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Medicare Series #2: Medicare Part C or Medicare Supplements?

Medicare Series #2: Medicare Part C or Medicare Supplements?

August 07, 2018
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Time to put an end to the confusion...

You read our articles in the Medicare series showing you how to sign up for Medicare Parts A/B, and Part D, and you’re ready to fill the last gap in your health care coverage. If you have not read the previous articles, we highly recommend reading both of those before diving into this one. Medicare Part C and Medicare Supplement Plans can be quite complicated. There is much more detail to decipher and compare before determining what route to go for your health care in retirement. Like we have mentioned before, signing up for A & B was just the beginning…

  • Have Medicare Parts A & B already? Maybe even Part D? Looking for the next step?

  • Are you confused by Medicare Part C, exactly what it is, and how it works?

  • I have heard of Medicare Advantage and Medicare Supplement Plans (aka Medigap). Is there a difference?

  • Maybe your parents are approaching age 65 and would never find this blog because they aren’t too tech savvy (they need to know this stuff!).

If these are some of the questions you have or situations you are in, read on!

*This article contains a healthy amount of information and we value your time, therefore please skim over the green headings first to find the information you may need.  

 

What To Understand About Part C

 

Medicare Part C is commonly referred to as “Medicare Advantage” (sometimes called “Medicare Health Plans”). These “MA” plans are designed as managed care plans like HMOs and PPOs (there are more types as well). They include Medicare Parts A & B, and usually Part D. You enroll with a private insurance company that has been approved by Medicare to manage your care. In most plans, you need to use the plan doctors and hospitals called “in-network” providers, otherwise you will pay more or possibly all of the costs. You usually pay a monthly premium for the plan in addition to your Part B premium. You typically make co-payments for covered services. The co-payments cannot be offset by the purchase of a Medigap policy. These are two different things. We will go into Medicare Supplement Plans (aka “Medigap”) later.

Most Medicare Advantage plans bundle Part D outpatient drug coverage with the medical and surgical benefits. In such cases, you do not need to choose drug coverage separately (PDP) or pay a separate premium. Also, many plans include some routine dental and vision coverage that is not covered by Original Medicare (aka “Medicare Parts A & B”). With all the choices you have for obtaining your Medicare coverage, it’s important to understand how each one works, its benefits, and your share of the costs. It is also crucial for you to understand when you should exercise your Medicare coverage options to avoid gaps in coverage and possible permanent premium penalties.[i]

 

Medicare Advantage Plans

 

Medicare Advantage Plans are just different ways to get Medicare benefits.

For example:

  • You may still be covered under your employer’s group health plan and not need Medicare yet.

  • You could choose to have “Original Medicare” which is just parts A and B.

  • You could have parts A, B, and Part D (Prescription Drug Plan).

  • You could also have A, B, D, and a Medicare Supplement Plan (aka “Medigap”).

  • Or, you can just have a Medicare Advantage Plan which will usually cover all of them.

Medicare Advantage sounds easy right? Everything seems to be bundled into one easy to manage plan, so why don’t I go with that? Don’t jump to conclusions just yet, let’s go over other advantages and disadvantages to MA plans. Then we will dive into Medicare Supplement Plans.

 

Costs/Benefits

Medicare Advantage Plans will cover at least everything that “Original Medicare” would, in fact they have to. This means that you are also covered in emergency situations or need urgent care, even if you have to receive that care in an area not covered under your MA plan’s service area. Good to know!

Medicare Advantage Plans differ from one another. They can charge different out-of-pocket costs, and each can have different rules on how you get services like: whether or not you need a referral to see a specialist; and whether or not you have to go to doctors, facilities, or suppliers that belong to the plan for non-emergency/non-urgent care matters. These rules can change each year. Most Medicare Advantage Plans also offer extra coverage such as; vision, hearing, dental, and even gym memberships.[ii] Something like a gym membership may or may not be important to you, in which case you should assess whether or not you would actually utilize any of those “extra” benefits.

NOTE: MA plans can choose not to cover the costs of services that aren’t medically necessary under Medicare (meaning: accepted standards of medicine).[iii]

MA plans make the enrollee pay part of the cost for covered services (i.e. co-insurance, co-pays, deductibles). You won’t have to pay the deductibles for Part A and Part B like you would under “Original Medicare”, but your plan may have its own deductible(s). Not only that, but most MA plans also have separate deductibles for both medical needs and pharmaceutical needs. MA Plans have annual out-of-pocket maximums unlike “Original Medicare”. This means that once you reach your plan’s maximum, you’ll pay nothing more for covered services.

Monthly premiums do not count towards your maximum out-of-pocket limit. In fact, any costs associated with outpatient prescription drug coverage in the plan don’t apply to the OOP limit either! They have their own out-of-pocket maximum! All-in-all the enrollee’s total share of the costs through a Medicare Advantage Plan typically ranges from 20% to 40% or more, depending on the care received.[iv]

NOTE: Even with a Medicare Advantage Plan, you will still pay the Medicare Part B Premium, and have your Medicare Advantage Plan premium as well.

When comparing plans, don’t always shop for the lowest premium. You get what you pay for! For example, if you find a plan with low or no premiums, that could mean that the out-of-pocket maximums are high, or that the plan “network” includes only one facility to receive care! Those are just a couple examples. The point is, be careful. Review the Summary of Benefits and Evidence of Coverage for each plan you are comparing.

   

Medicare Supplement Plans

What should you compare Medicare Part C aka “Medicare Advantage” Plans to? You got it, Medicare Supplement Plans (aka Medigap). Medicare Supplement Plans supplement your “Original Medicare” benefits. Therefore, you must have Medicare Part A and Part B.

These plans are also offered by private insurance companies but are subject to government regulation. To make your head spin a little more, there are a total of ten Medicare Supplement Plans available regardless of company. They labeled by the following alphabetical characters; A, B, C, D, F, G, K, L, M, N.

Each lettered plan has different levels of coverage. The two providing the most comprehensive coverage currently are Plans F and G. N is also close in the running. There are some key differences to some of these plans that you need to make sure you know before deciding on a plan or comparing to any other plan. See the chart below.

NOTE: “A plan C is a C, a B is a B, etc.” It doesn’t matter what private insurer you buy a particular plan from. The types of plans are the same from insurer-to-insurer and have the same benefits. So what’s the difference between companies? Mainly premium pricing and most important, service!

 

NOTE: Medicare Supplements do not offer vision, dental, or hearing aids unlike some Medicare Advantage Plans. Although, you can purchase individual plans for these separately.

 

Changes are Coming in 2020

  • As a result of Section 401 of the Medicare Access and CHIP Reauthorization Act (MACRA), supplement plans that cover the Medicare Part B deductible will be phased out Jan. 1, 2020. The two Medigap plans affected by this are Plan F and Plan C.

  • People who already have these types of policies will be exempt, but if you become eligible for Medicare following the 2020 change, Medigap Plan C and Medigap Plan F will no longer be options.[v]

 Key Benefits to Medicare Supplements (aka Medigap)

  1. You choose – your health plan doesn’t choose – your doctors and hospitals whenever and wherever you want in the entire USA. You do not have to worry about your doctor or hospital leaving a provider network. And you never need a referral to see a specialist nor a prior authorization from the plan for a diagnostic procedure or hospitalization.

  2. Your Medigap coverage is guaranteed renewable, meaning that if you pay the premiums in a timely manner, your benefits cannot be canceled or decreased. You will not be getting a notice that your health plan’s benefits have changed or that the plan is terminating.

  3. If you relocate anywhere in the USA, you do not need to find a new health plan. All doctors, hospitals, and labs in your new – or temporary winter – residence remain available to you without any out-of-network charges.

  4. You will have predictable costs. The most popular Medigap plans coordinate with Medicare to leave you with little or even no out-of-pocket costs for any and all Medicare covered medical and hospital services. You need only pay a monthly Medigap premium.

  5. You can customize the drug benefits that best match your usage and budget (because you will get Medicare Part D). Unlike many Medicare health plans that bundle outpatient prescription drug coverage with medical and surgical coverage (Medicare Advantage Plans), a Medigap plan does not bundle the outpatient drug coverage together with the medical–surgical benefits.i

 

Costs

Medicare Supplement Plans have a monthly premium that is paid in addition to your Part B premium, (potential Part A premium), and Part D premium.

When analyzing costs, we will reference the most popular and comprehensive plans available right now for most people; Plan F and Plan G.

Average cost for a male age 65 is over $2,200 for Plan F; Plan G is around $1,992. Plan F and G leave the beneficiary (you) with no or little out of pocket for Part A or B services. Total annual cost is over $3,900 a year, not counting co-payments, deductibles, and other out of pocket costs.[vi]

Using Plans F & G, let me break down and illustrate some estimated costs per month for you using my handy-dandy marker…

Let’s put this into perspective as far as premium costs…I am only 26 years old and currently pay $302/mo for my mid-level (silver) PPO plan from the “health insurance marketplace.” On top of that I pay; co-pays, co-insurance, and have a mid-level deductible. These are the costs a Medicare Supplement Plan is supplementing for you! Plans can cover most or all of it! Medicare is starting to sound like a pretty sweet gig isn’t it? Medigap policies are designed to control costs and in effect, create a sort of out-of-pocket limit. 

   

When To Sign Up For Medicare Advantage or a Medigap Plan

Medicare Advantage

Initial Enrollment Period

This is the same IEP that applies to Medicare Part A & B. The 7-month window around your 65th birthday. Again, that is the 3 months before the month of your birthday, the month of your birthday, and the 3 months after.

Open Enrollment Period

The Medicare Open Enrollment lasts from October 15th to December 7th each year. This will give you a plan effective date of January 1st of the following year.

NOTE: There are also Special Election Periods as well as a Disenrollment Period for Medicare Advantage Plans. Contact us if you want to know if you fall into this category.

 

Medigap

Medigap Open Enrollment Period

You are eligible to enroll in a Medigap policy – without the possibility of being denied coverage – during a six-month window that begins the first month that you’re at least 65 years old and are also enrolled in Medicare Part B. You can continue to be covered under an employer plan after age 65, and therefore sign up for Part B later. If this is the case, your six-month window starts once you eventually sign up for Part B.

NOTE: If you apply for coverage after that six-month window has ended, insurers in most states have the right to reject your application or charge you more based on your medical history.[vii]

   

How To Choose The Plan For You

Choosing between Medicare Advantage and Medigap requires you to do your research and know your health. This is a major part of your retirement plan, you want to do it right! By reading this article, you’re already ahead of the game. You will also need to do somewhat of a self-analysis on the likelihood of needing extensive care down the road. One extremely important factor is to know what your pocketbook will look like in a potentially lengthy retirement. Plan for longevity! Medicine has come a long way thus far and will not stop advancing.

This is where having a financial plan is crucial to making an informed decision. Know what you can afford as far as premium, and know if you can afford an emergency. The best way to sign up for either plan is to get in touch with your trusted healthcare adviser. They can help you compare plans and fill out applications. If you don’t have one, you can get in touch with us and we would be glad to assist. We start by assessing your comprehensive financial plan first. If you don’t have one of those either, we can develop a plan with you.

 

Some Important Factors to Consider

  1. In many circumstances, Medigap plans are subject to medical underwriting. If you are looking to replace current coverage, do not surrender your current plan or policy until you are accepted by the new carrier.

  2. A Medigap plan is not a substitute for Medicare Parts A & B. It supplements those programs.

  3. Be careful if you are considering dropping a retiree or union health plan in favor of a Medigap plan. You may be jeopardizing other benefits linked to that union or retiree health plan for yourself or you’re under age 65 spouse.

  4. If you are over age 65 and covered by a large employer group health plan based on your own or your spouse’s current, active employment, then you may not need to enroll in Medicare.

  5. COBRA does NOT qualify as employer health insurance based on “current, active employment”.

  6. Medigap policies cannot be used to pay the deductibles and co-pays of Medicare Advantage plans or of Part D prescription drug plans.i

   

Contact us if you want additional information, or want to know how transitioning to Medicare will impact your overall financial plan.

If you think this article can help someone you know, please utilize the share button at the top of the page.

   

Cameron Valadez is a CFP® Practitioner located in Riverside, CA.

    

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.


[i] (© Associates of Clifton Park, April 2018)

[ii] (Medicare.gov)

[iii] (Medicare.gov)

[iv] (Associates of Clifton Park)

[v] (Associates of Clifton Park)

[vi] (Associates of Clifton Park)

[vii] (healthinsurance.org)

 

 

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