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Medicare Advantage (MA) plans are health insurance plans offered by private insurance companies that are approved by Medicare. Some can be good, or bad, but that largely depends on your potential needs throughout your later years.
Keep in mind that there are many different insurers and plans to choose from, and each one works a little differently.
MA plans are designed as managed care plans like HMOs and PPOs and are commonly referred to as “Medicare Part C”.
Medicare Advantage includes Medicare Parts A & B coverage (hospital and outpatient care), and usually Part D (prescription drug coverage).
You enroll with a private insurance company that is approved by Medicare to manage your care.
Medicare Advantage plans are simply a method or product used to obtain additional Medicare benefits above and beyond just Parts A and B. You are not required to have a Medicare Advantage plan.
How Medicare Advantage Works
In most MA plans you need to use the plan’s specified doctors and hospitals which are referred to as “in-network” providers, otherwise you will pay more or possibly all of the costs of care.
Medicare Advantage will cover at least everything that Medicare parts A and B cover – they have to. You get your part A and B coverage “through” your Medicare Advantage plan.
This means that you are covered in emergency situations or if you are in need of urgent care. This is true even if you have to receive care in an area not covered under your MA plan’s network.
In addition to the Part A and B coverage, these plans will also offer additional benefits and cost structures.
Of the many Medicare Advantage plan options to choose from, each will have different flavors of coverages and costs.
Some key differences are:
- Overall benefits and coverages
- Your share of the costs of care (co-insurance)
- What your out of pocket maximum is
These plans can charge different out-of-pocket costs and can each have different rules on how you get services – and the rules can change each year.
Some examples are:
- Whether or not you need a referral to see a specialist
- Whether or not you have to go to doctors, facilities, or suppliers that belong to the plan for non-emergency/non-urgent care matters
There are several instances where you may not want or need a Medicare Advantage plan.
Some examples are:
- You are not Medicare eligible (age 65).
- If you are still covered under your employer’s group health plan you likely don’t need Medicare yet (other than maybe Part A). Therefore you won’t need Medicare Advantage.
- You may choose to only have “Original Medicare” which is just parts A and B (hospital and outpatient care).
- You might also choose to have Part D (prescription drug coverage) along with Parts A & B.
- Another comprehensive option is to enroll in Parts A, B, D, and a Medicare Supplement Plan (Medigap).
Costs of Medicare Advantage Plans
Costs of Medicare Advantage plans work differently depending on the particular plan and insurer!
You may pay a monthly premium for a Medicare Advantage plan in addition to your Part B premium. Many plans nowadays advertise having a $0.00 premium, but there are always trade-offs to be aware of, typically in the form of cost sharing aka co-insurance.
When enrolled in an MA plan you will still have to pay the annual deductible for Part B, and your MA plan will likely have its own deductible(s) as well. Most MA plans have separate deductibles for both medical needs and pharmaceutical needs.
In many plans, you will typically make co-payments for covered services. Please note that your co-payments cannot be offset by the purchase of a Medicare Supplement aka “Medigap” policy! These are two different types of Medicare health plans.
MA plans have annual out-of-pocket maximums (OOP) unlike Medicare parts A and B. This means that once you reach your plan’s maximum, you’ll pay nothing more for covered services for the year.
Just a heads up, monthly premiums do not count towards your annual maximum out-of-pocket limit. In fact, any costs associated with outpatient prescription drug coverage in the plan don’t apply to the annual OOP limit either! They have their own out-of-pocket maximum!
Be careful with $0 premium plans
When comparing plans, don’t always shop for the lowest premium. Medicare Advantage plans can be a classic example of “you get what you pay for”.
For example, if you find a plan with low or no premiums, that could mean that the out-of-pocket maximums are high, or that the plan “network” includes only one facility to receive care! Those are just a couple of examples. The point is, be careful.
Review the Summary of Benefits and Evidence of Coverage for each plan you are comparing.
Additional Benefits of Medicare Advantage Plans
Many additional benefits provided by Medicare Advantage plans also work differently.
Most Medicare Advantage plans bundle Medicare Part D prescription drug coverage with the medical and surgical benefits (A & B).
In such cases, you do not need to choose drug coverage separately, or pay a separate premium. In other words, if a Medicare Advantage plan includes outpatient drug coverage, you do not need to enroll in a Medicare Part D Prescription Drug Plan (PDP).
Many Medicare Advantage plans include some routine hearing, dental and vision coverage that is not covered by Medicare parts A, B, or D. It is worth noting that dental and vision coverage can be purchased separately as stand-alone policies directly from insurance companies.
Medicare Advantage sounds easy right? Everything seems to be bundled into one easy to manage plan, so why don’t I go with that?
Don’t jump to conclusions just yet, let’s go over some of the advantages and disadvantages to MA plans.
Potential Pros and Cons of Medicare Advantage Plans
- Most Medicare Advantage plans offer extra coverage such as vision, hearing, dental, and even gym memberships.1
- “Bundled” services (one plan to manage)
- While you remain healthy and do not frequently need care, it could result in significant savings due to low or no monthly premium.
- You may be part of a healthcare network that has their own Medicare Advantage plan (Kaiser for example).
- Other extra perks like meal delivery, transportation, etc.
- Potentially lower out-of-pocket costs compared to Original Medicare (Parts A & B) alone.
- Having to see doctors and specialists “in-network”. This can be a problem for frequent travelers or “snowbirds” in retirement.
- Needing a referral to see a specialist
- MA plans can choose not to cover the costs of services that aren’t medically necessary under Medicare (meaning: accepted standards of medicine).2
- Unpredictable total out of pocket costs up to annual OOP maximum due to having to pay part of the cost for covered services (i.e. possible co-insurance, co-pays, deductibles).
- Multiple different deductibles and out-of-pocket maximums
- The extra dental and vision plans are often times HMO type plans.
- If and when you become very sick (cancer, diabetes, other diseases), you will begin to bear much higher and more unpredictable healthcare costs up to the OOP maximum.
The Bottom Line
Whether or not you should enroll in a Medicare Advantage plan vs. any other type of Medicare coverage ultimately depends on your personal healthcare needs and finances.
In addition to the various MA plans available, each type of Medicare coverage (i.e. Medicare Advantage, Medicare Supplement, Original Medicare) works differently, therefore it is important to understand each type before making a decision.
- If you chose to receive care from a network such as Kaiser Permanente before becoming Medicare eligible, you may want to continue using that network. They offer Medicare Advantage plans that work specifically for their provider network.
- Benefits such as a gym membership may or may not be important to you in which case you should assess whether or not you would actually utilize all of the “extra” benefits. You may be “trading” the extra benefits for other costs or limits in the plan.
- If your preferred dentist you have seen for years is not in your MA plan’s HMO network, you may have to go outside the plan to buy a PPO dental plan directly from another provider, and pay an ongoing premium.
It is worth noting that the first-step in obtaining Medicare coverage is understanding when and how to enroll in Medicare Parts A & B. If you haven’t done so you can learn about Parts A and B in detail here.
Contact us if you want want to be shown how transitioning to Medicare will impact your overall financial plan.
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Cameron Valadez is a CERTIFIED FINANCIAL PLANNER™ located in Riverside and Orange County, CA.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.