Medicare original vs. advantage: How to guide clients through the maze

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With Medicare’s open enrollment period up and running, lasting from mid-October until early December, seniors face a potentially bewildering multiple choice test.

“Making [Medicare] decisions can be overwhelming for consumers, considering all the nuances,” says Jesse Slome, director of the American Association for Medicare Supplement Insurance. “Advisors can fill a great need by helping in this area.”

Before getting to the nuances, however, advisors and their clients must make a key binary choice between opting for Original Medicare and Medicare Advantage.

Advantage, Advantage

The “original” way to deal with Original Medicare’s exposure was buying a supplemental insurance policy — Medigap — which typically covers that coinsurance.

However, Original Medicare has various costs for enrollees, notably a 20% coinsurance for most doctors’ services, including those incurred while hospitalized.

Slome warns that prices can vary enormously. Indeed, recently surveyed three geographically diverse cities — Raleigh, North Carolina; Des Moines; and San Francisco — and found monthly premiums for Medigap Plan G, for example, ranging from $94 to $253 a month in 2020. So price-checking is vital for advisors seeking to guide clients through this labyrinth.

Some cash-strapped clients with high medical costs could really benefit from making this move.
October 16

As an increasingly popular alternative to this Original Medicare-plus-Medigap parlay, Medicare Advantage plans are offered by private companies that put together networks of health care providers. Members who stay in the network may take on a modest co-pay rather than the 20% coinsurance charge and needn’t buy a Medigap policy.

“Advantage plans do have an allure,” says advisor and CPA Judy Ludwig, vice president of planning and taxation at Adviser Investments. “They may have lower or no premiums and other benefits not available with a Medigap policy such as prescription drugs, dental care, eye care, transportation, etc.”

Howard Recht, an insurance agent in Plainview, New York, asserts that Medicare Advantage Plans tend to work best if a client’s doctors — “or most of the important ones” — belong to the plan and the Medicare enrollee doesn't have a lot of claims during the course of the year.

Opting for the Original

Nevertheless, Ludwig usually favors combining Original Medicare with a Medigap policy.

“That’s because of the disadvantages of Advantage plans,” she says. “They include not being able to use a chosen specialist, more paperwork and the possibility of more out-of-pocket costs. With the Advantage plans, clients have to use the physicians within a network. Most of my clients are high-net-worth individuals who can afford Medigap policies, so that is what I recommend.”

Sheila Padden, a planner and CPA who heads Padden Financial Planning, also tends to prefer Original Medicare plus a Medigap policy. “However,” she adds, “if cost is a very big concern, we will consider Medicare Advantage. Typically, the devil is in the details, so we will often reach out to Medicare specialists for their perspective.”

Recht, who sells both Advantage plans and Medigap policies, finds that the latter are attractive due to their freedom and flexibility. “There are no networks (although providers must be in the Medicare system), no referrals, and no authorizations,” he says. “For people who have been through network based plans prior to turning 65, those features are welcome.”

Now for the nuances

Advisors recommending Original Medicare can then help clients sort through the available Medigap plans.

“Many of my clients are using Medigap policies from Blue Cross Blue Shield,” says Ludwig, “and they seem to be happy. I usually recommend the most comprehensive plan.”

Massachusetts, Ludwig’s home state, offers core, supplement 1 (not available to new buyers), and supplement 1A Medigap plans. The supplement policies have added features such as coverage for skilled nursing facility coinsurance and foreign travel emergencies.

Other states list a broader Medigap array. Recht has found one, in particular, to be a client favorite due to its affordable premiums.

“I've put people in Plan F (no longer available to new buyers), Plan G and Plan N,” he says. “At some point, I’ve moved people from all of those to another plan,” he says. But I've never had to move anyone from high-deductible Plan G. Once clients get used to that plan’s deductible and the premium savings, they don't want to give it up!”

The right solution will vary according to the client. But taking the rising cost of seniors’ health care and finding the right balance between outlays and outcomes can lead to a satisfying solution.

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