Original Medicare Vs Medicare Advantage: Which is Right For You?

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When it comes to selecting health care for retirement, there is generally two options: Original Medicare and Medicare Advantage Plans (MA Plans). So which option is better? Unfortunately, there is no one-size-fits-all answer. Both types of coverage have pros and cons. A discussion about which plan is best for every situation is not possible. As such, it is strongly advised that you seek counsel from a trained health care professional who can listen to your situation and help you make an informed decision. However, its good to go into such discussions with some knowledge regarding the nature of these two coverage plans. So, with the objective of gaining knowledge to have an informed discussion, lets tackle two questions. What’s the difference between Original Medicare vs Medicare Advantage, and what are the pros and cons of each coverage?

There are many differences between the two types of coverage. Below is a list of some of the differences.

Original MedicareMedicare Advantage Plans (MA plans)
Original Medicare is administered by the government. Some parts such as Medigap and Part D Plans are administered by a third-party insurance provider.Medicare Advantage is administered by private insurance companies that contract with the government.
Original Medicare payments are often broken up into individual payments for each part.Medicare Advantage plans bundle all the parts into one payment.
Medicare does not provide as much coverage, often lacking services like Dental, Hearing, Vision and other services.Many Medicare Advantage plans provide coverage for services such as dental, hearing, vision, and others. Some even include services such as gym memberships and transportation.
Medicare can be used nationwide with any provider who accepts Medicare. You can also see specialists without needing a referral and have the cost be covered.Medicare advantage plans usually only provide coverage with Healthcare providers in their network. Generally, you will need a referral before you can see a specialist and have the cost be covered.

Of course, the above table is just a few of the difference between the two forms of coverage. If you want to gain a deeper understanding of Medicare vs Medicare Advantage Plans, read on.

What is the difference between Medicare vs Medicare Advantage?

As stated previously, there are two options you can choose form when it comes to health care insurance in retirement. These two options are Original Medicare and Medicare Advantage Plans. You have to choose one or the other. You cannot have both types of coverage at the same time. Let’s start with an overview of the two programs.

Original Medicare

Medicare is administered by the government. It is funded partly by taxes and partly by premiums. It is available for everyone 65 years old and older as well as those who have been disabled for at least 2 years and those with certain health conditions. Medicare is broken up into “Parts.” Each Part provides insurance for different medical services. Following is a list of the different parts and what they cover:

Part A – This part is known as hospital insurance. It will cover costs if you are admitted as an impatient for a medically necessary procedure. This part is free for most retirees who qualify.

Part B – This part is known as Medical Insurance. It covers things such as doctor’s appointments, medical equipment, outpatient care, medical equipment, and preventive care. You’ll pay a monthly premium for this part. The premium is deducted from your Social Security benefits.

Part C – This part is actually Medicare Advantage plans. We’ll get to this part later.

Part D – This part is known as Prescription Drug Insurance. It helps to cover the price of prescription drugs and vaccines. You’ll pay a monthly premium for this part. You can opt to have the premium deducted from your Social Security benefits.

Medigap – These plans can be paired with Medicare parts A and B to provide additional coverage for expenses not covered by parts A and B. These plans are provided by third party insurance providers.

Original Medicare is considered to be parts A and B. However, most people who enroll in Original Medicare also purchase a Medigap plan and Part D coverage (there is a late enrollment penalty if there is no coverage for medications).

Keep in mind that with Original Medicare you will have separate premiums, coinsurance, deductibles and excess charges for each type of coverage.

Medicare Advantage Plans (MA Plans)

Medicare Advantage Plans are considered part C of Medicare. Medicare Advantage Plans are provided by private insurance companies. These insurance providers contract with the Medicare program and are required to provide at least the same amount of coverage as Original Medicare (Part A and Part B). Medicare Advantage Plans combine the benefits of Medicare Parts A, B, and D into one plan and often offer coverage for additional services that are not covered by traditional Medicare.

Some people get Medicare Advantage Plans and Medigap plans confused. Medicare Advantage Plans and Medigap are different from each other. Medigap is a supplemental insurance that covers some of the costs not covered by parts A and B. Medicare Advantage Plans, in a sense, replaces original Medicare instead of just supplementing it.

It should be noted that even if you are enrolled in a Medicare Advantage plan, you still have to pay the Medicare part B premium. However, some Medicare Advantage providers have Part B giveback programs that will reimburse you for the part B premium.

Medicare vs Medicare Advantage: Pros and Cons.

With a basic understanding of the difference between the two programs, lets take a look at some of the pros and cons of each program. This is not a comprehensive list, so you should always consult a professional before making a decision of which plan is best for you. If you’d like to compare the two programs side by side, you can visit the Medicare website.

Medicare Pros and Cons

Let’s start by examining the benefits and drawbacks of Original Medicare. You will notice that some of the points in this list deal with “Full Coverage” meaning Parts A and B as well as Part D and a Medigap plan.

Medicare Pros

  1. Your choice of Physician – With original Medicare you can see any physician you’d like, as long as that physician accepts Medicare. This means there are no networks (which is often the case with Medicare Advantage and which will be discussed later). You also do not need a referral to see a specialist. You can see a specialist whenever you’d like and as long as that specialist accepts Medicare, you will be covered.
  1. Nation Wide Coverage – Original Medicare can be used anywhere in the United States with any healthcare provider who accepts Medicare. This can be very beneficial if you plan on traveling or have a second residence in another state.
  1. Indefinite hospital stays with full coverage – If you are “fully covered” meaning you have a Medigap Plan the opportunity to stay in a hospital indefinitely is available. Of course, this will be dependent upon the Medigap plan you purchase. This can be a major benefit for people who have chronic ailments later in life that require long hospital stays. Under these “Gap” plans as long as you are admitted as an inpatient and the physician deems your stay to be “medically necessary” then your stay will be covered.

Without full coverage you can stay in a hospital for 60 days and be covered. After the 60 days, you will begin to pay a daily coinsurance. Currently that payment is $352 a day after the initial 60 days. After 90 days your coinsurance payment will be raised to $704 a day. Eventually, if you stay beyond what are termed your, “Lifetime Reserve Days” you’ll be expected to fully pay the daily hospital bill.

  1. Cost – Generally speaking, if you have no major medical incidents during retirement, the overall cost may be more expensive than that of a Medicare Advantage plan. It is worth noting that the cost of your Medigap plan may increase as you grow older regardless of whether you experience health issues. This is because in most states these plans are based on age, gender, and residency.

Medicare Cons

  1. Payment Structure – The payment structure of Original Medicare with part D and Medigap is broken up into individual payments for each part. Studies have shown that after age 80, there is about a 50% chance of developing some form of memory loss. Having the payments broken into parts increases that chance of forgetting about one and losing coverage.
  1. Lack of Coverage – Although there is much that Original Medicare with part D and Medigap covers, it generally does not cover things like:
    1. Dental
    2. Podiatry
    3. Hearing
    4. Vision
    5. Most Routine physicals or exams unless they are part of a “medically necessary” procedure.
  1. Declining Reimbursement Rates – Medicare reimbursement rates have been and continue to be lowered. This has led some health care provider to start declining Medicare beneficiaries. For those opting to not purchase a Medigap Plan there is a 15% Excess Charge that can be applied for care received within Part B coverage.
  1. Medigap rates and acceptance – If you opt for a Medigap plan, you could see your rates increase annually. Also, if you do not purchase a Medigap plan within 6 months of enrolling in Medicare part B, you could pay much higher rates or be rejected. The 6 months after you enroll in Medicare part B (if you enrolled on time) are considered a “guaranteed insurability period.” During this period, the insurer you choose must accept you at the best rate available at that time. They cannot use your health history against you when determining cost of acceptance.

After this 6-month period things change. You can still purchase a Medigap plan, but you become subject to the insurer’s terms and conditions. That means things like your medical history can be examined and used to determine cost and acceptance. This can lead to you paying significantly more for coverage or being rejected all together.

Medicare Advantage Plans Pros and Cons

Now that we’ve had a look at some of the pros and cons of Original Medicare, lets look at the pros and cons of Medicare Advantage plans. Once again, this will not be a comprehensive list and benefits can be different depending on which plan you purchase. It is advised that you meet with a professional who can help you determine the best plan for you.

Medicare Advantage Plans Pros
  1. Possible Better Coverage – Medicare Advantage plans are required by law to provide, at the minimum, the same coverage as Medicare parts A and B. However, many Medicare Advantage plans offer parts similar to Part A, Part B, Part D, and Medigap coverage and include coverage for additional services such as vision, hearing, podiatry, and more. Some even offer coverage for things like gym memberships. Of course, the extent of the coverage will depend upon the plan you purchase.
  1. Possible Free Coverage – In some instances you can receive free coverage. This is because most carriers receive subsidies from the federal government for selling Medicare Advantage plans. Sometimes the carrier will pass these subsides onto you resulting in reduced costs. Unfortunately, recent legislation could cause those subsidies to be reduced over time which would negate this benefit.
  1. Payment Structure – With Medicare Advantage plans you will receive one bill (as opposed to original Medicare where the bills are broken into parts). You can also opt to pay your part D drug coverage through the same carrier as well.
  1. Caps on Out-of-Pocket – Many Medicare Advantage plans have caps on how much you are required to pay out of pocket for “In-Network” services received. This can save you from having to pay large bills in the case of emergencies.
  1. Networked Providers – This can be both a positive and a negative, so you’ll see it on the cons list as well. With networked providers you can only see healthcare providers who are in the network. However, you can rest assured that these providers actually want to see you.
Medicare Advantage Plans Cons
  1. Networked Providers – Medicare Advantage plans each have a network of providers they work with. This can be a negative because, unlike original Medicare, you don’t have the freedom to see any provider you wish. Also, you will generally need a referral to see a specialist and have the costs be covered.
  1. Denial of Service – If you try to work with a provider outside of the network, you may be denied care, or the private health insurance provider might deny the claim.
  1. Encroaching Legislation – New legislation, such as the Affordable Care Act, may place pressure on providers of Medicare Advantage Plans to cut coverage, raise rates, or change terms. Other terms in the Affordable Care Act could provide better benefits for Original Medicare beneficiaries. Those changes would make Medicare Advantage plans less desirable. However, those changes are beyond the scope of this discussion.
  1. Larger fees – Dependent on your plan or the insurer administering the plan, you may have larger co-pays, deductibles, and other fees.

So which plan is better for you?

Unfortunately, as stated previously, there is no clear-cut answer on this. It will depend entirely upon your anticipated health needs, location, budget, and other factors. The best option is to speak with someone familiar with the various plans for which you would be eligible. They can help find a plan that will provide you with the best health coverage for the best price. Hopefully, this article helped you understand a few of the basic differences between the two programs so that your discussions with a health insurance professional can be informed and beneficial.

In summary when it comes to Original Medicare vs Medicare Advantage

  • Original Medicare is administered by the Federal Government. Medicare Advantage is administered by private insurance providers who contract with the government.
  • Original Medicare constitutes Medicare parts A and B. People often purchase an additional Medigap policy to supplement original Medicare, and a part D plan to help cover prescriptions. Medicare Advantage plans are required to provide, at a minimum, part A and B coverage. However, many plans bundle parts A, B, D, and Medigap into one plan.
  • You must choose either Original Medicare (with the option to add part D and Medigap), or Medicare Advantage. You cannot be enrolled in both programs simultaneously.
  • Original Medicare and Medicare Advantage plans both have pros and cons. What constitutes a good plan for one person may not be the right plan for another. Thorough research and consultation with professionals will help you to decide on the best path for your health and financial needs.
  • To compare the two programs side by side, you can visit the government’s Medicare website.

Choosing a health insurance plan for your retirement can seem daunting. However, it doesn’t need to be this way. With proper research and guidance, you can settle on a plan that will help you to be happy, healthy, and prosperous for the rest of your life.

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