One of the most common questions we get here at MedicareWire is, “are Medicare Advantage plans bad?”
In my experience, this question comes up because people ask their friends, neighbors, and healthcare providers about Medicare plans, and that brings up the horror stories and a litany of reasons why Medicare Advantage plans are bad. But, is it true?
Over the years, I’ve heard from many people, healthcare providers in particular, that they dislike Medicare Advantage plans, but that does not mean they are bad. These are the 7 most common reasons people feel Medicare Advantage plans are terrible:
- Free plans are not really free
- Hospitalization costs more, not less
- They make you pay multiple copays for the same issue
- You are more likely to see a nurse practitioner than a doctor
- They make you get a referral
- Plan benefits, costs, and providers change every year
- High maximum out-of-pocket limits
Let’s dig into the advantages and disadvantages of Medicare Advantage plans and figure out what is real and what isn’t. Only then can you decide if this Medicare coverage option is right for you. We’ll also answer these popular questions:
The primary advantage is the monthly premium, which is generally lower than Medigap plans. The top disadvantages are that you must use provider networks and the copays can nickel and dime you to death. Learn more about Medicare Advantage on this page.
Some Medicare Advantage plans offer a zero-dollar monthly premium because what Medicare pays the plan, plus your Medicare Part B premium, cover the full cost. For healthy people who want to keep their monthly costs low, these plans are an attractive option. But, just be aware that the premium is not the only cost. Plans also have copays or coinsurance you must pay when you use services. Learn more about Medicare Advantage here.
There is no debate when it comes to which plan offers better coverage. Original Medicare and a supplement plan offer the best coverage, but it costs more up-front. For a complete breakdown of the differences between Medicare Advantage plans and Medigap plans, check out this post.
Free Plans Are Not Really Free
This is true. The real issue here is people’s misunderstanding of how Medicare Advantage plans (aka, MA plans or Medicare Part C) work. Specifically, many people don’t understand co-payments (copays) and coinsurance.
Just like Original Medicare (Part A and Part B), Medicare Advantage is a cost-sharing system. With Original Medicare beneficiaries pay about 20 percent of the cost for all Medicare-approved services and Medicare pays 80 percent. With a Medicare Advantage plan, you also pay about 20 percent of your costs, but there is an annual cap that limits your out-of-pocket costs.
Hospitalization Costs More, Not Less
In many cases and with many plans, this is true. In fact, a recent Kaiser Family Foundation study shows that half of all Medicare Advantage enrollees would incur higher costs than beneficiaries in traditional Medicare for a 5-day hospital stay. That’s shocking, but given the rising cost of hospitalization, it’s also understandable.
This fact also underscores the need to carefully scrutinize Medicare Advantage plans annually so you are not surprised by the bills. Ambulance, emergency room, diagnostic, hospitalization, and inpatient medication copays add up very fast.
They Make You Pay Multiple Copays For The Same Issue
This is true, but it is also true with Original Medicare. However, this complaint highlights the chief difference between Medicare Advantage and Original Medicare plus a Medicare supplement.
Medicare Advantage is a pay-as-you-go system. You pay your monthly Medicare Part B premium, and an additional premium for the plan (if any), but the majority of your costs come when you use healthcare services. So, if you see your primary care doctor for an issue you pay a copay. If your doctor refers you to a specialist you pay another copay. And if your specialist orders lab tests or diagnostic tests you pay a copay for each of those, as well.
If you have Original Medicare and a Medigap Plan G supplement, you pay your monthly Medicare Part B and supplement premiums, but pay virtually nothing when you use healthcare services once the annual Part B premium is paid. Understanding this fundamental financial difference is the key to getting the best insurance for your personal situation.
You Are More Likely To See A Nurse Practitioner Than A Doctor
In many cases this is true. HMO and PPO health plans (most Medicare Advantage plans are HMOs) use a method called capitation to pay providers. A capitated contract pays a provider in the plan’s network a flat fee for each patient it covers. Under a capitated contract, an HMO or managed care organization pays a fixed amount of money for its members to the health care provider.
For this reason, many primary care group practices use nurse practitioners and aides to reduce their costs so they can see as many patients as possible. These healthcare workers are supervised by a physician.
They Make You Get A Referral
In the case of HMO plans and some PPO plans, this is true. According to the Kaiser Family Foundation, nearly all Medicare Advantage plan enrollees are in plans that require prior authorization for some services. Health plans are in the business of making money and this is one of the primary ways they have to control costs.
By the way, Congress implemented a similar cost-saving measure with Medicare supplement insurance. As of 1 January 2020, new Medicare beneficiaries cannot buy a Medigap plan that covers the Part B deductible. The hope is that this change will reduce unnecessary doctor visits.
Plan Benefits, Costs, and Providers Change Every Year
This is true. Under the rules set out by the Centers for Medicare and Medicaid Services (CMS), insurers may change the benefits and costs in their plans. They are also allowed to change their provider networks.
This is the primary reason Medicare Advantage members should compare plans every year. Unfortunately, most enrollees don’t.
High Maximum Out-of-Pocket Limits
This is true. For 2020 Medicare Advantage enrollees, the average out-of-pocket limit was $4,925 for in-network services. For PPOs, the average is $8,828 for both in-network and out-of-network services (PPOs). These figures are expected to increase for 2021 and beyond. The future increase is reflected in the new maximum out-of-pocket limit set by CMS, which increased from $6,700 to $7,550.
Are Medicare Advantage Plans Really Bad?
The only way to determine if a Medicare Advantage plan is right for you is to take time to understand plan costs and limitations and balance that with your healthcare needs. When you do this you will discover:
- If You Are Healthy – A Medicare Advantage plan is a great way to save money if you are healthy. If you take advantage of the preventative care benefits, and additional benefits, you will get a lot for your money.
- If You Have Employer Health Benefits – Many employers offer workers and retirees health benefits that pay their Medicare Advantage plan premiums and other costs. If you have employer benefits, it’s a great way to save money.
- If You Qualify for Medicare and Medicaid – Nearly 3-million people have a Medicare Advantage Special Needs Plan (SNP). The majority of these people qualify for an SNP for financial reasons and pay minimal copays and coinsurance costs when they use services. If you can qualify, and an SNP is available in your county, it is the best way to get your healthcare.
- If You Are a Veteran and Have VA Health Benefits – Veterans with VA health benefits can be enrolled in both Medicare and VA Healthcare at the same time. When they are, Medicare is the primary payor and the VA is secondary. When receiving care at a VA facility, the veteran generally pays nothing. This holds true when receiving care at a non-VA facility if the veteran receives prior approval.
- If You Have Chronic Health Conditions – People with chronic health issues, who do not have employer, Medicaid, or VA health benefits may find that Medicare Advantage is unaffordable for them. This is particularly true if their health condition frequently puts them in the hospital for emergency care, or necessitates the regular use of specialists. Many diabetics fall into this category. For these people, Original Medicare and a Medigap plan are generally more cost-effective, particularly if the supplement is purchased when the beneficiary turns age 65 and has guaranteed issue rights.
Peace-of-Mind vs. Cost
I’m often asked which is best, Original Medicare or Medicare Advantage. For me, the issue really comes down to peace-of-mind. If you have access to additional benefits (e.g., employer, Medicaid, VA) that will take care of some or all of your out-of-pocket costs, use those benefits. If not, ask yourself if you are prepared to pay up to the maximum out-of-pocket limit on a Medicare Advantage plan.
If the prospect of pulling an average of $4,925 out of your pocket, which does not include your prescriptions or monthly premiums, makes you nervous, then it’s time to compare Medigap plans in your area. When you do, you will find a wide range of coverage options. If you are a healthy senior, Plan N is a great way to save money and get the peace-of-mind most of us need when it comes to our health.
How Medicare Advantage Plans Insurance Companies Work
Medicare Advantage plans are provided by private health insurance companies and group healthcare providers. The reason these plans seem to be so inexpensive, compared to a regular HMO (health maintenance organization) or PPO (preferred provider organization) health plans is that Medicare pays the plan you choose for your care.
When you join a plan, Medicare pays the plan $750 per month or more to take over your hospital and medical care costs (i.e., Medicare Part A and B). Add to that your monthly Part B premium (in most cases subtracted from your Social Security income), plus any additional monthly premium the plan charges, and you’ll get an idea of the true cost.
An important thing to understand about a Medicare Advantage plan is that, while enrolled, you no longer have your Original Medicare benefits. The insurance company behind your plan provides your benefits and makes up its own rules. They must follow Medicare’s guidelines, but those guidelines are very broad and leave a lot of room for interpretation. This often leads to a good deal of frustration about what’s cover, what isn’t covered, how much you’ll pay out of pocket, and getting prior approval for coverage.
Please go back and read the bullet points in the two sections above. If you are healthy, your frustrations will likely be few. If you have one or more chronic health conditions, your frustration could be many and frequent based on your plan’s pre-approval process and copays.
The good side of Medicare Advantage is that insurance companies are generally obligated to sell you a policy, regardless of any preexisting conditions. This is contrary to Medicare supplement insurance, where the insurance carrier is almost completely in control of policy approval or denial through their medicare underwriting process. So, if you have been denied Medigap insurance, Medicare Advantage is almost always a better option than Original Medicare alone.
Advantage Insurance Plans Offer Extra Benefits, Including Part D
In addition to the fact that Medicare Advantage plan insurance carriers are generally obligated to sell you a plan, they also bundle additional benefits, such as vision, dental, hearing, and a prescription drug plan (Part D). These are valuable benefits that Original Medicare does not cover.
Many of the extra benefits that some insurance plans offer look very enticing, but they often come with limits or high out-of-pocket costs. For example, a plan may have excellent healthcare benefits (i.e., low copays) and a poor Part D plan (i.e., your meds are not covered in the lower tiers).
Also, it is important to understand that the extra benefits, including Part D prescriptions, are not included in the plan’s maximum out-of-pocket (MOOP) limit. So, let’s say you use the plans dental coverage and pay $1,500 in copays for restoration work, that $1,500 is not included in your MOOP, nor are your Part D medications. This is why so many people feel that traditional Medicare, plus a supplement plan, dental plan, and a stand-alone Medicare Part D plan are the best way to go.
Medicare Advantage Enrollment
Unlike supplemental Medicare insurance, you can’t enroll in Medicare Advantage year-round. There are specific enrollment periods for enrolling in an Advantage plan. The same is true if you want to switch plans.
For most people, there are two dates to remember. The first is your Initial Coverage Election Period (ICEP). This occurs when you are first eligible for Medicare, generally on your 65th birthday or 24 months after you first qualify for Social Security disability income. Your ICEP is a seven-month window of time that begins three months prior to your birth month and ends three months after your birth month. The second date is the Annual Election Period in the Fall, which starts 15 October and ends 7 December.
Eligibility for the Initial Coverage Election Period
To sign up for a Medicare Advantage plan:
- You must have both Medicare Part A and Part B;
- You must permanently reside in the service area of the plan; and
- In most cases, you can’t have end-stage renal disease (ESRD).
Most commonly, you’re eligible for Medicare Part A and Part B:
- At age 65.
- As of your 25th month of disability benefits.
- As of the first month that you start receiving disability benefits based on amyotrophic lateral sclerosis (ALS).
If you are electing to join a Special Needs Plan, you will have other eligibility criteria. A Special Needs Plan is a special type of Medicare Advantage plan for people with certain financial or healthcare needs.
Medicare Annual Election Period
The Medicare Advantage Annual Election Period (AEP), also called Medicare Open Enrollment, is the period when beneficiaries can enroll in a Medicare Advantage plan, switch plans, add prescription drug coverage, or disenroll from a Medicare Advantage plan and return to Original Medicare. It occurs every Fall from October 15 to December 7. You’ll know it’s coming up when you start seeing Medicare commercials on TV.
Still have questions? Call 855-266-4865 and chat with a Medicare insurance advisor.
 A Dozen Facts About Medicare Advantage in 2020, Kaiser Family Foundation, Apr 22, 2020