Traditional Medicare Parts A & BTraditional Medicare is made up of Parts A & B. Part A is often referred to as your, “Hospitalization Benefit” it actually covers the following.
- In patient care in hospitals
- Skilled nursing facility care
- Hospice Care
- Home Health Care
- Services from Doctors and other providers
- Outpatient care
- Home Health Care
- Durable Medical Equipment
- Some Preventive Services
Part D plans and SupplementsThough Medicare has been around since 1965, Part D plans only came into fruition in 2006. Part D plans (Drug Plans) cover your outpatient prescriptions (that is prescriptions you generally take at home). Every plan is required to have choices in it’s formulary (that is the list of drugs it covers) in every theraputic category. The best way to pick a Part D plan is to use the online tool at Medicare.gov. Supplements (also called Medigap) fill in the gaps in coverage of traditional Medicare. Supplements can pay the deductibles, co-insurance, and even excess charges. It all depends on which supplement you choose. Medicare Supplements all have different letter designations. For instance there is a “G” supplement and an “N” supplement (There is a complete chart in the article below). A Medicare supplement is what is known as a defined benefit plan. What that means is that one company’s “G” is the same as every other companies “G.” So you are shopping for 3 things. First, which supplement you want. Second, the initial cost. Third, that company’s history of rate stability.
Medicare Advantage PlansOften I get the question, “What is the advantage of an “Advantage Plan?” The simple answer is lower price. Keep in mind you have to pay your Medicare Part B premium of $135.50 (in 2019) even if you have an Advantage Plan.. After that what you pay for the Advantage plan could be $0. For $0 you could have a plan that really does have very reasonable out of pocket costs for most procedures and services. That’s not bad for $0. Not all plans are $0 premium plans (There are plans with premiums over $100), but those with a $0 premium attract a lot of people. My advice in general is, IF you are going with an Advantage plan get one WITH a premium as they often have lower Out of Pocket Maximums. At it’s core which direction you should go with your Medicare decisions depends on your finances, not your health. For all retirees their health WILL change eventually. For most retirees their income does not. See the article below and the case studies at the bottom for more information and things to think about when you are making your decision.
How do you apply for Medicare?
First, how do you get Medicare? Do you have to sign up or does it happen automatically? If you are already receiving Social Security or are on disability, then you will be automatically enrolled. If you do not fall into one of those categories you can apply for benefits at Medicare.gov, by calling 800.772.1213, or by visiting your local Social Security office.
What are my options in Medicare? (Answer: Traditional Medicare or Medicare Advantage)
Your first option is traditional Medicare (sometimes called Original Medicare) which has Parts A & B (this is the left side of the flow chart). Traditional Medicare has no networks. You can go anywhere in the nation that accepts Medicare. This is one of the biggest benefits of traditional Medicare.
Part D is your drug plan (pharmacy benefit). Part D is managed by insurance companies that have contracts with CMS (The Center for Medicare and Medicaid Services) and follow certain guidelines. Every plan is required to have a formulary (the list of drugs covered) with drugs in every single therapeutic. They don’t all have to have every drug in every category, but something. You are not required to get a drug plan, but if you don’t there is a penalty.
Medicare supplements step in and help pay deductibles, co-insurance, and/or give Medicare and “Out of Pocket Maximum.” You get to choose which supplement you want. They are what is called, “defined benefit plans.” What this means is that a “G” supplement (for instance) has the same benefits regardless of what company you get it from. In addition if a doctor takes Traditional Medicare then they also take ANY supplement from ANY supplement company. That’s the law.
Advantage plans (the right side of the flow chart) have contracts with CMS and kind of bundle together Parts A, B, and generally D as well. Quite often, (but not always) Advantage plans offer extra coverage such as dental and vision that traditional Medicare does not cover. When choosing plans please note that the extra benefits vary from company to company and year to year.
With Advantage plans the doctors and hospitals are paid by the insurance companies not by Medicare. Advantage plans, just like a regular health insurance policy have networks. Networks are generally state based, but there are no networks for emergency care.
In general, with Advantage Plans you would expect to pay a little less in premium, but more in out of pocket costs. On the Traditional Medicare side you would typically pay more in premium, (a separate part D, Supplement, and dental plan) but less in out of pocket costs. You may also have more flexibility in which doctors and hospitals you can use. However, as you can imagine those are pretty general statements and it depends on your health situation and what choices you make for supplemental and dental protection.
Let’s dive a little deeper into Parts A & B
Part A is generally referred to as “Hospital Insurance” and covers; hospital charges, skilled nursing facilities, nursing home care, home health services, and hospice services. If you think back to one of your paycheck stubs you would have seen a line item for “Medicare.” Well that was your part A premium you were paying. Once you have enrolled in Medicare you generally won’t have to pay that anymore! That’s a good thing.
Part B is referred to as “Medical Insurance.” It will cover the medical services needed to diagnose and treat your health issue. In addition, it will cover preventive services, durable medical equipment, second opinions before surgery, and more.
Part B does have a premium and most people will have to pay $135.5 a month in 2019. Higher income earners may have to pay more and lower income earners may be eligible for extra help. The Part B premium ($135.50 a month) does have to be paid regardless of whether you choose to stay with traditional (original) Medicare or go with an Advantage plan.
Now that you have an idea about costs, let’s talk about coverage. First, the deductibles. Part A has a $1364 deductible for the services it covers. That deductible will cover between 1 to 60 days of care.
It’s important to note that this is a per incident deductible, not per year. It is rare that a person would be admitted to a hospital multiple times in one year, but it does happen, so you need to be aware of that. Part B has an annual deductible of $185 in 2019 and after that it pays out 80/20.
How do Medicare Advantage Plans work?
Medicare Advantage Plans are through insurance companies that have contracts with CMS (The Center for Medicare and Medicaid Services). What they do is to bundle Parts A, B and (generally) D into a policy that looks more like a normal health insurance policy. Medicare Advantage Plans will have networks and you need to make sure you are seeing in-Network doctors and using in-Network facilities.
With Medicare Advantage the insurance company, not Medicare, is paying the doctors & hospitals. What you pay is generally a series of co-pays. It varies company by company and policy by policy.
The monthly cost of Medicare Advantage plans (the premium) is generally lower than what you might pay for separate coverage through Traditional Medicare, Part D, supplement and Dental plan, but you might pay more out of pocket. In general, the Out-of-Pocket-Maximums will be significantly higher.
Details to know about Advantage Plans
- You have to stay in Network. With some plans you might have no or very little coverage for out of network charges. Networks are generally state based as Insurance is generally a state regulated product. Traditional Medicare is a federal program and it does not use networks. With Traditional medicare (also called Original Medicare) you can go anywhere in the nation where Medicare is accepted. On top of that your Medicare Supplement is good nationwide as well. If a doctor takes Medicare they have to take any Medicare Supplement from any Medicare Supplement Company. Medicare Advantage plans are NOT supplements. They have networks. Some companies have reciprocal agreements with some their networks in some other states. Networks are not the end of the world though. Unless you are already in Medicare that is what you have now. You can deal with it. You just need to know. One final word. There are no networks for Emergency care. If you are out of state on vacation and have a car wreck or heart attack…there’s no networks for that. If you are out of state and just have the sniffles…that’s not an emergency.
- Advantage plans often have “extra” benefits such as dental care. The problem is those benefits can change from year to year.
- Utilization reviews are used extensively with Advantage plans. That’s when your doctor wants to do something and can’t get it approved with the insurance company.
- Your out of pocket Maximums could be really high (close to $7000).
Everything is on that continuum. More premium, less out of pocket OR Less premium, more out of pocket.
One of the biggest decisions you will have when you are turning 65 is whether to go with Traditional/Original Medicare or to go with a Medicare Advantage plan. So…what is the difference?
Very loosely, one key difference is your “financial exposure.” That is to say, if something bad happens to your health how much do you end up paying? With a “G” Medicare supplement your effective out of pocket maximum is the $185 (In 2019…all these numbers change a little from year to year). Advantage plans have a legal limit on their out of pocket maximums of $6700. The national average is about $5500, but some are lower. Generally, the less you pay in premium the bigger your out of pocket maximum will be.
Case Studies on making your Medicare Choices
I tell people all the time what you should get depends on your finances…not your health. Your health WILL change. For most of us, our finances in retirement don’t change much at all. Let me tell you the story of two retirements and how the differences drove choices in Medicare.
Client #1 had very little income for retirement. All they had to live on was Social Security. However, they did have some money from savings. Because they had little income; they could not afford the higher monthly cost of a separate Part D (drug plan), Medicare supplement, and dental plan. Their monthly budget drove them to the lower premium of the Medicare Advantage plans. For years when there was higher out-of-pocket cost they did have savings to fall back on to cover those costs. So, the Advantage plan fit their financial circumstances.
Client #2 had a decent retirement income with Social Security, a small pension, and an annuity. What they didn’t have was any savings to fall back on at all. This client could not handle unexpected out of pocket costs that might come with an Advantage plan. They did have more than enough income to cover the cost of traditional Medicare, part D plan, supplement, and dental coverage. For this client Traditional Medicare was the best choice.
By way of disclosure Insurance Agents make more commission on Medicare Advantage plans. If you talk to 10 agents probably at least 8 will tell you that Advantage plans are the best thing since sliced bread. The drawbacks to Advantage Plans are; 1. Networks, 2. Extra Benefits (such as dental) may change from year to year, 3. Aggressive use of “Utilization Reviews” (that’s where your doctor wants to do one thing, but your insurance company might think it’s too expensive or unnecessary), 4. Higher out of pocket Maximums.
Though I’m not a fan of Advantage plans I would still say that most everything inside Medicare is better than most everything outside Medicare. So if you want an Advantage Plan we will find you the best one we can. There are a lot of choices. I’ll be glad to walk you through all your options. Just give me a call and we can set up a time to meet. I get paid by the insurance companies and they charge you the same rate whether you buy from them direct or have me help you. You might as well give me a call.
 There are a few other categories that will be auto-enrolled, such as people with ALS (see Medicare.gov for details).
 You can also find this chart in the CMS publication, “Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare.”