Original Medicare vs. Medicare Advantage

If you want to change your Medicare coverage for next year, you must do it during the open enrollment period.

To change your Medicare coverage to a Medicare Advantage (MA) plan, or to switch between MA plans, you must act between October 15 and December 7. Your new coverage will begin in 2015.

If you’re satisfied with your current coverage, you needn’t do anything—your coverage will renew automatically. If not,

Your Medicare Options

Medicare-eligible individuals have two options for obtaining health insurance: original Medicare or a Medicare Advantage plan.
Original Medicare, the government insurance program geared primarily for seniors, has three parts:

• Part A, hospitalization insurance. Medicare Part A helps cover inpatient care in hospitals and skilled nursing facilities. It also helps cover hospice care and some home health care. It does not cover custodial or long-term care.

  U.S. citizens and lawfully admitted aliens who have lived in the U.S. for a five-year period when they turn 65 automatically qualify for Part A coverage. Individuals who develop end-stage renal disease or certain other disabilities may also qualify. Most people do not pay a premium.

• Part B, medical insurance. Medicare Part B helps pay for doctors’ services and outpatient care. It covers some other medical services. These include physical and occupational therapist services and some home health care when medically necessary. For most people, the federal government pays about 75 percent of the cost of Part B coverage; enrollees pays the rest. Higher-income people (about 5 percent of beneficiaries) will pay higher premiums.
• Medicare Part D, prescription drug insurance. The Part D monthly premium varies by plan and your income—higher-income consumers may pay more. The Centers for Medicare & Medicaid Services (CMS) estimated average 2014 premiums for basic Medicare Part D plans at $31 per month. As with Part B, higher-income people will pay more.
• Medicare supplement (“Medigap”) plans. Unlike Medicare Parts A, B and D, private insurers underwrite Medigap policies. They must adhere to specific plan designs that cover a specific set of benefits. In most states, policies are identified by letters. Not all plans are available in all states.
  

  As the name suggests, Medicare supplement plans supplement the coverage under traditional Medicare. These policies can help pay some of the out-of-pocket costs you’ll have with original Medicare, such as copayments, coinsurance and deductibles. Some Medigap policies also cover services that original Medicare excludes, such as medical care when you travel outside the U.S. If you have original Medicare and you buy a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered health care costs. Then your Medigap policy pays its share.

Medicare Advantage

Alternatively, Medicare-eligible individuals can enroll in a Medicare Advantage plan. In 2014, 30 percent of Medicare-eligible individuals chose a Medicare Advantage (MA) plan.

By law, MA plans must cover at least the same benefits that Medicare Parts A and B cover. Most MA plans also include prescription drug benefits. Most Medicare Advantage plans also cover some services excluded by original Medicare.

What you pay in a MA plan depends on several factors. Every month, the federal Medicare program pays a fixed amount for MA particpants’ care to the companies offering Medicare Advantage plans. Some plans will charge participants a monthly premium in addition to this amount; others will not. Many Medicare Advantage plans are HMOs or PPOs, which limit patient choice but in exchange can offer “richer” benefits and/or lower copayments and deductibles.

Medicare Advantage Pros and Cons

Pros:

Many MA plans offer “richer” benefits and/or lower copayments and deductibles to members. Seniors on limited budgets and those used to managed care plans might like MA plans for that reason.

Some MA plans cover medical care you receive outside the U.S. Original Medicare only pays for medical care received abroad in very limited instances, such as an emergency where a Canadian hospital is closer to the insured’s home than one in the U.S. If you travel abroad, please read plan documents carefully to make sure the plan you choose provides coverage, or contact us for other options.

Unlike original Medicare, Medicare Advantage plans limit your annual out-of-pocket expenses. For 2014, the most you would pay for covered hospitalization and medical expenses is $6,700 per year. After that, your plan would pay 100 percent of your covered expenses. For those with limited funds, this limit might be important.

Cons:

Since many plans are HMOs or PPOs, they have limited provider networks. You can always use an out-of-network provider…but your plan might pay a lower percentage of your covered charges, or even none at all.

Some MA plans also have rules for accessing specific services. For example, you might need a referral to see a specialist or risk having your visit uncovered.

Insurers can change, increase the price or discontinue a MA plan. Federal and state rules provide consumer protections to MA enrollees, though.

See our follow-up article where we discuss some of the costs involved in both original Medicare and Medicare Advantage plans.

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