Perhaps the most common question I get asked, by those new to Medicare, is whether they should use a traditional Medicare Supplement (aka Medigap) with a Medicare D plan or a Medicare Advantage plan that includes Medicare D (aka MAPD).
In my opinion, throwing politics aside, both plans will accomplish what they want to accomplish. Both plans are slightly different than what people are used to but as long as people understand the differences, there is not a huge problem.
Until the last decade of the 20th century, the US Government had a monopoly on health insurance for those over 65. The lack of competition frustrated many, but to be honest, that particular frustration was typically felt by those who were politically minded.
What was more frustrating (and still is) is that after many years of using, and understanding, health insurance people had to learn an entirely new system.
Original Medicare is made up of two parts. I remember them this way, although Medicare, for whatever reason, has elected to complicate things by adding some benefits that, in my opinion, should be Part B benefits to Part A. I remember them this way.
Medicare A covers the hospital bill. When one is admitted to the hospital, who has Medicare A, their bill will be limited to a rather large deductible. For 2019 that deductible was $1364. That means that a person with Medicare A would only have to pay the hospital $1364 and Medicare will take care of the rest of the bill.
Medicare A is available to all US Citizens who have either personally paid Medicare taxes for at least 10 years or are married to someone who has. There are ways that legal immigrants, who have not worked in the US for 10 years, to buy credits (pay premium) for Medicare A.
Unlike Medicare A, Medicare B is optional coverage. The government makes it easy for people to have Medicare B, and in my opinion, it could be the best buy in health insurance today. However, having said that, and not encouraging anyone to drop Medicare B, it is still optional.
The standard premium for Medicare B is just $135.50 for 2019 but in the past few years Medicare B premiums have been tied to an individual’s income. A surcharge, called an IRMA, can be added to folk when CMS (Centers for Medicaid & Medicare Services) determine that your likely annual income will exceed levels determined by congress.
HINT: It is common for a newly retired individual to get an IRMA surcharge since Medicare review their tax return from two years previously, when they were actively at work. It is common for an individual’s income to drop, significantly, when they retire. If you are subject to an IRMA surcharge when you first retire, in the letter that Medicare sends you to let you know that you are subject to an IRMA surcharge, will be instructions on how you can “appeal” their decision. You will need to send them documentation to show that you have actually retired and that your annual income will not be as great as it was 2 years ago.
Medicare B covers all your health related bills that are not covered by Medicare A, with certain exceptions. Here is the way that system works.
CMS determines how much a doctor can charge for services to a Medicare beneficiary. Medicare will then pay 80% of that amount, but only after you have paid the annual Medicare B deductible. That deductible is review, and adjusted, every December. In 2019 CMS set the Part B deductible at $185.
The problem with Original Medicare is not so much the deductibles, although they can be a nuisance. The problem is that there is no limit to the amount that a person’s 20% coinsurance could be with Medicare B. That uncertainty is the primary reason why people by a traditional Medicare Supplement (Medigap) plan. It is to pay all, or a portion of what Original Medicare does not pay.
This would be a good place to talk about another of the confusing aspects of Medicare; Medicare D.
Previously, most Americans had prescription drug coverage included in their health insurance and were used to going to the pharmacy to pick up a prescription and showing them the same insurance card. That is not the way it works with Medicare.
One of the limits to Medicare is that it does not automatically cover drugs obtained outside of the hospital. Those are covered under the optional Medicare D plan.
Medicare sub-contracts out the responsibility to administer a plan, for Medicare beneficiaries to obtain prescription drugs, to private insurance companies. CMS determines a “standard” plan that all Medicare D plans must use a a basis, but each insurance company is free to offer more benefits, than the “standard plan”, if they want.
HINT: A common complaint I hear from recent retirees is, “I don’t take prescription drugs now so I see no reason to pay for Medicare D.” I can see their point but there is one piece of information that they are not considering.
Congress has determined a lifetime penalty for those who have the chance to enroll in a Medicare D plan but waited until they needed regular prescription medication to enroll. That penalty is 1% of the national, average “standard premium” for each month an individual could have had Medicare D but opted to wait.
The bottom line is that if one elects to use Original Medicare, in order to cover the basic gaps it leaves, one would need both a Medigap and Medicare D plan.
Remember that I mentioned the lack of competition in Medicare previously? Well, in the last decade of the 20th century something was done about it. Congress authorized private insurance companies to compete with Medicare. Today the result of that legislation is Medicare Advantage (Medicare C).
There are several different types of Medicare Advantage (MA) plans available but I am going to limit myself to the two types that I deal with.
MAPD – HMO
Often recognizable by their $0 premiums, these plan are required to cover everything that Original Medicare covers with one notable exception.
Those who elect to use MAPD – HMO plans must elect a Primary Care Physician and only use that PCP unless the member is given a referral to a network specialist. If a member elects to go straight to a specialist, or use a doctor/hospital outside of the plan’s network, there is no insurance protection and they are personally liable for the entire medical bill.
Those who previously had HMO coverage will not experience as much shock as those who are used to PPO coverage.
HINT: If you elect to use a MAPD – HMO make sure you are either flexible with your doctor/hospital or that your current doctor is in the plan’s network.
MAPD – PPO
This type of plan is more similar to what people are used to before they enroll in Medicare. It includes prescription drug coverage, similar to what people are used to. It also does not have the same restrictions, on what doctors/hospitals, can use the plan. However, that does not mean that it does not use “networks”.
Here is the importance of understanding how the “network” system works in your plan.
Most plans provide one benefit schedule when a beneficiary uses a provider that is within the plan’s network and another schedule when they use a provider that is not in the network.
Typically, when a member uses a network provider they are only responsible to pay a nominal co-pay. However, when they use a provider who is not in the network, that bill is subject to a deductible and percentage based co-insurance amount.
It is less than ideal, but it is much better, in my opinion, than a MAPD-HMO. With it’s out-of-network benefit it is much more forgiving for those people who tend to get confused over how their health insurance plan works.
Both MAPD – PPO and MAPD – HMO plans have maximums that a member could pay, in co-pays, during one year and are much less expensive than traditional Medigap plans with Medicare D. They just work differently. It is up to you to learn how your plan works and follow the plan’s rules in order to maximize the benefits that you get.
There are additional element of Medicare that, may not make sense, but the rules are the same for everyone. It is up to you to learn the rules.
As an insurance agent, I am only able to help people who live in Texas. If you live in another state, you should contact an agent from your state. However, if you live in Texas and are still confused about Medicare, use the form below to contact me.