The Advantages of Original Medicare
I didn’t expect to be a superfan of Original Medicare. When I enrolled in Medicare after retiring in 2018 I thought I knew a lot about health plans. After all, in my working life, I was responsible for administering a large one. I enrolled in a Medicare Advantage (MA) plan from the same insurance company that administered my employer benefits. The network seemed the same, the premium was $0 and there were some additional benefits, like dental and hearing aids that seemed attractive.
It was a pretty good plan. I had no big health issues the first year and couldn’t really complain. But by the second year, I was getting frustrated with cost-sharing I couldn’t figure out despite careful reading of the fine print. The “extra” benefits were so limited I never used them. And then my key specialist dropped the plan in the middle of the year!
The next year I switched to Original Medicare — the fee-for-service option run by the government — with a Medigap supplement and the improvement is amazing. The bills process seamlessly. I have never run into a doctor or facility which doesn’t participate. I have no preapprovals or other restrictions. True, I don’t have a dental plan, but the plan wasn’t worth the extra premium anyway.
Yet today 45 percent of Medicare recipients are enrolled in Medicare Advantage (MA) plans. It is expected that by 2025, more than half will be. Why is this?
A major reason is that everyone is bombarded by advertising from MA companies. Medicare Advantage is very profitable, and the insurance companies know when you’re turning 65! Original Medicare gets no advertising at all — the government’s well-done publication (Medicare and You) is required to be neutral in its approach. The insurance companies that also sell Medigap policies make more money on the MA plans so you know what they will push.
A recent study by the Commonwealth Foundation surveyed why people chose Medicare Advantage. The largest percentage said the extra benefits, followed by a limit on out-of-pocket costs. The third significant reason was “recommended by trusted people.” Most often, the trusted person was a broker.
The extra benefits are nearly always very limited — vision plans may offer a limited selection of frames (serious eye issues are well covered by Medicare); dental plans usually have a relatively low annual cap plus a deductible; hearing aid benefits are typically a fixed reimbursement. You might save a few hundred dollars (I didn’t save anything), but you’ve given up truly comprehensive medical insurance and access to virtually all doctors. As we get older, serious medical conditions are a simple reality of life, if not this year, then at some point in the future.
The second reason for choosing MA plans — the limit on out-of-pocket costs — is a much sounder one. The reason that you need a Medigap plan to supplement Original Medicare is not the 20 percent coinsurance. It’s that Original Medicare does not have an out-of-pocket maximum. The 20 percent cost sharing for routine care is usually equivalent to the MA copayment. But if you get seriously ill with significant surgeries or multiple hospitalizations, the out-of-pocket costs can mount.
Medicare Advantage plans are required to have a maximum out-of-pocket amount (or “MOOP”) after which the plan pays all costs. But these limits can be very high. Medicare allows the plans to have a MOOP of up to $8300 a year.
In contrast, a Medigap can offer complete protection from high medical costs. Insurers have to offer standardized Medigap plans identified by letters. The popular F plan (no longer offered to new retirees) covers all out-of-pocket Medicare costs. Plan G is the richest plan for new retirees and covers everything after the $226 annual Part B deductible. Those plans are relatively expensive (typically over $300 a month), but there are other options that cost a lost less. I like Plan N because the premium is significantly lower, and you pay only the Part B deductible and a $20 doctor visit co-pay.
I was lucky. I was able to try both Medicare Advantage and Original Medicare with a Medigap and make the shift to the best coverage for me. Most Americans don’t have that luxury. Federal law protects your right to enroll in a Medigap plan only for the first six months after you enroll in Medicare Part B for the first time. States can add additional protections, but only a few states protect your right to enroll in a Medigap plan (so-called guaranteed issue) later in your retirement. Guaranteed issue means the insurance company can’t deny you or charge extra if you have a pre-existing condition. But for most Americans, opting for a Medicare Advantage plan when they first enroll in Medicare means they may have foreclosed the ability to change their minds later in life.
I have not mentioned prescription drug plans here because they are essentially the same whether you enroll in an MA plan or not. The good news on that front is that the Inflation Reduction Act makes those plans significantly better over the next few years.
Medicare is a wonderful benefit for older and disabled Americans. You have a lot of options within it. Many Americans enroll in a Medicare Advantage plan when they first retire largely through inertia. You can switch MA plans at least once a year. But the ability to switch to Original Medicare with a Medigap is limited if you live in a state which doesn’t protect your right to enroll in Medigap.
If you are enrolling in Medicare for the first time, consider Original Medicare with a Medigap. You can always decide later to switch to Medicare Advantage. If you are already enrolled in a Medicare Advantage plan, it may not be too late to switch. If you live in a state with lifetime enrollment protection (New York, Connecticut, Massachusetts and Maine all have protections), consider making the change to Original Medicare plus Medigap. If your state does not protect your enrollment rights, you can still apply for a Medigap. If you are healthy, the insurance company may issue you a policy, but you are at their mercy. For more information about Medigaps in your state, find the appropriate state agency at https://www.shiphelp.org.
