Honest Pros and Cons of Buying Medicare Insurance
You are eligible for Medicare insurance at age 65 when you have worked at least 40 quarters and paid the FICA (Federal Insurance Contributions Act – U.S payroll tax deducted to fund the Social Security and Medicare programs). Medicare tax is included in the FICA or payroll tax that comes out of your paycheck each pay period.
Many people, however, will work past 65 and will have health insurance through an employer’s group health plan. You are not required to go on Medicare insurance at age 65 if you have an employer health plan that is as least as good as Medicare. You can stay on your work health plan indefinitely without penalty. When you quit or retire and lose your health plan, then you need to enroll in Medicare. Otherwise, you will eventually suffer a penalty when you enroll in Medicare insurance.
Why Enroll in Medicare Insurance If You Have Other Health Insurance?
Medicare insurance is better health insurance than most employers’ health plans most of the time. Either the cost of Medicare is lower, the coverage is better, or both. Many people go completely on Medicare and drop their employer health coverage even when they continue to work past 65.
Comparing your employer’s health plan and Medicare insurance costs is necessary. The way you compare is by looking at four numbers. First, what is the monthly premium? Splitting out individual costs is critical because spouses are often more expensive than employees if it is a married couple. Which is more, Medicare insurance costs or employer insurance costs?
Second, what is the deductible? The deductible is significant because the savings can all be for naught if the deductible is substantial, even if the premium is low. One visit to the emergency room can wipe out any savings you thought you had.
Third, what is coinsurance? Most plans are 80/20. You pay 20% of the cost after the deductible up to a set amount. I have seen some plans, though, that are 90/10. Ten percent is an excellent coinsurance. Coinsurance that is 70/30 is not so great. I’ve seen those as well.
The fourth number is maximum out-of-pocket (MOOP). What is the most amount of money you are responsible for paying out of your pocket while on the plan? When do you stop paying, and the insurance covers everything 100%?
Once you have those numbers, I can tell you in a heartbeat which is better: Medicare, the employer plan, or it’s a coin toss.
There are other factors to consider with a group health plan, but they usually will be minor compared to the four actual numbers we just discussed. Another critical factor to consider is income. If you are in the top 4% of income earners, your Medicare Part B and D premiums may drastically affect the equation.
Your health is something to consider, and I don’t mean just those with poor health. Sixty-five is not an arbitrary number that the government pulled out of the air. Sixty-five is when the human body begins a rapid determination because of age, prolonged demanding lifestyle, and genetics. While your employer’s health plan may have been great when you were 40, 50, and even 60, at 65, you will need more comprehensive coverage to take care of the health issues that come toward the end of life.
What Are the Two Types of Medicare Insurance?
Medicare insurance has a history. Medicare insurance started with Medicare Part A for hospital cover in 1965 when Congress created Medicare. Part B for doctor visits and outpatient procedures followed quickly. There were other changes, but the significant development most people experienced started in the 90s with the creation of Medicare+Choice, which eventually developed into Medicare Advantage. There are two essentially different kinds of Medicare insurance from which beneficiaries can choose–Original Medicare (Part A & B) and Medicare Advantage (Part C).
Original Medicare Insurance
With a Medicare Supplement (or Medigap) policy, Original Medicare will provide the most comprehensive coverage. Depending upon the type of Medicare Supplement you choose, you will pay the least amount of money out of your pocket in deductibles, copays, and coinsurance. People like not paying copays, especially during severe and expensive illnesses. That is a great benefit, but there is a price for any benefit.
The downside is that you pay a monthly premium that is not small and grows as you age. The premium increase can be substantial with some Medicare insurance companies. You may be trapped in ever-increasingly high premiums if you can not switch to another Medigap policy because of health issues. Most people do not like that either.
Economic realities are always a trade-off. There is no such thing as “THE BEST”–possibly, maybe a better.
Medicare Advantage Insurance
On the other hand, there is Medicare Advantage (Part C). Medicare Advantage combines Medicare Parts A, B, and D in one product with usually additional benefits. Medicare Advantage is Medicare, but Medicare is administered by a Medicare insurance company approved by Medicare.
Medicare Advantage insurance is usually meager to no cost–other than paying the Part B premium. Everyone likes zero or as close to zero cost as possible. Zero will always win. No one argues with zero.
The downside is copays and coinsurance, and even these are not overly discouraging. However, the copays and coinsurance can add up. The real downside to Medicare Advantage insurance is the maximum out-of-pocket. The maximum out-of-pocket (MOOP) for 2022 is currently $7,550. While no plans in the Omaha, Lincoln, and Council Bluffs Metro area have that MOOP, most MOOPs are substantial, like $3,900, $4,500, $5,400, or $6,700. Paying any of those maximum out-of-pockets would present a painful challenge for most people.
Medicare Advantage Weaknesses
I have seen the weakness of Medicare Advantage insurance plans with illnesses like cancer and dialysis. Chemotherapy is not cheap. Most regiments of chemo can run as high as $25,000–$50,000. Chemotherapy on many plans is a flat 20% until you hit the maximum out-of-pocket, which all but ensures you will reach the maximum.
My father, John Joseph Grimmond, was on dialysis for over two years. Watching my father go through that was hard. He was a brave soul who didn’t complain, but I could tell how hard it was physically and emotionally. In terms of costs, dialysis treatment runs very much like cancer treatments. You will almost certainly hit your maximum out-of-pocket.
Medicare Supplement Weakness
In Nebraska and Iowa, some clients cannot change their Medicare Supplement after the Initial Enrollment Period because they cannot pass the underwriting questions. As a result, their premium keeps mounting with each rate increase and as they age.
With some people who come to me with enormous monthly Medigap premiums, Medicare Advantage may be a solution. It is a solution if they can understand the math.
Medicare Advantage plans have maximum out-of-pocket (MOOP) compared to Original Medicare. Original Medicare–just Part A & Part B–does not have a maximum out-of-pocket. That is why people purchase Medigap policies.
When a person’s Medigap premium reaches $4,000, $5,000, or $6,000 a year, it makes sense to look at a Medicare Advantage plan whose maximum out-of-pocket is only $3,900, $4,500, or $5,200 per year. The Medigap premium is paid regardless of claims or health. The Medicare Advantage copays are only paid when the plan is used. Even if the plan is used to the maximum, it is still less than the Medigap policy, where you will undoubtedly pay the total amount of the premium. Medicare Advantage may be a viable alternative for those who understand the math.
In-Network & Out of Network Vs. Fee For Service
We love our doctors and even our hospitals. We want to go to whom we wish. Original Medicare insurance is accepted virtually everywhere in the Omaha, Lincoln, and Council Bluffs Metro area. I have not run into Medicare acceptance as an issue. A small group of doctors in Lincoln limits the number of Medicare patience they will see, but if you are an existing patient, it is a non-issue.
If they take Original Medicare, there is no issue with Medicare Supplements. Original Medicare is a fee-for-service payment structure. If they accept Medicare–accept Medicare assignment–they accept Medicare payment.
Medicare Advantage insurance (Part C) is different. The majority of Medicare Advantage plans are built within networks. You have to go to a doctor and hospital in the network to pay the lowest copays. Fortunately, in the Omaha, Lincoln, and Council Bluffs Metro area, the three networks–CHI, University, & Methodist–work with the seven insurance companies that currently offer Medicare Advantage insurance in this area.
The strictness of the in-network and out-of-network categories again is a non-issue with the “national networks” some of the more extensive plans have and the offered PPO plans, which allow beneficiaries to go to anyone who accepts Medicare if they are not in the national network. For us in the Omaha Metro area, with very few exceptions, I find this to be a non-issue.
This is a legitimate criticism outside of the metro area in rural Nebraska and Iowa. You may find the network of doctors, hospitals, and other medical facilities too restrictive, and this could be a definite downside to Medicare Advantage insurance in those areas. That aspect of Medicare Advantage insurance should be vigorously researched and considered in the decision process. In those instances, Original Medicare will have a broader appeal for those who find Medicare Advantage networks a problem for them.
Medicare Vs. Managed Care
An irony that the critics of Medicare Advantage insurance never address honestly is the fraud, waste, and abuse that occurs under Original Medicare. Many critics are “champions” of attaching Medicare Fraud, but the lack of management is what allows fraud, waste, and abuse to occur under Medicare. (Please, consult my articles on Medicare Fraud for examples of this.)
Though Medicare’s infrastructure is enormous and its budget is vast, it still cannot overcome fraud, waste, and abuse within the system. The goal of the managed care model that CMS (Center for Medicare & Medicaid Services) promotes through Medicare Advantage is to reduce all three components of fraud, waste, and abuse. The precise scientific requirements the Medicare insurance companies must implement in their care, billing, and reimbursement structure and regulations is how CMS ensures cost reductions. Reading through the mountain of regulations and metrics that must be applied, I find it daunting, but the insurance companies do. Original Medicare, managed by CMS, does not follow the same rules and regulations.
Medicare Advantage plans more carefully watch the treatments doctors prescribe and, consequently, the billing. The treatment needs to be within the regulations that CMS mandates for the Medicare Advantage plans. Otherwise, the treatment will be flagged. That being said, the questioning of the treatment often gets down to a lack of explanation or documentation from the physician’s office. I have often worked with clients to move a treatment through simply by having the doctor’s office add more information to the recommended treatment. CMS has also set up appeal processes the insurance companies must follow when treatment is denied. Ultimately CMS will be the final court of appeal.
Also, denial usually does not mean any treatment. Usually, it means a less invasive and costly procedure. Or it could be a less amount of days as an inpatient or in a skilled nursing facility. Those who criticize the managed care of Medicare Advantage plans for this laud the lack of strictness in Original Medicare and recommend voluntary reporting of waste and fraud to deal with overspending.
No Medicare insurance plan fits everyone. The Medicare insurance benefits are different with different plans. Each person has unique needs. Some are willing to assume more risk to reduce costs; others are willing to pay more to reduce risk. To each their own. Like any economic choice, choosing Medicare insurance is a matter of trade-offs.
If you are looking for Medicare insurance agents near me, call us at Omaha Insurance Solutions at 402-614-3389 and speak with a licensed insurance professional. We are medicare insurance brokers in your area.