How Does a Medicare Advantage Plan Work?
I got this question in my office the other day, and I wanted to help, because this is a big decision.
“Why are Medicare Advantage plans generally so much cheaper then Medigap coverage? I mean, they do the same thing, right?”
Yeah….no. Actually, that’s not even close. In fact, Medicare Advantage is much closer to Original Medicare, and Medicare Supplements are very different. And if you are making this decision, I would like to share some very important information.
To put this in the simplest terms, Medicare Advantage actually substitutes for Original Medicare, and it does this by providing identical or very similar services to what Original Medicare provides. On the other hand, Medicare supplements do not substitute for Original Medicare, they very simply pay for the part you have to pay after Original Medicare has paid its share.
A better answer is that Medicare supplements are very similar to financial insurance, they cover your financial responsibilities under original Medicare. On the other hand Medicare Advantage is a fee-for-service plan, very similar to traditional health insurance. Today I’m going to focus on Medicare Advantage plans.
So, as I said, Medicare Advantage is much closer to Original Medicare, so let’s look at that. There are real differences that come with Medicare Advantage, such as an Out Of Pocket Maximum, and the bundled Part D benefit, which I will cover, but overall, the two plans are very similar. By the way, that’s not the fault of the insurance company that is required by law.
If you want a detailed comparison on the actual differences between medicare Advantage and Original Medicare, click HERE. This is a publication from the Medicare Rights Center, which is a information website mostly for agents, but anyone can go look.
And don’t take that to mean Advantage plans are bad. Original Medicare is very good and that makes a Medicare Advantage plan good as well. Beyond the Out Of Pocket Maximum, and a bundled drug benefit, if you examine the benefits carefully, (and I will tell you how to do this), I am quite sure that you will find other reasons to love your Advantage plan as well.
Why is Medicare Advantage so similar to Original Medicare?
I mentioned just above that the way Medicare Advantage plans are structured is required by law. The specific requirement is that a Medicare Advantage plan must be “at least as good” as Original Medicare. This is not defined in terms of aggregate benefits, or actuarial value, but on a benefit by benefit basis.
Woah. What does that even mean?
OK, yeah, I looked at it again and it sounds crazy. It’s correct, but I wrote it in insurance jargon, let me rephrase it in plain English.
It means that an insurance company cannot get away with saying “we left this out, but we are giving better benefits over here” or “our benefits are a little different, but taken as a whole, they pay the same dollar amount or more on average”….NOPE, that will not work. If there is a benefit that Original Medicare offers, an Advantage plan has to offer at LEAST that same specific benefit, or the same benefit in a better version. This stipulation is a very big deal.
The Federal government is very enthusiastic about compliance, to put it mildly. As a result of that, it doesn’t pay for a private insurance company to get overly creative in this area. The Centers for Medicare and Medicaid Services do not generally put people in prison, although they could. It’s far more likely that they will fine, sanction, or even bar an insurance company from participation in the Medicare market altogether. As you can imagine, this is a massive discouragement from excessive creativity.
As a result, you can expect your Medicare Advantage plan to very closely parallel Original Medicare, and this is what I am getting at. For the most part, your Medicare Advantage plan will be mostly the same as Original Medicare.
Medicare Advantage: Important Information
Medicare Advantage plans do cover pre-existing conditions, and Original Medicare does as well, but Medicare supplement plans usually do not unless there’s a guaranteed issue period. If you do have a pre-existing condition, this makes it even more important to look before you leap. If you’re considering disenrolling from your Medicare Advantage plan, I recommend consulting a professional.
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What can I expect to pay?
Let’s look at the cost of a Medicare Advantage. The average cost across the country for Medicare Advantage plans in 2016 was $64.92. But that’s not the entire story. You also have to maintain your Original Medicare, which means you will have to pay a part B premium, just as you would with Original Medicare, and if you owe a part A premium you’ll have to pay that as well. Most people do not owe a part A premium, the most common reason that somebody might have to they have not qualified for Social Security, which means that they have not paid Social Security taxes for 40 quarters, or the equivalent of 10 years. These taxes normally get paid because you’re employed, but a small group of people pay Social Security taxes on their own, rather than through their employer. And finally, if your Advantage plan does not include prescription drug coverage, you will have to obtain that as well.
For more details on these requirements, along with a wealth of other information on this topic, click HERE. This article is from a non-profit Medicare information group called Medicare Advocacy.
Keep your card!
This next item is a pet peeve of mine regarding my colleagues in the Medicare market. In a practical sense, it’s true that a Medicare Advantage plan will replace Medicare, because everything will be going through your Medicare Advantage provider. But technically an Advantage plan really does not replace Original Medicare, because you still have to maintain your Original Medicare. And here is why that tiny difference becomes a problem.
I have spoken to several customers who have been told by other agents that once they receive their Medicare Advantage card, they can throw away their Medicare card. This is not true!
What is true is that you don’t need to present your Medicare card anymore to get services, because everything will be going through your Medicare Advantage provider. But you will still need your Medicare card if at any time down the road you want to change plans. Be advised, changing plans is common in the Advantage market. So please, if an agent ever tells you that you can throw away your Medicare card, do not do it. You can put it away somewhere, in a drawer or a file cabinet or someplace that you can find it again, but do not throw it away. More than once, I was prepared to provide a Medicare Advantage plan for the client, but was unable to do so, because they could not present their Medicare card. They had to wait to get a replacement in order to proceed with the enrollment.
Medicare Advantage vs. Original Medicare
I already explained why Medicare Advantage is similar to Original Medicare, but let’s talk about the differences.
The first big difference is, most (not all, and please check) Medicare Advantage plans offer prescription drug coverage as a part of the package. This is a wonderful benefit, and this alone makes Medicare Advantage worthy of consideration.
The second is that a Medicare Advantage plan is required by law to provide whats called a MOOP, an acronym that stands for Maximum Out Of Pocket figure. This is an upper limit, the maximum a beneficiary can be required to pay before the insurance company begins to pay 100% of the medical costs. You should know that this number is high, but at least there is a cap, while Original Medicare has no upper limit on it’s cost sharing.
I don’t want to jargon you again so briefly, cost sharing is where the insurance company pays their share, which is usually most of the bill, but some is left over for you. You share the cost. And I don’t think I need to explain what no upper limit is. In Original Medicare, your share is a deductible and then usually a co-insurance, and I don’t want to go into too much detail here, but let me just summarize. The bottom line is that if you get seriously sick, you may end up owing some serious money. That is an incredibly risky position to put yourself in, and I do not recommend it.
The third is that instead of a percentage, some Medicare Advantage cost sharing is in copays. Original Medicare cost sharing is mostly based on “co-insurance” which is a percentage of the full cost, while Advantage plans frequently use a “co-pay” which is a flat dollar amount, such as $10, or $20, sometimes more.
And the fourth difference is that Advantage plans typically operate on the HMO model, which means that there will be a network of doctors, specialists, and hospitals that members have to use, and if they go out of the network, insurance may not cover their costs.
Between the two, I would definitely recommend a Medicare Advantage plan. Original Medicare is very good, almost as good as an Advantage plan, because they are so similar, and if your personal economy dictates that you must stay with Original Medicare, you will not be alone. You must be aware, however, that there is no upper limit to what your cost share will be. For more information on making this choice, click HERE. This article is from US News
Can I switch from Medicare Advantage back to Original Medicare?
On the other hand, if you are extremely unhappy with your Medicare Advantage plan, it is possible to switch from Medicare Advantage to Original Medicare, but you must be fully aware of what you are doing when you exercise this option. The best time to do this is the disenrollment period that runs from January 1 to February 14 each year. If this time period expires, it is generally very difficult to disenroll from the Advantage plan until the next year, during open enrollment. It can still be done, but if you are thinking about disenrolling from your Advantage plan, my advice is to be very careful.
Why such caution? Well, there are a number of things that will happen, but I’m going to warn you about the three things that I think are most important. I have touched on all of this already. Number one, you will lose the maximum out-of-pocket benefit, which is very important. Number two, if your Medicare Advantage plan includes prescription drug coverage, you will be losing that as well, and you’ll have to take care of that or expose yourself to a penalty. Number three, you may have to wait until the next open enrollment period to re enroll.
Only a very small number of people disenroll, and the main reason they do so is because they have other coverage, or they want to enroll in a Medicare supplement plan. If you are disenrolling to join a Supplement plan, just make for sure positive that you have the opportunity to enroll in a plan. In fact, the best way to do this is to actually enroll in a supplement plan (at the right time, of course), and your disenrollment from the Advantage plan will occur automatically.
With these real, tangible benefits of an Advantage plan, it might be easy to forget that the majority of your plan will be similar to Original Medicare. A careful examination of your plans benefits may reveal other very valuable features as well. However, it would help you tremendously when shopping for an Advantage plan to know exactly what you are gaining through enrollment in particular companies Advantage plan, and what was yours anyway, through Medicare A and B. Earlier, I mentioned that i will show you how to actually compare Original Medicare benefits to Medicare Advantage benefits, so here goes.
An Advantage plan is not required to cover the medical services any different than the way Original Medicare covers them. The rule is that the plan has to be at least as good as Original Medicare. And as we’ve already discussed, by default, it’s easiest and safest for the plan to mirror the benefits of Original Medicare as closely as possible. However, it’s allowed to be better than Original Medicare, and Advantage plans actually try very hard to figure out ways that they can make their plan better than Original Medicare. This only makes sense, it is the competitive advantage of an Advantage plan. If it is exactly the same thing as Original Medicare, why would anyone buy it?
If you know the benefits of Original Medicare, and very carefully compare those benefits to the benefits of the Advantage plan, you will know exactly what you are getting for the monthly premium. If it’s in your Advantage plan, and not in Original Medicare, that is one of your “Advantage benefits”. The best way to do this is with a copy of Your Medicare Benefits. If you do not have a copy, and you really want to shop smart, you can download it HERE.
Medicare Advantage and Shopping
And speaking of shopping…there is another very important difference that I must highlight. Medicare Advantage members are best served by shopping all of the available plans every year. You can stay with the same plan each year if you wish, but you should be aware that, more often than not, it will not be the same plan. Medicare Advantage plans are adjusted each year to reflect recent claims experience. That’s more insurance talk, what it means is some things sometimes don’t work out for the insurance company. And when that happens, they make adjustments.
So it definitely serves Advantage plan members to shop. Advantage plans may change in terms of cost sharing, deductibles, and especially if a part D plan is bundled with your Advantage plan the formulary will probably change as well. And you can rest easy with knowing that every plan that can possibly cover you will be sure to send you information regarding what they offer. Each year around annual enrollment, you will receive a blizzard of information in your mailbox.
The advantages of Advantage
I recommended that you compare your Advantage plan to Original Medicare, but actually that’s a lot of work, so let me make it easier for you. There are some advantage benefits that are commonly offered, and the easiest way to do this is to look for those benefits.
- The inclusion of a prescription drug plan: Take careful note of two things. First, most Advantage plans include a drug plan, but not all, and you’ll have to check. Second, make sure that the medications you take are covered.
- Check what the maximum out of pocket is: It may be high, and you must consider your likelihood of reaching it. You never know, and this could be a factor.
- Check for dental and/or vision coverage: This is rare, but it is an amazing benefit if you can get it. If you don’t find it, I have options on my website.
- Check the network: I like to avoid blanket statements, and there may be an Advantage plan somewhere in the country that does not operate on a network, but having said that, almost all Advantage plans will work with a network of physicians, hospitals and providers, and if you like the ones that you are using now, this may be an issue. You’ll have to make sure that your favorite providers are in the network.
- See if hearing aids are covered: This is rare as well, and an amazing benefit if you can get it.
- Will you get coverage outside the country: Once again this is a rare benefit and only important to a small number of people, but if this is you, you’ll have to check.
Overall, evaluating this information versus the amount of money you will be paying for your Advantage plan will give you a very strong idea of whether you are in the right plan or not. I hope it helps.
Believe in better. You deserve better. Better Insurance Options.
Frank Sutter, Licensed Independent Insurance Professional, PA, AR
2119 Cemetery Avenue Philadelphia, PA, 19142
O: 215.992.9953 | C: 267.997.1007
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