Medicare Supplement or Medicare Advantage Plan

With 10,000 baby boomers turning 65 every day there are decisions to be made. If you continue working and remain on your employer sponsored plan you can delay making a choice until you retire and then enroll in Part B. If you are self-employed and continue working like I was, it was time to sign up for my Part A, B & D benefits and celebrate much lower health care costs. With this being said I would like to clarify what I feel is something often misunderstood even by many in the medical community. What is the difference between a Medicare Supplement and Medicare Advantage Plan?

For time sake let us just say that you have been paying your high individual health plan premiums and have been counting down the days until your 65th birthday. You have worked your 10 years (40 quarters) and are entitled to your Medicare Part A which is for the Hospital Coverage that you will receive automatically when you turn 65. If you do nothing, stay on Original Medicare and need hospitalization you will have to pay the first $1288 annual deductible before Medicare will start to pay. For your Part B coverage, you will have to tell Social Security that you want your Part B entitlement to start in your birthday month. Your Part B is for Medical Coverage, doctors, labs, x-rays, etc. and has a monthly premium of $121.80 if you also just started receiving your Social Security benefits. Besides this you will have to pay an annual deductible of $166 then Medicare will pay 80% and you will be responsible for the remaining 20% of your medical costs. This 20% you are responsible for has no limit or maximum out of pocket cost which can add up to many thousands of dollars if you do not have a Medicare Supplement (Medigap) or enroll in a Medicare Advantage Plan (Part C). Besides enrolling in a Part B Plan you will have to enroll in a Part D Prescription Drug Plan or you will receive a penalty.

One way to avoid paying these deductibles and co-pays is to pay a monthly premium for a Medicare Supplement Plan. These Medigap plans do just what their name implies. They supplement your original Medicare benefits and pay a portion or all of the medical expenses. There are several different plan types by letter and the prices can range from $55 a month for what’s called a High Deductible Plan F to over $200 and up for some plans that pay for everything Medicare doesn’t pay, some include extra’s like worldwide healthcare expense reimbursement and more. These plans typically will only pay for Medicare approved expenses and can include underwriting if you decide to join after your initial enrollment period. In most circumstances you have to add a Prescription Drug Plan to go with a Medigap Plan. You can go to any doctor or hospital that accept Medicare. These plans will only terminate it you stop paying the monthly premium.

The Budget Act of 1997 started Medicare’s managed care program and the Medicare Modernization Act of 2003 renamed it Medicare Advantage. Medicare Advantage plans today take care of over 30% of the Medicare eligible population. These plans are private companies with annual Medicare contracts that take the place of Original Medicare. Medicare pays these companies and the company pays your healthcare expenses. They usually will be Health Maintenance Organizations (HMO), Preferred Provider Organization (PPO) or a hybrid HMO-POS (Point of Sale). With an HMO you have to stay in your provider network or you will have to pay the charges. With PPO and HMO-POS you can go out of the network usually at a higher cost to you. The majority of Advantage plans include drug coverage. On these plans if you go to the hospital you will pay a daily co-pay such as $225 a day for days 1-7, $0 days 8-90. There are co-pays for most other services, $10 for your primary care doctor, $40 for a specialist, $250 outpatient surgery, etc. All Medicare Advantage Plans have an annual Maximum Out Of Pocket (MOOP) of $6700. Many times they include extra’s such as dental, vision, gym membership, transportation and over the counter items. Advantage plans also can have specialized plans for people with chronic illnesses and those on Medicaid. Normally you can change these plans annually during open enrollment October 15th through December 7th. These plans are best reviewed with a knowledgeable agent that can direct you to the right plan for your needs. Managed care has many advantages today especially when our aging population is not traveling as much, have several chronic conditions and are taking several prescriptions.