Medicare’s annual open enrollment season is under way until December 7. (That’s not to be confused with the Affordable Care Act’s overlapping enrollment period, which is not for Medicare participants.) During this Medicare window, seniors can choose among various coverage options.
Perhaps the major choice is deciding between “original Medicare” and Medicare Advantage plans. “Most people will save money by enrolling in an Advantage plan,” says David Armes, a CFP who heads Dover Healthcare Planning in Long Beach, Calif. “The tradeoff is that some people may not be able to find an Advantage plan whose network includes the physicians they want to see.”
Apparently, seniors are increasingly willing to accept this tradeoff. According to a recent report from the Kaiser Family Foundation, over 14 million beneficiaries—28% of the Medicare population— are now enrolled in a Medicare Advantage plan. Total enrollment has grown by 3.3 million people (30%) since 2010.
As Armes indicates, cost savings are driving this growth. Original fee-for-service Medicare allows enrollees to see any provider who accepts Medicare, but there are potentially expensive gaps in coverage. Individuals in original Medicare may reduce their exposure by buying a Medicare supplement (“Medigap”) medical insurance policy and Part D prescription drug plan from private companies. Premiums for such coverage can run into thousands of dollars a year, which may be a major item for a retired couple with both spouses on Medicare.
Medicare Advantage plans, also offered by private companies, usually provide comprehensive health care. “Many of them have zero premiums for medical and prescription drug coverage,” says Armes. That is, most Medicare participants (in original and Advantage) pay an annual premium for Part B medical coverage, which typically costs $105 per person per month now. Medicare Advantage plans often charge no additional monthly premium for a package of benefits that usually includes prescription drug coverage. Thus, clients who sign up for Medicare Advantage won’t need to pay for a Medigap policy and generally won’t need a Part D plan, either, so they can avoid those costs.
With Medicare Advantage, seniors may have to stay within the plan’s provider network to get the full cost savings. “Medicare Advantage plans are usually best suited for people in good health,” says Armes. For more flexibility in selecting providers, Medicare enrollees might be able to use an Advantage PPO rather than an HMO. With a PPO, clients will have some coverage if they go outside the network to see a physician.
“Sometimes people choose original Medicare and a Medigap policy because there are not any good Advantage plans in their area,” says Armes. “That is more likely to be the case in non-urban settings.” For such clients, Armes suggests buying a Medigap policy that includes some cost-sharing. “Plans N and L are probably the best options here,” he adds. “If people don't use too many expensive medical services they will come out ahead, versus buying one of the popular comprehensive Medigap plans, such as Plans F and C.” Medigap policies are lettered so that all insurers offering Plan F, for example, will provide a standard menu of features.
