It happens every year. We are bombarded on TV with commercials enticing seniors to enroll in a Medicare Advantage Plan. This year the notable celebrity pitchmen are Joe Namath and Jimmy “JJ” Walker of Good Times fame. They promise and imply the world if you just sign up. Sometimes I think they would tell you that you will live to be 100 if they could get away with it and it was on the cue card.
But, are they really a good option? Here is the good, the bad, and the ugly…
Everyone gets Traditional Medicare (Part A) upon turning 65, or in some cases younger if you meet certain health qualifications. Part A is the Hospital Portion which has no charge for most people. Then, there is Part B, which covers doctor’s visits, tests, labs, surgical fees, and other care not directly associated with a hospital visit or stay. Part B is optional and comes with a charge – usually deducted from Social Security benefits if you are collecting. In 2022, this will be $170.10 per month for most people, although high earners (based on income from two years prior) could pay as much as $578.30 per month. Those who don’t enroll when they become eligible and don’t have other “creditable coverage” (usually a group work plan) face higher penalty rates when they ultimately enroll.
Traditional Medicare does not cover everything, and it comes with deductibles and co-insurances that in some instances could leave you with a bill for many thousands of dollars. It also does not cover outpatient drugs, or provide benefits when traveling outside of the US. On a very good note, Traditional Medicare is accepted by almost all providers and facilities, and requires no referrals to see a specialist, just that treatment is medically necessary.
Enter Medicare Supplements. These standardized plans, offered by insurance companies, pay some or almost all of the out of pocket costs associated with Traditional Medicare. Monthly premiums range from under $100 per month, to hundreds of dollars per month, depending on age (in most states) and the benefits being provided. They are available without medical underwriting for pre-existing conditions when purchased within six months of originally enrolling in Part B. There are some other instances where an applicant can enjoy guaranteed issue, but in most other cases pre-existing conditions will be excluded for six months.
Medicare Part D, refers to prescription drug coverage also available from insurance companies. Like Medicare Supplements, they are regulated by CMS, but not completely standardized. Also like Part B, high earners and late enrollees will pay a higher premium.
Now let’s discuss Medicare Advantage Plans, which are also called Medicare Part C. Those who enroll in Advantage plans trade the Part A and Part B benefits for an HMO, or PPO (in rare instances) offered by an insurance company. The insurance company receives payments directly from Medicare to provide health benefits to their members. Many of these plans are available at little or no cost, although the Part B premium must still be paid.
Most of the plans, as HMO’s, provide all care through their network of participating providers and facilities, primarily with little or no out of pocket cost to the member. They are usually gated – requiring a referral from a primary care physician to access specialist’s, and as managed care the insurer may delay or deny certain treatments. In many cases, the networks are not very large.
What they do usually provide is prescription drug coverage, and other benefits such as dental care and gym memberships. On the other hand, many have no networks outside of your home area, so snowbirds may have limits to coverage access for part of the year.
My take on all of this…
Everyone’s situation is different. However, those on Medicare are at a stage of life where one should expect health issues that are increasing in frequency and often severity. When facing a serious illness, you should want the best care possible. It can often be the difference in your quality of life and even life or death. If you get a cancer diagnosis, do you want to be treated in the local community hospital or have the option of being treated at a center of excellence like Memorial Sloane Kettering?
The Medicare Advantage plans look great on paper. They cover everything and cost little out of pocket. However, the quality of care has limits. They pay doctors and facilities less than Traditional Medicare. Many facilities and providers won’t or can’t discount their fees to those levels. It’s usually the better and more successful ones who don’t. Often the members are left being treated by the second string. That’s a horrible dilemma when you have a serious issue.
If your strategy is to save money on the Advantage Plan until you get sick and they switch back, there are two problems with that. Generally, you can only switch back on January 1st each year, so if you get sick in February, that’s a lifetime – sometimes literally. Second, you will usually incur a pre-existing condition limitation upon applying for a Medicare Supplement, so that’s an additional 6 months of potentially large expenses.
There is nothing more important than your health. Traditional Medicare costs you more than Medicare Advantage, but the benefit can be priceless. Silver Sneakers v. Sloane should be a no brainer. If you are already at Medicare age, bite the bullet if you can. If you aren’t there yet, it’s time to incorporate your future health care needs into your Financial Plan.
The Bottom Line: You can’t put a price on your health.
–Michael Ross, CFP®