Original Medicare or Medicare Advantage?

At age 65 Americans become eligible for Medicare, a federal insurance program for older Americans. Just like any type of health insurance, there are a myriad of plan options to consider along with a time-sensitive enrollment process.

First and foremost, there is a 6-month window to sign up for Medicare – 3 months before and 3 months after an individual’s 65th birthday. This is a process that individuals must initiate on their own – missing the deadline will result in higher premiums.

A common misconception about Medicare is that it is free. Many different out-of-pocket costs come into play with Medicare including extra premiums, deductibles and coinsurance to name a few. Therefore, it’s important to understand the four different parts to Medicare, as well as the role supplemental policies can play. Where you live will also be a factor in your selection as you choose between original Medicare with supplements or Medicare Advantage.

This high-level overview illustrates several considerations for an individual to consider prior to turning 65.

Part A — Hospitalization

Original Medicare, paid for via Medicare tax deductions during ones working years, is considered Part A.  Part A essentially covers hospital stays, hospice care and skilled nursing care if needed post hospitalization. Although there isn’t a monthly premium associated with Part A, there is a hospitalization deductible that fluctuates each year. In 2019 it’s $1,364.

This is where supplemental, or Medigap , policies may be beneficial to cover that hospitalization deductible and some other out-of-pocket Medicare costs.

Part B — Doctors and outpatient services

Medicare Part B costs an extra monthly premium of $135.50 for 2019 along with a $185 deductible. Part B covers doctor visits, lab tests, diagnostic screenings, medical equipment, ambulance transportation and other outpatient services at 80 percent. This means that you will be responsible for the other 20 percent.

In order to get the lowest premium, it is important to sign up for Part B when you first enroll in Medicare. An exception to this rule is if you have an employer-sponsored plan either through work or your spouse.  The federal government sets the Part B monthly premium each year and people with higher income may pay more. The monthly premium is deducted directly from your social security benefit.

Part D — Prescription drugs

Medication coverage is handled through Part D and is purchased through private insurers. There are a range of options in terms of premiums, out-of-pocket costs, co-pays and deductibles.

Some individuals with high prescription drug bills will be eligible for gap or catastrophic coverage to reduce their exposure to surmounting prescription drug bills. Medicare.gov is also a great resource to see what medications are included on the formularies, or covered lists, for Medicare.

This is another area that if you don’t sign up for coverage when first eligible you will have a higher cost after the initial eligibility period.

Part C — Medicare Advantage

Medicare Advantage, or Part C, is offered through private insurers who bundle together Parts A, B and sometimes D into one comprehensive plan. This one-stop coverage is typically delivered through an HMO or a PPO model, which may lower out-of-pocket costs considerably, especially when in-network physicians are selected. This network model means that Medicare Advantage may not be an option for retirees who split their time between different states during the year.

To enroll in Medicare Advantage, individuals still enroll in parts A and B and pay the Part B premium. Then a Medicare Advantage plan is selected, which by law mirrors Medicare coverage and in many cases includes extras such as prescription, dental, vision and sometimes medical equipment.

Final Decisions

This Medicare primer has armed you with initial information to decide if Medicare or Medicare Advantage is right for you. Medicare is a complex subject, therefore it’s important to rely on a qualified broker to guide you through the choices and plan nuances during your decision-making process. Be aware that not all Medicare Advantage plans are created equally and not all brokers are qualified to work with Advantage plans.

To recap:

Original Medicare Part A: Hospitalization coverage throughout the United States; no referrals to see specialists; premiums established by the federal government; and, must enroll within three months of your 65th birthday. 

Medicare Parts B & D: Enroll separately for several plans to gain coverage for doctor’s visits and associated costs, as well as prescription drugs; must enroll during in for Part B to avoid higher premiums; no dental, vision or hearing coverage; no limit on your out-of-pocket costs; and, may self-refer to specialists.

Medicare Advantage: One-stop coverage, and the potential for extra benefits; private HMO or PPO insurance with provider networks; may require referrals to specialists; may create lower out-of-pocket costs vs original Medicare and offer an annual cap on out-of-pocket costs; and, may not be ideal for people with dual state residences.

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