Millions of Americans depend on Medicare to meet their basic health needs. The program delivers benefits in a series of parts, known as A, B and D, which cover 80% of the costs of inpatient care, outpatient services and prescription drugs. There is a fourth element of the program, known as Part C, or Medicare Advantage, that delivers insurance to qualifying seniors through private-sector insurers. Medicare Advantage plans are required to provide customers with all the benefits of Parts A and B, and many of the available plans add extra benefits for members to make themselves more attractive for beneficiaries.
Some beneficiaries prefer Medicare Advantage to handle most or all their health needs, while others prefer Original Medicare with a supplement to cover their medical costs. The purpose of this guide is to help seniors, caregivers, family members and other loved ones understand the difference between Original Medicare and Medicare Advantage, to facilitate making an informed choice about which approach works best for you.
Original Medicare is a federal program that provides low- and no-cost health insurance for seniors. It’s divided into three main parts:
Many seniors choose to supplement their Original Medicare coverage with a private sector supplement that plugs many of the gaps left by Medicare’s incomplete coverage, sometimes known as Medigap plans. These plans are also designated by letters, but they are not part of Original Medicare. Plan F, for example, pays 100% of beneficiaries’ out-of-pocket costs in exchange for a monthly premium that can be relatively high, while Plan K pays 50% of the uncovered out-of-pocket costs for some elements of Parts A and B. Premiums and benefits for these plans vary somewhat, and various states regulate Medigap insurers to maintain minimum coverage levels and maximum costs.
Medicare Advantage plans are often referred to collectively as Part C, though these privately provided insurance policies are not part of the federal Medicare program. By law, authorized Medicare Advantage plans must provide all of the same benefits as Original Medicare Parts A and B, but combined into a single monthly premium that may be easier for some seniors to manage. Many Medicare Advantage plans also include some coverage for Part D benefits and some extras not usually covered by Original Medicare, such as eye exams and dental services.
Insurance companies that offer Medicare Advantage plans have been authorized to seek compensation for covered services from the Social Security Administration, which reimburses costs in blocks based on group rates for the geographic service area. Because there can be a disconnect between reimbursement and actual cost, some Medicare Advantage customers with high-deductible plans pay a $0 monthly premium. Others may pay a premium for their Part C coverage and a deductible that varies according to the benefits included in the plan details. In 2020, the average Medicare Advantage premium is $35 a month, which is generally charged on top of the standard Part B monthly premium.
Judy is a generally healthy 65-year-old former office worker with 25 years’ work history who has just become eligible for Medicare this year. She visits the doctor once a year for a physical and takes a generic blood thinner daily, but otherwise, she doesn’t have significant medical needs. She has no pre-existing conditions and a decent pension, so she is easily able to pay the $100 private visit fee her doctor charges once a year. Her generic medication costs around $25 a month, depending on the pharmacy she visits to get it. Judy has heard from friends that she should look into her Medicare coverage options and that prolonging enrollment can cause expensive delays later, but she is having a hard time making sense of all the plans open to her.
In Judy’s case, her relatively simple health profile and inexpensive prescription needs make Original Medicare easily the most attractive option. Because of her extensive work history, during which she routinely paid into Social Security from her paycheck, she is qualified to get Part A hospitalization benefits without a monthly premium. This helps cover emergency care, provided she is admitted to the hospital through the emergency department, and it can pick up some of the costs related to her care while she’s in a facility. Otherwise, Judy may be able to skip paying Part B and D premiums, and a more expensive Medicare Advantage plan would probably have her paying monthly for services she doesn’t use.
In this case, Judy would wind up paying just $1,000 for 10 years of regular doctor’s office visits, plus $3,000 over 10 years for her blood thinner medication. If she has an incident in those years that sends her to the hospital, her costs under Part A will be a $1,408 deductible, plus 20% of whatever care she received as an inpatient.
William is an 80-year-old man with congestive heart failure. Since retiring from his physically demanding job 15 years ago, he has had chronic joint and spine pain, and five years ago he had a total knee replacement that has left him in need of braces and a cane. William goes three times a week to physical therapy for his back, and he takes half a dozen prescription drugs every morning, including Digitalin and one other drug that requires close coordination with his primary care physician. Though he can still mostly look after himself, he sometimes falls down at home. William gets help twice a week from an in-home caregiver who cooks and cleans for him. William’s son and daughter have noticed that he has recently become forgetful, and they are worried he may soon need professional memory care.
William has a lot of medical needs that touch almost every part of Original Medicare. His falls may cause an injury that requires hospitalization on a minute’s notice, as could his heart condition. Eventually, if he is admitted to a memory care facility, his Part A expenses will be even higher and continuous. William needs Part B coverage to frequently touch base with the doctor managing his prescriptions, as well as for medical transportation and the occasional urgent care visit to get bandages or other first aid care. William certainly needs a good Part D plan to get him affordable medications that for health reasons he cannot just discontinue, and he may even need extra benefits that Medicare doesn’t provide to increase his home caregiver help to five days a week.
In this case, William would almost certainly be best off with a comprehensive Medicare Advantage plan that covers Parts A, B and D. There are a lot of these plans, each with their own costs and exclusions, but William’s children can help him browse for one that anticipates in-home caregiver expenses.
William’s most likely costs will be the Medicare Advantage combined monthly premium for all parts of his coverage, which could be anywhere from $0 to several hundred dollars a month. He is also likely to have a $1,408 annual deductible for Part A, a $198 annual deductible for Part B, and up to a $435 annual deductible for Part D. This is over and above whatever the share of cost is on his Medicare Advantage plan. If the plan William goes for includes extras such as eye exams and dental care, he may have to pay more each month. However, Original Medicare pays for none of these benefits, so he needs the extra coverage to save thousands of dollars in the next decade. Medicare Advantage is by far the better choice for William.