Dave Hughes at Retire Fabulously: The Truth About Medicare (Dis)Advantage Plans

Reprinted with permission from RetireFabulously.com

I turned 65 in early 2022, and I’ve been enjoying the benefits of traditional Medicare ever since. It’s one of retirement’s greatest benefits. It has lowered my healthcare costs and made obtaining care easier. It’s the system I wish I had throughout my working career.

In the year preceding my 65^th birthday, I received a deluge of advertisements touting the benefits of various Medicare Advantage plans and urging me to sign up.

Prior to that, I had no clue how Medicare Advantage plans worked and no idea what I’d choose. So, I did a lot of research. A lot. After all, those Medicare Advantage plans seemed to be offering more coverage (including prescription drugs, dental, vision, and hearing) – all for little or no premium! Why wouldn’t I choose that? It seemed too good to be true!

Of course, like all things that seem too good to be true, it is. I’ll show you why in this article.

It also occurred to me that if Medicare Advantage is such a superior product, why are these companies marketing it to me so aggressively? If it’s that great, I shouldn’t need to be convinced.

I won’t drag out the suspense. I chose traditional Medicare, along with a prescription drug plan (Part D) and a supplemental (a.k.a. Medigap) plan (Part G). I strongly recommend this approach. I’ll get to why soon, but first, let’s step back and take a look at Medicare and Medicare Advantage – what they are, and the pros and cons of each.

Medicare is federal health insurance for people 65 or older, some younger people with disabilities, and people with End-Stage Renal Disease. Medicare Part A covers hospitalization. Everyone is covered and there is no monthly premium. Medicare Part B covers doctor visits (primary care physicians and specialists), medically necessary services, preventive care, outpatient hospital care, and durable medical equipment and supplies. You pay a monthly premium of $174.70 (in 2024) for Part B. This premium may be higher depending on your income. If you’re taking Social Security, this premium is deducted from your monthly Social Security payment. This premium will increase to $185 in 2025.

Medicare Part B doesn’t cover all the costs. After meeting your deductible, Part B covers 80% of the costs and you’re responsible for the remaining 20%.

Medicare Supplemental (Medigap) plans (Part G) cover the deductibles and your 20% copay. This means that with a Medigap plan, you’ll pay little if anything for Part A and B services as you need them.

Part D plans offer prescription drug coverage for an additional premium, which is usually small. Medicare Advantage plans usually include prescription drugs.

The important point to note is that traditional Medicare (Parts A & B) is provided and administered by the federal government, not an insurance company. This is a paradigm shift from the insurance you’ve probably received from your employer throughout your career or the insurance you’ve purchased on the healthcare marketplace if you retired early, were self-employed, or worked for an employer who didn’t offer health insurance.

When you choose a Medicare Advantage plan, your Part A and B coverage shifts from the government to an insurance company. That means you’ll only be covered for visits to doctors and hospitals that are part of the insurance company’s network.

This is the single biggest advantage of traditional Medicare. You no longer need to spend hours each year during the open enrollment period trying to decide which plan to choose based on which doctors accept which insurance plans and which formula of deductibles and co-pays will work best for you. Plus, plans change from year to year. With Medicare, there’s no network to choose and almost all doctors take it – all across the country.

This feature is especially important if you’re a snowbird or you plan to travel extensively around the US. If you choose a Medicare Advantage plan, you’re limited to the physicians in your local network. When you travel beyond your local network, all doctors are out of plan.

Estimates for how many doctors accept Medicare vary. According to the US Government’s Center for Medicare and Medicaid Services, 98% of all doctors participate in Medicare. Other healthcare and insurance websites may quote slightly lower figures, or they may point out that not all doctors who accept Medicare are accepting new patients, but the point remains that the vast majority of doctors accept Medicare.

I believe Medicare Advantage is an inaccurate name. It’s not advantageous at all. I prefer to think of it as Medicare Disadvantage, or (to be a little less judgmental) Medicare Alternative.

Here are three reasons to like Medicare and dislike Medicare Advantage.

1. It’s the healthcare model the rest of the world enjoys

Medicare is your opportunity to finally avail yourself of the same wide-ranging, across-the-board, lower-cost healthcare system the rest of the developed world enjoys.

You are no doubt aware that healthcare costs in the United States are the highest in the world. Sure, the quality is excellent, but it’s excellent in most other developed nations as well. So, why are our costs so high? There are many factors, but one of the main reasons is that for decades, our healthcare has been administered by insurance companies, not the government. This adds a huge layer of additional cost and bureaucracy while adding no value. In fact, this system reduces value, because it dictates which doctors you can see and whether you need to get a referral from your primary care physician before you can see a specialist.

It’s not like that in any other developed country. Everywhere else, healthcare is administered by the government. It covers most of the cost, and you can see any doctor you want. In other countries, the people and their governments consider healthcare a right of citizenship, whereas in the United States, it’s treated like a benefit of employment.

When you choose Medicare, you’re finally getting the kind of healthcare the rest of the world takes for granted. When you choose Medicare Advantage, you’re getting the same insurance company-run, network-based system you’ve endured throughout your working years.

2. Medicare Advantage costs more in the long run

“But… but…” you say, “I can get Medicare Advantage and pay no premium beyond the standard Part B premium and get all these extra things, like prescription drug coverage, dental, vision, and hearing. Why wouldn’t I choose Medicare Advantage?”

Because, in the long run, it’s not cheaper. Like with the insurance plans you were offered at work, you pay more for services when you use them. Your deductible is often higher, and these plans may also have higher copayments and coinsurance for certain services such as hospital stays or outpatient procedures. And you’re limited to providers in your plan. And remember, as soon as you travel outside your area, you’re not covered for anything except emergencies.

Medigap plans (Part G) cover whatever Medicare Parts A and B don’t, but you can’t buy Medigap coverage if you opt for Medicare Advantage.

And about those extra benefits, like dental, vision, and hearing? They have deductibles, too. And you have to use providers in their network.

3. Medicare Advantage costs the government more, too

Here’s the other reason I so dislike Medicare Advantage. Medicare Advantage plans are more costly to the government (that means the taxpayers – you and me). To understand why, let’s look at how Medicare Advantage plans work.

When a person signs up for Medicare Advantage, the government pays the insurance company a flat payment each month. They have a formula for how much they’ll pay based on your age, sex, where you live, and existing health conditions. They’re essentially paying the insurance company to take you off their hands. If you incur lower costs than they receive based on the formula, they make money. If you incur higher costs, the insurance company has to pay and hope that your higher costs will be offset by other customers. And of course, they need to factor in their overhead. They have buildings to maintain, employees to pay, computer systems to develop and maintain, and executives to pay enormous salaries to.

The insurance companies have learned that they can game this system (i.e. cheat). For example, I’m a 67-year-old male non-smoker, and I have light asthma that can be managed by an inexpensive generic medication. However, if the insurance company can convince my doctor to diagnose me with a more acute bronchial condition, they’ll receive more money. The government will pay the insurance company more for my care because the insurance company claims I’m sicker than I really am.

Tragically, this fraud is widespread. According to the New York Times, nine of the top ten insurers who provide Medicare Advantage plans have been accused of fraud by a whistleblower or the government and/or engaged in overbilling, according to the Inspector General. That’s UnitedHealth Group, Humana, CVS Health, Elevance (formerly Anthem), Kaiser Permanente, Blue Cross Blue Shield of Michigan, Cigna, Highmark, and Scan Group. Investigations have uncovered instances in which insurance companies paid incentives to doctors to entice them to overstate patients’ diagnoses.

Medicare Advantage was originally created in the 1990s with the hope of lowering healthcare costs for retirees. But it has, instead, resulted in massive overbilling. Medicare Advantage overbilling was estimated to be between $12 billion and $25 billion in 2020 alone – more than the entire budgets of some government agencies. When you read stories that claim Medicare will become insolvent in the future, this is one of the contributing factors. Read more in The Atlantic and Healthcare Finance.

The Biden administration has proposed changes to the way insurers are paid in order to combat industry fraud. Predictably, these changes have been met with a huge lobbying and PR effort.

Medicare Advantage is a huge cash cow for the insurance industry and it has a powerful lobby. They are using their financial influence to sway legislators. When you hear politicians talk about privatizing Medicare, Medicare Advantage is what they’re talking about. While it’s unlikely that Medicare Advantage will be terminated anytime soon, you can avoid being part of the problem by refusing to buy into this system and choosing traditional Medicare.

Traditional Medicare Key Points:

• It’s accepted by almost all doctors and hospitals
• You’re covered everywhere in the US
• No hassle with trying to choose a plan during open enrollment (for Part B)
• You can buy a supplemental or Medigap plan (Part G) to cover any costs not covered by Medicare
• You can buy a prescription drug plan (Part D) to reduce your drug costs

Medicare (Dis)Advantage Key Points:

• You’re limited to doctors and hospitals in your network
• You’re limited to coverage in the area served by your network
• You pay little or no premiums but incur higher costs when you receive service. You can’t buy a Medigap plan (Part G).
• You receive dental, vision, and hearing benefits, but only from providers in their network. There are deductibles and co-pays with these, too.
• Part of the cost you pay (both directly and as a taxpayer) supports the insurance company without adding value
• Overbilling fraud is widespread

If you’re healthy, you expect to incur low medical costs, and you’re willing to accept the limitation of only using in-network providers, you might spend less money overall with a Medicare Advantage plan. But remember, you can’t get Part G with Medicare Advantage.

One last point, regarding Medigap plans (Part G): You’re guaranteed to be accepted for coverage by a Medigap plan if you sign up within the first six months of being eligible. After that, companies are not required to offer you coverage. You’ll need to answer questions about your health, and depending on what pre-existing conditions you have, they may not offer you coverage. So if you decide to choose Medicare Advantage now and switch to Medicare in the future, you may not be able to get Part G at that time. You must remain continuously enrolled in a plan to retain your guaranteed acceptance.

The primary purpose of this article is to provide you with information you won’t find in the slick marketing brochures for Medicare Advantage plans. Here’s a good article that dives deeper into the things they don’t tell you.

As with many things, your circumstances are probably different than mine. There is no one-size-fits-all answer. After a thorough analysis, you may conclude that a Medicare Advantage plan is right for you.

The opinions expressed in this article are mine. I have tried to ensure that the information presented here is accurate, but please verify the features and costs of any plan you are considering before purchasing it.

 

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© 2023 Dave Hughes. All rights reserved. This article may not be republished, in whole or in part, without permission.