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Oct 14

A Simple Guide to Medicare: Supplement vs. Advantage Plan

by David Carroll

Most Americans are overwhelmed with the array of options when searching for health insurance coverage in addition to Medicare Part A and B.   Before answering a common question people ask regarding Medicare, it probably makes sense to explain the different components:

Medicare Part A:  If you paid Medicare taxes while employed (most people do), there is typically no premium associated with Medicare Part A.  The majority of individuals are automatically enrolled in Medicare Part A once they reach age 65.  Generally speaking, Medicare Part A covers partial costs for hospital visits.

Medicare Part B:  There is a varying premium associated with Part B of Medicare depending on your reported income.  For married couples earning $170,000 or less, the premium for 2014 was $104.90 (can be deducted from Social Security benefit if desired).  If you fail to enroll in Part B when you’re first eligible (age 65), you’ll have to pay a late enrollment penalty for as long as you have Part B.  This is typically a 10% increase for each year you COULD have had Part B, but is subject to change on an annual basis. You will not have to pay a late enrollment penalty if you are employed and elect to use your employer’s coverage instead.  If this is the case, you must still enroll in Medicare Part A and provide proof of coverage through your employer at the time you enroll in Part A.  We encourage our clients to sign up for Medicare three months prior to turning 65 years of age to avoid the late enrollment penalty.

Medicare Part C:  Part C is more commonly referred to as the “Medicare Advantage Plan.”  This part of Medicare is optional and most individuals purchase this part of Medicare to supplement Part A and B or purchase a full blown Medicare Supplement Plan.  I will explain this in further detail later on.

Medicare Part D:  This is another optional part of Medicare you may purchase to cover the costs of medications.  This is usually built into Medicare Advantage Plans (Part C) but must be purchased additionally with Medicare Supplement Plans.

Unfortunately, Medicare Part A and B only cover a portion of medical costs.  As a result, most people elect to purchase some type of additional supplemental insurance.  This is where Medicare can become complicated and people become frustrated; leading to the most frequently asked question:

Do I purchase a Medicare Supplement or Advantage Plan (Part C)?

Ok, this question is much more complex than it seems.  Since I am trying to simplify Medicare, it would make sense to first explain the difference in a couple sentences:

Simply put, if you are in good health and do not visit doctors often, you can get away with a Medicare Advantage Plan (Part C).  If your health is deteriorating, you visit the doctor(s) more than you would like, and/or you simply want the most robust coverage available, then a Medicare Supplement plan is probably a better option.  Hopefully the chart shown below can help you decide which is most appropriate:

Medicare Supplement
Pros:
– Most comprehensive
– Variety of different plans/premiums
– Accepted by majority of medical providers

Cons:
– Higher premiums than Advantage Plans
– Must purchase Part D in addition (drug coverage)

Medicare Advantage Plan
Pros:
– Very Inexpensive
– Built-in drug coverage

Cons:
– More restrictive networks
– High variability between plans
– Higher copays than Supplemental plans

As shown, Medicare Advantage Plans usually have very small or even no premiums because the insurance company is compensated by your Medicare Part B payment.  However, these are not as comprehensive as Medicare Supplement plans.  There are copays for doctors and higher copays for specialists, but even if you are the healthiest person there is no reason not to enroll in one of the zero premium plans (…it’s free, but you get what you pay for).  Most plans also have built-in prescription drug coverage (Part D).

Medicare Supplement Plans have a higher monthly premium and are more comprehensive.  There are several different plans to choose from and several different insurance companies that offer these plans.  Most people don’t realize that the insurance companies charge different premiums for identical plans!  As of 2015, there are ten Supplement plans that are distinguished by a letter, such as Plan F or A.  These plans are standardized across all insurance companies and you will get the exact same benefits purchasing a Plan F from any company.  However, the premiums the companies charge are different depending on the company you choose!  There is absolutely no reason to not purchase the lowest cost insurance provider of whatever Medicare Supplement plan that you decide makes most sense for your situation.  Of all the different Medicare Supplement Plans, Plan F is the most comprehensive (and expensive) and classified as the “Cadillac” plan.  There are typically no copays or out of pocket costs outside of the monthly premium paid.  However, you must purchase a prescription drug plan (Part D) in addition to any Medicare Supplement.

Fortunately, medicare.gov lists all providers AND premiums of Medicare Supplement Plans sorted by zip code.  The Medicare Advantage plans are not standardized and differ from company to company.  Please visit medicare.gov or contact Rockbridge if you would like assistance regarding Medicare options.  We understand that this is very confusing for consumers, and with our expertise we can point you in the right direction!

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