Dear Mr. Miller:
I am approaching 65 and am going to be eligible for Medicare. But all of these plans: A, B, J, G, Medigap, Medicare Advantage–what are they? All I want is a plan that will cover me like my work plan did. In my job, the company told me what I was getting. But now that I am retiring, I have to do it myself. This is overwhelming! What do I need and what don’t I?
Can you explain—simply!
Original Medicare-Part A & B
Original Medicare Coverage Gaps
So what about Medicare Advantage Plans
Compare Supplement vs Advantage
Drug Plans (Part D)
Medicare Advantage Issues
Original Medicare-Part A & B: Medicare can be disturbingly complex for the uninitiated. But it doesn’t have to be. We’ll try to keep it simple and not get out into the weeds with exceptions. Original Medicare has Part A (basically for in hospital services) and Part B (basically for out of hospital services, i.e. physician office visits, lab services, etc.). If you are 65 or older, you are generally eligible for Medicare. If you or your spouse worked for at least 10 years paying Medicare taxes then you are eligible for Part A premium-free. Everyone pays premiums for Part B and it is usually deducted from your Social Security check. You are eligible to apply as early as 3 months before you turn 65.
Original Medicare Coverage Gaps: It is important to remember that Medicare was never designed to cover everything. There are deductibles and co-pays for both Part A and Part B. Unlike most deductibles, Part A’s version is not an annual deductible but can be assessed several times in one year depending on the number of your hospital stays and how long a duration between hospital stays. So that deductible is somewhat unlimited. Medicare generally only pays 80% of the charges on Part A or B. Also, the skilled nursing/rehab co-pay can be quite substantial if you need that care for more than 20 days ($200 per day in 2023 for each day over 20). And keep in mind that Medicare does not pay for more than 100 days of skilled nursing/rehab. (see this article for more on that subject). Long term care insurance is something that takes over at that point, if you have it. More on that here and here. The question is, how do we cover those deductibles and co-pays. There are two major options. As a general rule, one will purchase 1) Original Medicare, a Medicare Supplement, and a Drug Plan or 2) a Medicare Advantage Plan which replaces the other three.
Medicare Supplement: The Medicare Supplement, also referred to as Medi-Gap policies, fills the gaps that Original Medicare leaves. So it pays those deductibles and co-pays–the remaining 20% of charges, the Part A and B deductibles, and the skilled nursing/rehab co-pays. There are several different Supplement plans, all designated by letters. The most popular are Plan F, G, and N. Plan F is no longer available to those newly turning 65. Plan G and N are. There are several others. Each plan covers some or all of those “gaps.”
Supplement Plans: From here on out I am going to discuss things from a California perspective as things may be slightly different in other states. Plan F covers all of the gaps, Plan G all except the Plan B deductible, and Plan N somewhat less gaps. A Google search can get you comparisons of the plans to each other. The important thing to remember is that every insurance company offering Medicare Supplements is, by law, offering exactly the same policy, the same terms, the same coverages, etc. The only thing that is different is the price. And you, the consumer, typically never deal with the Supplement company (other than signing up and paying them the monthly premium) as any claim is submitted by the provider to Medicare. Medicare either covers or doesn’t (and if it doesn’t in almost all cases, you do not have to pay), and then sends the bill over to the Supplement company to pay their share. The Supplement company does not have any input on paying or not, if Medicare accepted the charge then the Supplement pays. Further, unlike in most states, California has the “Birthday Rule.” Within 60 days after your birthday you can change supplement companies without medical qualification. So you are not locked into one company for life. Each year you simply look for the least expensive supplement company for the plan you are on. (But changing plans, for example from N to G, would require medical qualification.)
So what about Medicare Advantage Plans: (These plans are also sometimes referred to as Part C.) You would take a Medicare Advantage Plan instead of Original Medicare and instead of a Medicare Supplement plan. In essence, Medicare pays the companies running these plans to take patients off their hands. The company receives a fixed amount per patient each month that it offers the coverage. You still have to pay the Medicare Part B premium but no supplement premium. Instead you pay the Advantage plan each month for coverage. The premium can be very small and sometimes nothing. The Advantage Plan must offer at least what Original Medicare covers but can cover other things, also. For example, the plan can also offer dental and optical and gym memberships–whatever it takes to entice enough people to join the plan. There may be an additional premium for these add ons. It generally includes a drug plan–so check that all your meds are covered by their plan (called a “formulary”).
Compare Supplement vs Advantage: The Advantage plans are typically HMO and, sometimes, PPO plans. Both have networks of providers to whom you can go. Some have very thin networks so this can be a “gotcha” and something to investigate prior to signing up. In most cases, the former requires referrals from the plan to go to specialists and the latter does not. PPOs for that reason are usually more expensive than HMOs. In many, if not most cases, you will be required to obtain pre-authorization for many, many procedures. Contrast that with Original Medicare/Medicare Supplement plans. The network of providers is essentially 95% of all physicians in the country. In other words, almost everyone accepts Medicare and you can choose whom you want. With Original Medicare/Medicare Supplement plans, subject to a few very limited exceptions, there are no pre authorizations that are required.
Drug Plans (Part D): With original Medicare you typically sign up for a drug plan to cover you. Medicare.gov has a very good website. You plug in all of your drugs, the name, dosage, strength, etc. and your zip code and the system returns those plans in your area and the premium cost. More importantly, it also provides the projected total annual out of pocket cost (premium plus deductibles/co pays for the drugs). You then select which plan you want. With Medicare Advantage you get the drug plan that plan is offering. In any case, it is important to make sure that all of your drugs are covered by the plan you select (or the one the Advantage Plan has, in order to avoid substantial costs.)
Medicare Advantage Issues: Medicare Advantage can be very attractive due to its low premium. But many studies have indicated that the copay and deductibles when you get sick offset and, often, exceed that premium savings very quickly. Also, in a situation where you need to get the absolutely, positively best surgeon, etc, that person may not be in your network. That is rarely true with Original Medicare since the overwhelmingly vast majority of physicians and surgeons accept Medicare. Lastly, I have heard many sales people say that if you don’t like Medicare Advantage you can always go back to Original Medicare. That is true but they tend to leave out the fact that most people going back to Original Medicare will want a Medicare Supplement, also. And the consumer is going to have to medically qualify to be accepted by a Supplement plan. Since the dissatisfaction with Advantage is generally only going to arise when one is in need of services (i.e. sick), that qualification may not be easy to get due to the pre existing conditions.
Conclusion: All that being said, what I have observed over the last decade is that, for the most part, those who are accustomed to HMOs through their employment are going to go with Medicare Advantage because they are comfortable with that system. Those who had PPOs are going to go with Original Medicare and Medicare Supplement. If we can assist you with issues within our area of expertise, estate planning, estate settlement (someone passed), or elder law, please give us a call at 760-436-8832.