When making any significant purchase, price is important but rarely the only factor considered. Whether buying clothes, a car, or a home, we weigh multiple attributes alongside cost. The same principle applies when selecting a Medicare health insurance plan. While price matters, focusing solely on the initial monthly premium can lead to costly mistakes.
This article explores the biggest danger when choosing a Medicare supplemental plan and provides a comprehensive overview of the available options, their financial details, coverage features, and how premiums may change over time.
Understanding the Four Primary Medicare Coverage Options
When you become fully eligible for Medicare and are no longer covered by a group plan, you have four primary options:
- Medicare Part A and B Only: This is original Medicare without any supplemental coverage.
- Medicare Part A and B with a Medigap Policy plus Part D Prescription Drug Plan: About 40% of Americans choose this option.
- Medicare Advantage Plan (Part C): This replaces original Medicare (Parts A and B) and often includes prescription drug coverage. Approximately 50% of the market opts for this.
- Medicare Advantage Plan without Part D: This is for specific groups such as military retirees or federal employees who get prescription drugs through other systems like VA or Tricare.
Financial Details of Each Option
1. Medicare Part A and B Only
- Part A Premium: Most people (99%) get premium-free Part A by having worked 40 quarters (10 years) paying payroll taxes.
- Hospitalization Costs: Deductible of $1,736 covers the first 60 days of hospitalization.
- Part B Premium: Typically $229.00/month, income-based adjustments apply.
- Part B Deductible: $283 annually.
- Outpatient Services: Medicare pays 80%, you pay 20% coinsurance.
- Prescription Drugs: No coverage, costs are unlimited.
- Max Out-of-Pocket: Unlimited, meaning potentially very high expenses.
2. Medicare Part A and B with Medigap Policy (Plans G and N)
- Part A Premium: Same as above, usually zero.
- Hospitalization: Covered fully by Medigap, no deductible.
- Part B Premium and Deductible: You pay the Part B premium and the $283 deductible (except Plan F covers deductible but is no longer available to new enrollees).
- Outpatient Services: Plan G covers 100% after deductible; Plan N requires small copays ($20 for doctor visits, $50 for ER).
- Prescription Drugs: Covered by a separate Part D plan with premiums varying from $0 to $100/month.
- Max Out-of-Pocket: Limited to premiums plus deductible, typically around $2,000 annually.
3. Medicare Advantage Plans (Part C) with Prescription Drug Coverage
- Part A Premium: Usually zero.
- Hospitalization: Daily copays (e.g., $400/day) for hospital stays.
- Part B Premium: You must pay the standard Part B premium.
- Outpatient Services: Copays for specialist visits (~$50), scans ($250-$400), surgeries ($300-$400), ER visits ($125-$150).
- Prescription Drugs: Included with deductibles and coinsurance similar to Part D plans.
- Max Out-of-Pocket: Average $5,900 annually, but can be as high as $9,300 in-network or $13,000 combined.
4. Medicare Advantage Plans without Part D
- For those receiving prescriptions through VA, Tricare, or Federal Employee Benefits.
- Similar costs as above but with a credit back on Part B premium.
- No prescription drug costs through the plan.
Coverage Features and Provider Choices
Care Management
- Original Medicare (A and B) and Medigap: Care managed by Medicare and your doctors.
- Medicare Advantage: Managed care plans administered by insurance companies.
Provider Choices
- Original Medicare and Medigap: Nearly unlimited choice of doctors and hospitals that accept Medicare.
- Medicare Advantage: Limited to network providers; networks vary widely:
- Best networks cover about 70% of local doctors (22% chance).
- Average networks cover about 50% (43% chance).
- Smallest networks cover about 30% (35% chance).
Referrals and Pre-authorizations
- Original Medicare and Medigap: No referrals required; pre-authorizations are rare.
- Medicare Advantage: Often require referrals and pre-authorizations for many services.
Financial Risk
- Original Medicare Only: Unlimited financial risk.
- Medigap: Very limited financial risk, mostly premiums and deductibles.
- Medicare Advantage: Moderate risk with annual out-of-pocket maximums.
Travel Flexibility
- Original Medicare and Medigap: Coverage nationwide and some worldwide emergency coverage.
- Medicare Advantage: Coverage mostly local; emergency care covered nationwide.
Underwriting
- Original Medicare and Medigap: No underwriting if enrolled during initial enrollment period (6 months after Part B starts).
- Medicare Advantage: No underwriting required; can enroll or change plans during open enrollment periods.
Future Changes and Premium Increases
Policy Terms
- Original Medicare and Medigap: Lifetime coverage as long as premiums are paid.
- Medicare Advantage: One-year contracts; plans can change or be canceled annually.
Coverage Changes
- Original Medicare and Medigap: Coverage stable; deductibles and copays may increase slightly.
- Medicare Advantage: Coverage and costs can change significantly each year.
Cancellation Rights
- Original Medicare and Medigap: Only you can cancel; insurance companies cannot cancel due to age or claims.
- Medicare Advantage: Insurance companies can cancel plans.
Portability
- Original Medicare and Medigap: Portable nationwide.
- Medicare Advantage: Not portable; must change plans if moving.
Premium Increases
Medigap premiums increase based on rating methods:
- Community Rated: Same premium for all regardless of age or gender; common in a few states (e.g., New York).
- Issue Age Rated: Premium based on age at policy issue; premium does not increase due to age.
- Attained Age Rated: Premium increases as you age.
All rating methods are subject to group increases approved by state insurance commissioners based on claims experience.
Conclusion: Why Focusing Only on Initial Premium Is Dangerous
Choosing a Medicare supplemental plan based solely on the initial monthly premium can be misleading. While some plans may have low or zero premiums, they often come with higher out-of-pocket costs, limited provider networks, and less stability.
Medigap plans, though they may have higher premiums, offer more comprehensive coverage, predictable costs, and broader provider access. Medicare Advantage plans offer lower premiums but with more restrictions and potential for cost increases.
Understanding all aspects—financial, coverage features, provider choices, and future changes—is essential to making an informed decision that protects your health and finances.
For those interested, the author recently chose a Plan G Medigap policy upon starting Medicare and shares insights on why this was the best decision for his needs.
Making the right Medicare supplemental plan choice requires careful consideration beyond just the monthly premium. Take the time to evaluate all factors to ensure your coverage meets your current and future healthcare needs.
