I’m often asked, “What’s better, Medicare Advantage Plans or Medicare Supplement Plans?” The answer is – “It Depends”. There are a number of factors that must be considered before we can know which type of plan is best for you.
The first thing to do, however – is to get educated on how these two types of plans are fundamentally different:
A Medicare Supplement plan does what its name implies – it “supplements” Original Medicare Parts A and B. Claims for your hospital and physician services are filed with Medicare. The Medicare-approved portion of those claims that Medicare doesn’t pay, such as copays and your 20% co-insurance, are sent to your Medicare Supplement insurer to be paid for you according to the terms of your particular supplement plan. This is why these plans are sometimes called Medigap plans – they cover the coverage gaps in Original Medicare. For this supplemental coverage, you’ll pay a monthly premium which will increase as you get older.
A Medicare Advantage plan combines Medicare Parts A, B, and D (prescription drug coverage) under a single plan whereby all of your Medicare claims are sent directly to the insurer, not to Medicare. The insurer will pay the Medicare-approved portion of those claims and you will be billed by the healthcare provider for any resulting copays and coinsurance. In that respect, it’s just like Original Medicare except for the fact that your exposure to copays and coinsurance is limited to an annual maximum out-of-pocket limit which varies by the insurer (roughly between $6,000 and $7,000 per year). Many of these Advantage plans are offered at a $0 monthly premium particularly in and around large metropolitan areas. The insurers can afford to do this because Medicare pays them as much as $1,000 per month for each Medicare enrollee that they take on.
In my opinion, no Medicare enrollee should be without either a Medicare Advantage or Medicare Supplement plan. Why? Consider what your financial exposure would be if you only had Original Medicare Parts A, B, and D and you required heart surgery. The American Heart Association says that the average cost of heart surgery in the US is $62,509. In that case, the 20% Part B coinsurance alone would be over $12,500. Add to this your copays and coinsurance associated with inpatient hospital services, related prescription drugs, and post-operative therapy and you could be left with tens of thousands of dollars in medical bills.
If you are within your Medicare Initial Enrollment Period (IEP, which is 3 months before to 3 months after your 65th birthday) and you have a chronic health condition such as cancer, COPD, rheumatoid arthritis, ulcerated colitis, or diabetes, I would suggest enrolling in a Medicare Supplement plan. Likewise, if you’re within your IEP and you expect to need expensive surgery within the next 12-24 months, a Medicare Supplement plan is probably a good choice.
If you are relatively healthy and have a tight budget for healthcare expenses, you may be a good candidate for a Medicare Advantage plan. Many of these plans are offered with $0 monthly premiums and include benefits that Medicare doesn’t offer such as partial coverage for dental, vision, and hearing services including the cost of hearing aids.
There are other considerations that enter into your decision to go with either a Medicare Supplement or a Medicare Advantage plan which can add complexity and confusion to your decision. What you do can have a critical impact on your exposure to financial risk which is why you should seek the assistance of a licensed independent agent.