This page is meant for people who are newly eligible for the Medicare health system, and would like a simple overview of Medicare health plans.
I like to call Medigap/Medicare Supplement plans ‘pay me now’ plans, and Medicare Advantage plans ‘pay me later’ plans. This page explains the basics of Medicare health plans. You can bypass these basics if you like, by clicking here to go straight to the explanation of ‘pay me now or pay me later’.
Medicare has ‘parts’ and ‘plans’. The ‘parts’ and ‘plans’ are designed by the government:
- Part A: inpatient hospital coverage. This is usually free if you or your spouse have paid Medicare taxes over the years.
- Part B: outpatient services. In 2016, this normally costs about $120/month for new Medicare beneficiaries.
- Part C: Medicare Advantage plans. These usually include the services included in Part A and Part B, plus drug coverage-part D
- Part D: D is for drugs! All Part D plans are Medicare Advantage plans. There are no Medicare Supplement Part D plans.
Medicare has standardized ‘Plans’. The plans are designated with the letters A through N. Plans F and G are the most popular. I’ll only discuss F and G on this page. When I say the plans are standardized, I mean ‘Plan F’ will always offer the exact same coverage regardless of where you buy it. Here is a government page offering a side by side comparison of Plans A-N.
Medicare Advantage plans are not standardized or designed by the government, but by law they must cover all services covered by Medicare Parts A & B. Advantage plans are designed by each insurer. Coverage will vary, bells & whistles will vary from company to company.
Why would you want to buy Medicare health plans from a private insurance company, if you already have Medicare Part A & B? Because you have an unlimited liability if you only have Part A & B. Unlike traditional major medical plans, Medicare Parts A & B have no ‘out of pocket maximum’. For example, if you need chemotherapy, you pay 20% of the cost…forever. If you have a $500,000 bill for chemo, you pay $100,000 of the bill. Purchasing a Medicare health plan means your liability has a limit. It offers peace of mind. And since Medicare Advantage plans start at $0 per month, at least in my area of Oregon, why not?
Why do Medicare Advantage plans start at $0? When you buy a Medicare Advantage plan, you are removed from the Federal Medicare claims system. The government is off the hook for your medical care, and in turn they send all the money which had been set aside to pay for your care, to your insurance company. Using the funds received from the government, the insurance company creates a plan which usually includes drug coverage and an out of pocket maximum for medical bills, and markets it to the public.
On the other hand, Medigap plans add to Medicare parts A&B. Let’s say you see the doctor and he writes you a prescription. How are these services paid if you have Medigap and Part D coverage? The doctor bills Medicare, which pays it’s share of the bill. The doctor also bills your Medigap company, and it pays it’s share. You visit the pharmacy and give them your separate Part D card, which came to you after your purchase of a Part D Medicare Advantage plan, and they pay their share. So there are three moving parts here.
What do I mean by ‘pay me now or pay me later‘?
It’s simple. Medigap plans generally cost more than Medicare Advantage plans, but generally offer better medical coverage. For example, Medicare Plan F will usually pay 100% of your medical bills. You pay no deductibles or co-pays at all. Medicare Advantage plans, on the other hand will impose copays, co-insurance and deductibles, similar to the plans you’ve had prior to turning age 65. In exchange, they generally offer lower premiums. At least, they do in my part of Oregon. Therefore many folks who are in great health when they turn age 65 will buy a Medicare Advantage plan to save money, knowing they may have to ‘pay me later’ when they seek medical care. Whereas many folks who are in poor health or willing to pay extra for full coverage, or ‘pay me now’, will buy a Medigap and Part D drug plan. They get peace of mind knowing their medical bills will generally be (at least with Plan F) covered in full.
Photo courtesy of Images Money, Creative Commons