Medicare Advantage is Super Popular: Here’s the Risk
Its care networks are often small and switching to traditional Medicare can come with a penalty
A maddening fact of our national programs for the elderly — Social Security, Medicare — is having to choose varying benefits that are often hard to unpack and compare.
With Medicare, the big decision is whether to enroll in Original Medicare or the newer version called Medicare Advantage. Over the past decade, Medicare Advantage has been on a tear. Enrollment has doubled, and more than one in three Medicare enrollees are using Medicare Advantage rather than the traditional program.
Medicare Advantage is popular because of its all-in-one packaging of services, and lower upfront premium costs compared to Original Medicare. But there are important tradeoffs many people don’t realize until they are very sick and find they don’t have access to the specific care (caregiver) they want.
Before we get into tradeoffs, a quick spin through the differences between Original Medicare and Medicare Advantage:
Original Medicare comes in three to four pieces. When you enroll you are signed up for Medicare Part A coverage, which covers hospitalizations and typically doesn’t require paying a monthly premium. (Though there is a deductible for each hospital stay.) Medicare Part B covers your actual care: doctor visits, tests, etc. There is a monthly premium for Part B, which for most people is deducted straight from their Social Security check. The premium is based on income. In 2020 the base monthly premium is $144.60. It more than triples for higher income individuals.
Prescription drug coverage requires purchasing a separate policy, called Medicare Part D.
The fourth part is related to Medicare Part B, which does not cover all costs. Medicare Part B generally covers about 80% of charges, and plunks the other 20% or so in the enrollee’s lap, with no annual maximum.
The fourth leg of Original Medicare is Medigap, a complementary insurance policy that can be bought from a private insurer that fills a gap, offering coverage for Part B expenses that would otherwise be out-of-pocket. When you first become eligible to enroll in Medicare (age 65), you are entitled to buy a Medigap policy at a set price, regardless of whether you have any pre-existing conditions.
Medicare Advantage’s charm is that it rolls all those options into one package. Choose a Medicare Advantage policy and it will cover your Part B premium, provide prescription drug coverage and offer broad coverage that makes it unnecessary to add a Medigap policy (though there will be out-of-pocket charges that are subject to an annual limit). Medicare Advantage also often provides additional coverage you don’t get with Original Medicare, such as dental and vision coverage.
It’s easy to see why Medicare Advantage is popular. But what may get overlooked when you’re healthy at 65 and enrolling are the inner mechanics of the program.
Most Medicare Advantage (MA) plans require enrollees to stick with only the doctors and facilities in its network, which in some areas can be rather narrow. And for anything but basic preventative care, MA plans require you, or your caregiver, to get prior authorization. With Original Medicare you can use any doctor or facility that accepts Medicare, and you don’t have to get preapproval for treatment.
None of that may seem important if you hit 65 in good health. But what if you get sick? Really sick? And you want to get to the best care possible. And that care is not in your Medicare Advantage network.
You could go out of network, but that is going to add up. In 2021, federal law will require Medicare Advantage plans to cap out-of-pocket costs for services that fall under Medicare Part A or B at $7,500 for plans that strictly limit care to a closed network (an HMO), or $11,300 for plans that allow an enrollee to seek care outside of the closed HMO network. Note: Prescription drug costs are not part of these annual limits.
And if you think you’ll just switch to Original Medicare so you have a wide field of care options, this is where a somewhat hidden trap comes into view. Switching from Medicare Advantage to Original Medicare is absolutely allowed. But it is only automatic for Parts A, B and D. The Medigap leg is where things get dicey.
Outside of the initial enrollment period at age 65 (or whenever you first sign up for Medicare) if you want a Medigap policy, in most states insurers can consider pre-existing conditions. That is going to cost you, or make it impossible to obtain the supplementary coverage. And that may effectively thwart your attempt to move to Original Medicare to expand your care options.
Residents of a few states don’t have to worry about that. According to the MedicareResources.org website, California, Connecticut, Maine, Massachusetts, New York and Oregon make it fairly easy to switch to Original Medicare and purchase a Medigap policy regardless of pre-existing conditions (i.e., you won’t pay more, or be denied).
And there are some other situations in which you may be able to switch and qualify for a Medigap policy regardless of pre-existing conditions: generally, if you decide to leave Medicare Advantage within the first year; and if for some reason your Medicare Advantage plan terminates in your area, you can switch to Original Medicare and purchase Medigap without pre-existing condition limitations. (You can also enroll in a different Medicare Advantage plan.)
More questions? You can get guidance on the rules for your state and situation through the State Health Insurance Assistance Program, known as SHIP. You can find a local SHIP center at shiptacenter.org.