan.
- Costs can vary widely. Total the cost of having original Medicare, Medigap and Part D and then compare that cost to a Medicare Advantage plan with the same coverage. Consider deductibles, co-payments and out-of-pocket maximums along with the monthly premium.
- You may have a smaller network with Advantage, but it might not matter to you. Review whether you’re restricted to a particular network with a Medicare Advantage plan, making sure that you like or are willing to see the providers who are covered by the network. Ask about costs for out-of-network services, too.
- Drug costs can quickly eat into your healthcare budget. What drugs are covered on the Medicare Advantage formulary? Are they drugs you take?
- Medicare Advantage must cover at least what Parts A and B cover, but everything else is subject to the plan. Read the fine print on the Advantage plan that you’re considering to see if it covers what you need.
- Review costs of additional healthcare services, such as vision, dental and hearing, and compare to what your premiums would be if those were added to your Medicare Advantage plan via supplemental coverage.
These tips can help you make an informed decision between Medicare Advantage plans and original Medicare. Make sure that the option you choose will work best for you and your family, taking into consideration your budget and the healthcare services that you think you might need in the future. Reminder: You can only change your mind during open enrollment, so if you want the perks of Advantage – or want to switch back to original Medicare from an Advantage plan – you only have from October 15 to December 7 to decide.