Why Medicare Advantage Plans are Bad: 7 Top Complaints

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:

1. Free plans are not really free
2. Hospitalization costs more, not less
3. They make you pay multiple copays for the same issue
4. You are more likely to see a nurse practitioner than a doctor
5. They make you get a referral
6. Plan benefits, costs, and providers change every year
7. High maximum out-of-pocket limits

Let’s dig into these complaints to 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:

Free Plans Are Not Really Free

This is true. The real issue here is people’s misunderstanding of how Medicare Advantage plans work. Specifically, many people don’t understand 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^[1]. 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 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^[1]. 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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

^[1] A Dozen Facts About Medicare Advantage in 2020, Kaiser Family Foundation, Apr 22, 2020