One thing Seniors in this country need to seriously consider when entering Medicare is the difference between Medicare Supplements and Medicare Advantage. Let’s face it. Every senior is overwhelmed with options. Just in one state there can be over 30 different options for Medicare Advantage plans this year, 10 to 20 different Part D plans, and dozens of insurance companies that offer insurance supplements, and then they have Plan A through N. So that’s dozens and dozens and dozens of options. Everybody wants it streamlined. Everybody wants a shortcut.
There is no best plan. Oh, how I wish there were. There are good plans that fit different people differently, which really is a good thing. Medicare Advantage and Medicare Supplement are both great plans. My mother is on one plan, and my father on the other plan. One fit him much better. She, based on her health, how shes doctors, how much she travels, another one fit her better. So let’s discuss the differences between Medicare Advantage and Medicare Supplement.
I like to call this a Cadillac plan. It’s a Cadillac because it is extremely flexible. You can go to any doctor that accepts Medicare, any hospital in the nation. You’re not restrained by any type of network. You’re going to pay a flat fee monthly, so it’s great if you want to know your budget to a T. You’ll know exactly how much you have to pay a month.
The premiums are relatively inexpensive, however that’s going to vary based on where you live in the country, your age, whether you smoke, male or female. It’s a good rule of thumb, let’s say, a 70-year-old is going to be around $120-130 a month. Then you’ll also have on top of that drug coverage, which might run another $30/month on average. So, a flat $150 that you know you’ll spend every month, each and every month all year, whether you use it or not. That’s they key. And depending on which plan you choose, you just might have one small deductible or possibly some copays along with it. When it comes to Medigap Plans, a Medicare Supplement Plan F covers 100% of the gaps in Medicare for one monthly premium. There are no surprise bills, simply show your cards and go home and not get any bills.
Medicare Advantage plans
Medicare Advantage plans, like I said there are many different plans based on where you live in the country, but the most popular plans have zero premium. You would have zero monthly premium, and many of these plans have the drugs rolled in so it’s your Medicare Advantage and your Part D rolled together, both for zero dollars a month. As we discussed, with a Medicare Supplement you had complete knowledge of what your budget will be every month, because you know you’re going to pay $150 whether you use it or not. That’s obviously not the case with an Advantage plan, because you have no idea really how much you have to spend a month. If you don’t use it all, clearly you’re going to spend zero dollars in premium. But if you use it a lot, you’re going to pay as you go.
I love this scenario of envisioning these two products. Medicare Advantage is an a la carte restaurant. A la carte. When you go to an a la carte restaurant, one of my favorites, you pay as you go. You get the corn, you get potatoes, you pay for the turkey, you want pecan pie, you want Jell-o. My kids bankrupt me because they want to put every single thing on their tray. I’m pretty cheap to feed there, ’cause I only want the pecan pie, I want some milk, and I like mashed potatoes. You pay for what you use. When you go with a Medicare Advantage Plan, you’re going to pay what you use.
So, for example let say you see a regular family doctor, which might run about $10/visit. To see a specialist, it might be $20-30. If you visit the emergency room that might be around $70-100. What really gets expensive, if you are in the hospital overnight, and that could be anywhere from, let’s say $100-250 per night. Many different limitations are based on the policy, but you get the point. You pay as you go. If you don’t use it at all, you have zero costs that month, versus a Medicare Supplement, it’s going to be a flat fee.
Every month, I’m going to pay that flat monthly premium for a year, and it’s going to be the same whether I use it or not. So if I have open heart surgery, I need a transplant, I need my leg amputated and a prosthetic, therapy, still going to cost me $120/month. The downside of that is if you’re like my dad and you never go to the doctor, you’re paying $120/month, each and every month. So you look at somebody that goes to the doctor twice a year, how much were they actually paying for that doctor visit? When they actually go to the doctor, they’re not digging in their pocket for a co-pay. They don’t pay anything at the doctor so they love that. But what’s their actual cost, right?
So their actual visit was costing them $500, if they went twice. They might be a lot happier with a Medicare Advantage plan where, if they only went to the doctor twice and it was a regular family doctor, they went twice last year, their total cost out-of-pocket would be $20. Now, they would have had to dig into their pockets for their co-pay, and some people just don’t like that. They don’t like having to get their checkbook out or get some cash out every time. It’s just not for them. They’ll pay more for the flexibility of having it all paid for and having a set budget.
And then also, the big difference is of course your access to providers. With the Medicare Supplement, you can go to any doctor and any hospital. Medicare so it’s completely flexible across the nation. You can put it in your pocket and go out traveling, you know you’re not going to have trouble. With Medicare Advantage, depending on the type of product that you bought, and there are many different types of products that fall under the Medicare Advantage umbrella. Private Fee for service, PPO, HMO, cost plans, there are many different kinds of plans. Some have a much wider range of doctors that you are eligible to see, some are a lot more restrictive like the HMO model. So, depending on which type of plan you have, you might not want to travel. It might be too much of a hassle. Or you might not want to take the risk of spending six months a year in Florida at your second house. This might be a better fit for you.
Budget is always a big consideration, right?
This is $120/month. This is $0/month. Which one’s cheaper? What’s the bottom line? Like I said, everybody wants a shortcut. I don’t know what’s the bottom line. I don’t know what your actual costs will be. If you can tell me with certainty how much medical care you’re going to need this year, you’re going to go to the ER, you’re going to break your write, you’ll have bronchitis in the winter, if you can tell me with certainty, I can tell you exactly how much it will cost you here and which plan will be better, but you can’t. So I can’t tell you which one’s actually going to save you the most money.
You can look at your past history and see, based on the last five years, which one would have come out more economical for you. But insurance is all about risk and what you feel comfortable with. So the total risk right here is at $120 times 12. Your total risk on Medicare Advantage of course is going to be the floor. Most plans have a ceiling and we’ll see every plan have a ceiling soon, I think legislation’s coming, where you can’t pay more than a certain amount. Typically, $3000-5000. Once you hit that amount, you wouldn’t pay any more in a year. So, this plan is a $4000, and we know every year, this plan’s a $1400 plan, we can see a double risk. But you also take the risk that you would save more money on this side.
So, I go back to what I started with: there is no best plan. But it is typically very wise to at least get some coverage over Part A and Part B Medicare so you have some help should you incur medical expenses during the year.