The Most Consequential Decision Facing Your Clients – Medicare Advantage versus Medigap
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Every year. Every day. I teach clients that they must choose one of two paths to complete their Medicare coverage.
When a person transitions to the Medicare system, there is lots of confusion. Remember that for the first time in 40 years, most are leaving the safety of their employer sponsored group plan and they have to make their own decisions. Those decisions may not be “fixable” at the next open enrollment window for the employer.
Suddenly, it’s not so simple.
Let’s visit the basics. Here’s the two-second overview of the two choices most people have. In this article I’m not addressing those who have retiree medical coverage available. I’m strictly looking at a person who needs to choose their products for the rest of their life with their own dollars.
Medigap follows original Medicare. When you purchase a Medigap plan, original Medicare pays 80%, and the plan you purchase will generally pay “the rest.”
Medigap costs for a 65-year-old are approximately $150.00 per month, every month.
Medicare Advantage is a bundled approach to Medicare. A private carrier creates a plan but must provide at least what original Medicare (Parts A and B) offers. It can add bells and whistles to its plan to attract new participants. These are managed-care plans with networks, co-pays, co-insurance and an out-of-pocket in-network maximum in 2021 of $7,550.
Thousands and thousands of Medicare Advantage plans claim to “cost” zero per month. Yes, zero.
Guess what – there’s no trick here. As consumers, we’re used to looking under the hood for the problem. What are you hiding? What am I missing? Medicare Advantage versus Medigap is like that. People sit back and ask, “What am I missing that I’m going to get burned by?”
They’re missing nothing. The consumer will sacrifice something by choosing one plan over the other. That’s it.
I know from experience what every single person wants. Ready? They want a Medigap contract that costs zero like Medicare Advantage, and includes dental insurance and over-the-counter perks.
Every day I help people understand that ain’t gonna happen.
If you choose Medigap, you will generally sacrifice the bells and whistles that Joe Namath is talking about: the free dental, the transportation, the over-the-counter benefits and more. Original Medicare doesn’t cover those things and the Medigap contract will follow original Medicare.
If you choose Medicare Advantage, you may sacrifice the ability to go to any doctor that you want to go to. You may not pay a larger premium, if any premium at all, but remember the old adage, “You get what you pay for?” Will that play out for you in this situation?
Who knows. Who’s got the Magic 8-Ball?
That lack of the 8-ball is one of the things that makes a consumer crazy when having to decide between Medigap and Medicare Advantage.
With a Medicare Advantage plan, the monthly cost can be as little as free. If a person is a healthy 65-year-old, takes only atorvastatin (to reduce cholesterol) and goes for an annual physical, this person adores the idea of Medicare Advantage. It’s free. Why should they pay more than free if they don’t use the coverage? They’re using the free gym membership and getting their teeth cleaned bi-annually and telling all of their friends how dumb they are to pay that monthly premium for a Medigap contract.
Suddenly Mr. Healthy needed to have rotator cuff surgery on his shoulder. The surgery was mostly effective, but follow-up care required a lot of physical therapy. PT began costing hundreds of dollars a month for several months. The plan told him after X number of sessions that he was done with PT, and he found himself in the position where his doctor needed to become involved to get more sessions covered by the Medicare Advantage plan.
Yes, I threw the hassle factor into his case but over the year he paid $1,400 out of his pocket that year so it wasn’t so bad.
Ms. Healthy wasn’t so lucky. She had breast cancer 18 years ago. She had a healthy stretch and assumed things would continue. She enrolled in a zero-premium plan when she retired at 68-years old.
Unfortunately, a different cancer struck, and she needed to undergo a fair amount of treatment, nights in the hospital and chemotherapy. She ended up hitting her plan’s maximum out-of-pocket of $5,000 that year.
At the end of that year, the Medicare commercials on TV appeared and Ms. Healthy was confident that she could change her plan to Original Medicare and add a Medigap policy.to get better coverage for her treatments.
But no one told her that she wouldn’t qualify for the Medigap plan once she’d been diagnosed with the cancer recurrence. Her only option was to go back to Original Medicare and pay the 20% that Medicare doesn’t cover (not a good option) or enroll in the same or a new Medicare Advantage plan in her area.
Don’t assume that you’ll always be able to buy a Medigap contract.
Here’s a great tip and something everyone should know: When people are new to Medicare Part B, they have a special six-month window where their pre-existing conditions do not preclude them from buying a Medigap contract. It is referred to as their own personal open-enrollment window. It occurs when a person is new to Medicare Part B and is over age 65 – those two events together equal your special open enrollment window.
Reality versus television ads
When we’re speaking with new clients, we’re attempting to coach them through conversations so that they can see themselves at age 70, 75, 80 and beyond. It’s important to not just choose your Medicare product for today, as you can see from the situations above.
But it’s so darn hard to do that when your fraternity brother is telling you all of the things that he’s getting for free from his plan. Do you think he’s telling you the 100% truth? We see people constantly that just sort of forget about that two-night hospital stay for $700. No one wants to brag about the downside of their plans, right?
Just take things with a grain of salt when you see Joe Namath on tv or listen to your friends.
Take the 30,000-foot view
Medicare is easier to digest when you take a top-down approach.
Think about some of these descriptions below of each program. Pretend that money doesn’t matter for a minute and decide which program you’d prefer to be on.
- They have networks. You’ll be in or out of a network. Stay inside the network for best pricing. Are you okay being, “told what to do?” If you want to go to MD Anderson in Texas and the plan says you can’t, are you okay with that?
- Should you use the plan, you’ll have co-pays and co-insurances fees. Have a bad year? I’d put away $5,000 for emergencies. Use your $5,000 for the plan’s charges.
- The plan may require prior authorization. Look to your plan’s evidence of coverage and see how many or what services may require prior authorization. How do you feel about having to obtain that?
- “My doctor stopped accepting my plan, what do I do now?” It happens and will happen. You’ll have to find a new plan or a new doctor.
- Ask the doctor that you want to see: “Do you accept original Medicare?” (most do). If they say “yes” you are good to go.
- If Medicare approves a charge (they approve most things), the Medigap plan will pay the rest (generally after the $203.00 annual deductible).
- That’s it.
Money does matter
Many cannot afford the premiums that come with Medigap. That person pays approximately $150 per month for the Medigap contract in addition to their Medicare Part B plan and prescription medication charges. Plus, they’ll purchase a dental plan if they would like coverage for that. So, you’re talking at least a few hundred dollars a month.
But many can afford the premiums. Many of those folks are your clients. Many of those folks aren’t exposed to the fact that they have two paths to choose from when it’s time to make Medicare decisions.
Money also matters in the Medicare “sales world.” There’s a bunch of money in Medicare Advantage sales. That’s why Fidelity and Walmart want to be in the Medicare scene.
Medicare Advantage plans are good for the government (risk transfers to the private insurance carrier). It’s good for the carrier. It’s good for the agent who sells lots of Medicare Advantage.
Sometimes, it’s not so good for the consumer.
Nothings perfect; what you sacrifice matters.
So, you’re Medicare eligible:
What do you want to achieve?
What are you willing to pay each month?
What are you willing to sacrifice?
Done. Go enjoy your retirement.
Joanne Giardini-Russell is a Medicare nerd with Giardini Medicare, which was created to help those approaching Medicare eligibility or those currently enrolled in Medicare better understand what they are purchasing and how their choices may affect their long-term outcomes regarding care, finances, etc.