Negotiating the Medigap-Advantage Maze
Choosing a Medicare option is one of the biggest decisions baby boomers make.
Nearly half of U.S. retirees today have Medicare Advantage policies – that’s double the market share just 15 years ago. The reason for Advantage plans’ popularity is their low monthly premiums. But as enrollment surges, some of our blog readers who signed up for the plans have complaints.
Advantage plans are complete insurance policies that operate much like employer health plans with copayments and deductibles. They have been heavily criticized for becoming increasingly profitable and costly for the federal Medicare program, which reimburses insurers for retirees’ care.
And retirees complain that they can’t go to any doctor or hospital they like. They are talking about Advantage plans with health maintenance organizations, or HMOs, which require them to select their medical providers from a list approved by the insurance company. If they want to see someone outside this network, they have to pay more.
Advantage plans “are great if you’re healthy,” Dr. Edward Hoffer in Boston commented in a recent blog. “They often offer extra benefits such as dental coverage or gym memberships. Be wary if you are ill, as they offer limited access to top hospitals and specialists.”
But many Advantage policies have zero premiums, which are a big selling point. In fact, the United plans promoted by AARP in Florida have no premium “on most plans.” The other option is Medigap, which rarely puts limits on where retirees can go for care – but has much higher monthly premiums than Advantage policies. This is a luxury many of Dave Cowden’s middle- and working-class customers in southern Indiana and northern Kentucky can’t afford.
Sometimes Cowden, an insurance agent, does recommend Medigap to a client with serious medical problems. That’s because Advantage plans charge a set fee for each night spent in a hospital. That fee – roughly $200 to $500 per night – can add up fast after a couple overnight stays.
“Clients will look at me and say, ‘I can’t afford [Medigap]. I have to take the zero-premium [Advantage plan] option,’ ” Cowden said.
Retirees with Advantage plans still pay Medicare’s Part B premium through a deduction from their Social Security check. But in addition to the low premiums on the Advantage plans themselves, most also include a prescription drug benefit and do not charge a separate premium for that.
Unlike Advantage insurance policies, Medigap is an add-on to traditional Medicare and covers the medical bills that Medicare does not. Medigap not only has higher premiums than Advantage plans but retirees, in all but a few states – Minnesota is one – have to buy a separate Part D plan to cover their prescription drugs. Despite the upfront additional costs, some studies show that Medigap plans may have lower out-of-pocket costs over the long run, though the evidence isn’t compelling.
Joe Ruf, who lives in southern New Jersey, said he and his wife spend more than $600 per month for their Medigap and Part D policies combined. On the other hand, they have paid very little out of pocket for surgeries over the years.
The limited physician and hospital networks in Advantage policies that retirees criticize can sometimes be overcome by finding the right policy. But this requires effort on the part of shoppers to research their options and learn how the plans in their area work.
For example, some Advantage plans have preferred provider organizations (PPOs). Unlike an HMO plan network, a PPO permits policyholders to go to their preferred doctors and hospitals. The deductibles and coinsurance tend to be more expensive than Advantage HMOs.
In some healthcare markets, though, access to physicians and hospitals have few restrictions. One national study by the Kaiser Family Foundation made useful distinctions. Nationwide, half of hospitals, on average, were not in their county’s Advantage plan network. In major urban markets, even more are excluded – two-thirds in Los Angeles and Houston. And the plans don’t necessarily pay for care at major cancer centers, such as the Dana Farber Cancer Institute in Boston.
However, in the largely rural market in and around Evansville, Indiana, Cowden said he does not know of a single area hospital that rejects patients with Advantage plan HMOs. Coverage is extensive in the Charlotte, North Carolina, area too: 80 percent of the hospitals are in a network, according to Kaiser.
There is a downside to living in rural areas: it can be more difficult to find physician or hospital care generally. One study found that retirees in rural areas were more likely to switch to traditional Medicare, possibly with a Part D benefit, to increase their options for care.
Bev R recommends consulting with the Medicare counselors who, free of charge, help baby boomers sort through their options. Every state has counselors.
Bev R initially thought she’d buy an Advantage policy but changed her mind and bought a Medigap plan after a counselor “pointed out the disadvantages so obscured in the advertising. There are good [Medigap] options available,” she said.
And that is the most important thing to remember about shopping for a Medicare option: it requires doing the work to find the right one.
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Unless you are really sick or really risk-averse, the right Medigap policy is no policy, for the same reason most people don't buy bicycle or window insurance. The premium exceeds the expected value of claims, and Medicare already provides insurance against catastrophic loss.
It should be further emphasized that Medicare Advantage PPO plans offer much more in-network coverage for doctors and hospitals, usually throughout many parts of the country as well as in one’s home area. But what about the premium cost? Is it higher for the PPO version than the HMO version? They are often the same. Here in southeast Florida, most Advantage plans are $0 premiums, whether PPO or HMO. There may be some differences in copays and hospital coverage, but it usually isn’t particularly significant. Bottom line: Medicare participants should always consider the Medicare Advantage PPO plans since they offer much more in-network coverage than HMO plans, usually with the same $0 or low premiums.
My work PPO plan worked great for 40 years. I find that the Medicare Advantage plan works the same way with a wide network and good claims payments. I also believe that someone with ongoing health concerns would be better served with a Medigap policy. Knowing this information ahead of time requires a crystal ball.
Thank you for sharing your insightful article on navigating the complex world of Medicare and Medigap plans. As someone who is approaching Medicare eligibility age, I found your article to be very informative and eye-opening.
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