It’s Medicare Open Enrollment season, so I thought I’d address a question that comes up a lot, especially for those reaching age 65: Which is better, Original Medicare or Medicare Advantage?
Original Medicare
A brief overview of Original Medicare:
• Part A, also known as hospital insurance, covers in-patient hospital stays, surgeries and post-hospital skilled nursing care. If you have contributed to Social Security for 40 quarters or more, you and your spouse will be entitled to Medicare Part A coverage at no cost once you reach age 65.
• Part B, outpatient services, covers eligible medical costs such as doctor and clinic visits, as well as select pharmaceutical equipment, supplies, lab tests and medications administered on an outpatient basis. Unlike Part A, Part B requires the payment of a monthly premium.
• Medigap plans are offered by private insurers and cover some of the co-insurance, co-payments or deductibles charged under Part A and Part B. There are multiple standardized plans. The best one, Plan G, covers all of the above costs except for a small deductible.
• Part D is private insurance that covers prescribed medications not administered in a doctor’s office. As with Medigap plans, there are monthly premiums, but coverage and costs vary.
Medicare Advantage
Medicare Advantage plans are offered by HMOs such as Kaiser or by insurers covering PPOs such as Sutter Health. These organizations provide all of the services above to Medicare patients and effectively replace Original Medicare. However, you still must be signed up for Medicare Part A and Part B and pay the premiums for the latter to participate.
Some of the advantages of Medicare Advantage over Medigap:
• Logistics. Under Original Medicare, you have three different parties involved (the federal government, the Medigap insurer and the Part D insurer). Under Advantage, all billing is handled through the HMO or PPO insurer.
• Benefits. Original Medicare doesn’t cover dental, vision, hearing or ancillary services such as gym memberships. Some Advantage plans include these things.
• Cost? It is unclear whether Advantage is less expensive than Medigap plus Part D based on all my research. It ultimately will depend on the details of each plan and your specific medical needs.
There are also several disadvantages of Advantage plans:
• Choice. Under Original Medicare, you can visit any doctor in the country who accepts Medicare patients. Under Advantage, you are limited to only those doctors in the HMO’s or PPO’s network. Some plans allow you to get care outside their network, but at a significantly higher cost. In addition, if you need to see a specialist, under Advantage you generally need a referral from your primary-care physician.
• Guaranteed issue. This applies to Medigap policies and means the insurer cannot reject you or charge you a higher premium based on your individual health situation. If you sign up for a Medigap policy within the first six months of your 65th birthday, it will be guaranteed issue. If instead you sign up for Advantage and later wish to switch to Medigap, you will be subject to medical underwriting and can be refused a Medigap policy or charged extra for it, except under certain circumstances. Switching from Medigap to Advantage, however, is always possible.
• Standardization. Choosing a Medigap plan is easy. Decide on the plan you want, then find the one with the lowest premium. Advantage plans, though, can have widely differing features from one HMO/PPO to another. Comparing them can be a daunting task.
In short, there’s no clear winner between the two types of Medicare insurance. Be aware also that neither provides long-term care coverage except for a very short period of time under very limited circumstances. Every family should have a plan in place for the possibility of a long-term care event.
Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, visit cognizantwealth.com.
