Medicare Education

Traditional Medicare

Your first option is traditional Medicare (sometimes called Original Medicare) which has Parts A & B (this is the left side of the flow chart).[2] Traditional Medicare has no networks. You can go anywhere in the nation that accepts Medicare. This is one of the biggest benefits of traditional Medicare. If a doctor accepts Medicare then they also take any supplement from any supplement company.

Part D is your drug plan (pharmacy benefit). Part D plans are managed by insurance companies that have contracts with CMS (The Center for Medicare and Medicaid Services) and follow certain guidelines. Every plan is required to have a formulary (the list of drugs covered) with drugs in every single therapeutic. They don’t all have to have every drug in every category, but something. You are not required to get a drug plan, but if you don’t there is a penalty.

Medicare supplements step in and help pay deductibles, co-insurance, and/or give Medicare and “Out of Pocket Maximum.” You get to choose which supplement you want. They are what is called, “defined benefit plans.” What this means is that a “G” supplement (for instance) has the same benefits regardless of what company you get it from.

Advantage Plans

Advantage plans (the right side of the flow chart) are offered by insurance companies that have contracts with CMS. They kind of bundle together Parts A, B, and generally D as well. Quite often, (but not always) Advantage plans offer extra coverage such as dental and vision that traditional Medicare does not cover. When choosing plans please note that the extra benefits vary from company to company and year to year.

With Advantage plans, the doctors and hospitals are paid by the insurance companies, not by Medicare. Advantage plans, just like a regular health insurance policy have networks. Networks are generally state-based, but there are no networks for emergency care.

Turning 65? Let’s dive a little deeper into Parts A & B

Part A is generally referred to as “Hospital Insurance” as mentioned above. If you think back to one of your paycheck stubs you would have seen a line item for “Medicare.” Well, that was your part A premium you were paying. Once you are turning 65 and enroll in Medicare you generally won’t have to pay that anymore! That’s a good thing.

Part B is referred to as “Medical Insurance.” It will cover the medical services needed to diagnose and treat your health issue. In addition, it will cover preventive services, durable medical equipment, second opinions before surgery, and more.

Part B does have a premium and most people will have to pay $144.60 a month in 2020. Higher-income earners may have to pay more and lower-income earners may be eligible for extra help. The Part B premium ($144.60 a month) does have to be paid regardless of whether you choose to stay with traditional (original) Medicare or go with an Advantage plan.

Part A & B Coverage

Now that you have an idea about costs, let’s talk about coverage. First, the deductibles. Part A has a $1408 deductible for the services it covers. That deductible will cover between 1 to 60 days of care.

It’s important to note that this is a per-incident deductible, not per year. It is rare that a person would be admitted to a hospital multiple times in one year, but it does happen, so you need to be aware of that. Part B has an annual deductible of $198 in 2020 and after that, it pays out 80/20.

Turning 65? Guaranteed Issue Medicare Supplements
I like Medicare Supplements. I think traditional Medicare with a Supplement is just better quality insurance. You have no networks. You are not subject to as many pre-approvals or utilization reviews.

There are other differences between Medicare Supplements and Advantage plans. One of the key issues is that Medicare supplements are generally medically underwritten. That is they can ask questions about your health and if you cannot answer to their satisfaction they do not have to give you a policy.

EXCEPT when you are turning 65! When you are newly eligible for Medicare you are guaranteed an issued policy. That means you could have all sorts of health issues and they cannot even ask! So if you have health issues then this is the best time to get on traditional Medicare with a supplement.

Can I move back and forth from a Supplement to an Advantage Plan?
The answer is…maybe. Let us pretend you have been in Medicare for a while and you have either a supplement or Advantage plan (for this example it doesn’t matter which) and you want to move to a different company with a lower rate or you are moving from Advantage to Traditional Medicare. Now you have to apply for that supplement and answer health questions. That is, you have to be underwritten.

Now they can ask what medications you are taking when the last time you were in the hospital was, or if you are insulin-dependent diabetic. Different companies will ask slightly different questions and they will approve you or set your rate based on those answers.

Often people can make the move. There are plenty of companies that accept underwritten applications every day. They also reject applications every day. So, can you move back and forth? Sure…if you get accepted based on your health history.

How do Medicare Advantage Plans work?

Medicare Advantage Plans are offered by insurance companies that have contracts with CMS (The Center for Medicare and Medicaid Services). What they do is to bundle Parts A, B, and (generally) D into a policy that looks more like a normal health insurance policy. Medicare Advantage Plans will have networks and you need to make sure you are seeing in-network doctors and using in-Network facilities.

With Medicare Advantage the insurance company, not Medicare, is paying the doctors & hospitals. What you pay is generally a series of co-pays. It varies company by company and policy by policy.

The monthly cost of Medicare Advantage plans (the premium) is generally lower than what you might pay for separate coverage through Traditional Medicare, Part D, supplement and Dental plan, but you might pay more out of pocket. In general, the Out-of-Pocket-Maximums will be significantly higher.

Details to know about Advantage Plans

You have to stay in Network. With some plans, you might have no or very little coverage for out-of-network charges. Networks are generally state-based as Insurance is generally a state-regulated product. Some companies have reciprocal agreements with some of their networks in some other states.
There are no networks for Emergency care. If you are out of state on vacation and have a car wreck or heart attack… there are no networks for that. If you are out of state and just have the sniffles…that’s not an emergency.
Advantage plans often have “extra” benefits such as dental care. The problem is those benefits can change from year to year.
Utilization reviews are used extensively with Advantage plans. That’s when your doctor wants to do something and can’t get it approved with the insurance company.

Your out-of-pocket Maximums could be really high (close to $7000).

This is a financial decision

Everything is on that continuum. More premium, less out of pocket OR Less premium, more out of pocket.

One of the biggest decisions you will have when you are turning 65 is whether to go with Traditional/Original Medicare or to go with a Medicare Advantage plan. So…what is the difference?

Very loosely, one key difference is your “financial exposure.” That is to say, if something bad happens to your health how much do you end up paying? With a “G” Medicare supplement your effective out-of-pocket maximum is $198 (In 2020…all these numbers change a little from year to year). Advantage plans have a legal limit on their out-of-pocket maximums of $6700. The national average is about $5500, but some are lower. Generally, the less you pay in premium the bigger your out-of-pocket maximum will be.

Turning 65? Case Studies on making Your Medicare Choices

I tell people all the time what you should get depends on your finances…not your health. Your health WILL change. For most of us, our finances in retirement don’t change much at all. Let me tell you the story of two retirements and how the differences drove choices in Medicare.

Client #1 had little income for retirement, only Social Security. However, they did have some money from savings. Because they had little income; they could not afford the higher monthly cost of a separate Part D (drug plan), Medicare supplement, and dental plan. Their monthly budget drove them to the lower premium of the Medicare Advantage plans. For years when there was a higher out-of-pocket cost, they did have savings to fall back on to cover those costs. So, the Advantage plan fits their financial circumstances.

Client #2 had a solid retirement income with Social Security, a pension, and an annuity. What they didn’t have were any savings to fall back on at all. This client could not handle unexpected out-of-pocket costs that might come with an Advantage plan. They did have more than enough income to cover the cost of traditional Medicare, part D plan, supplement, and dental coverage. For this client, Traditional Medicare was the best choice.

Turning 65? What is your agent’s motivation?

By way of disclosure, Insurance Agents make more commission on Medicare Advantage plans. If you talk to 10 agents probably at least 8 will tell you that Advantage plans are the best thing since sliced bread. The drawbacks to Advantage Plans are; 1. Networks, 2. Extra Benefits (such as dental) may change from year to year, 3. Aggressive use of “Utilization Reviews” (that’s where your doctor wants to do one thing, but your insurance company might think it’s too expensive or unnecessary), 4. Possibly higher out-of-pocket Maximums.

Though I’m not a fan of Advantage plans I would still say that almost everything inside Medicare is better than most everything outside Medicare. So if you want an Advantage Plan we will find you the best one we can. There are a lot of choices. I’ll be glad to walk you through all your options. Just give me a call and we can set up a time to meet. I get paid by the insurance companies and they charge you the same rate whether you buy from them directly or have me help you. You might as well give me a call.

[1] There are a few other categories that will be auto-enrolled, such as people with ALS (see Medicare.gov for details).

[2] You can also find this chart in the CMS publication, “Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare.”