Traditional Medicare vs. Medicare Advantage Plans

David Bolton

/

October 12, 2020

Retirement Health
Traditional Medicare vs. Medicare Advantage Plans | Retire Fearless

As a senior, you perhaps already know that you can't have both the traditional Medicare and Medicare Advantage plans. The one you take will ultimately determine how you get your medical care and how much it costs, so you have to choose wisely.

If you're about to attain the age of 65 and eligible for Medicare, you've probably started thinking about how Medicare will cover your health care needs. While there are a lot of decisions that you have to make, one of the most important decisions is whether you want to enroll for the traditional Medicare, which is run by the Federal government, or choose the Medicare Advantage plan, which is the private insurance alternative to the traditional Medicare. Even though most aspects of your medical care will be the same no matter which plans you choose, they have a lot of differences that should at least form the basis of the type of cover you want to go for.

When it comes to comparing traditional Medicare vs. Medicare Advantage plans, one of the main questions that many seniors would want to be answered is; which type of care is best for me? Well, the decision of choosing between a traditional Medicare and Medicare Advantage plan is generally a personal choice that requires you to consider your circumstances such as your health, budget, need for flexibility, and the financial risks or benefits involved.

With that in mind, it's of great importance to have a full understanding of the different parts of Medicare before deciding how to receive Medicare. You should also know about their similarities as well as differences, and that's what this article is all about. At the end of it, you'll be in a much better position to understand which plan works best for you and your circumstances.

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Table of contents

Understanding the Parts of Medicare

Before going into the inner details of traditional Medicare and Medicare Advantage plans, it's essential to have a good grasp of the different parts of Medicare and how they are bundled together in providing care for you. The four parts of Medicare include:

Part A: This covers hospital-related services and costs. This includes hospital care, home health care, skilled nursing facility care, and hospice care.

Part B: This covers medical-related services such as diagnostic, preventive, and treatment services for various health conditions. It also covers your visits to the doctor, outpatient procedures, medical equipment, x-rays, lab tests, and ambulance services.

Part C: This is the Medical Advantage plan and will form a huge part of our article. It revolves around the health services that are administered by private insurers who have contracts with the general Medicare program. In short, the Medicare Advantage plan is just a different way of accessing Medicare Part A and B but also covers Part D. In the end, it offers an entire package of benefits from private insurers but is regulated by the federal government.

Part D: This covers outpatient prescription drug coverage. It is administered and run by private insurers and is great for those who have traditional Medicare or a Medicare Advantage plan but still need prescription drug coverage. You can purchase it separately in what is referred to as a stand-alone Prescription Drug Plan or have it included in the Medicare Advantage plan.

Medigap

Also known as Medicare Supplement Insurance, Medigap is a private health insurance plan that can help you pay for the gaps that exist in payment for Medicare-covered care generally left by traditional Medicare. This generally revolves around coinsurance, copayments, and deductibles. As such, you may be required to purchase Part D as well as Medigap to supplement your medical benefit if you enroll for traditional Medicare.

With that in mind, it's important to note that Medigap doesn't work with Medicare Advantage plans and it's ILLEGAL to offer a senior who is enrolled in Medicare Advantage a Medigap policy unless he/she has decided to switch from Medicare Advantage plans to traditional Medicare.

There are also some Medicare beneficiaries who have union or employer coverage that pay for the gaps in traditional Medicare and they might not need to buy a Medigap plan. You may also not need Medigap if you're eligible for Medicaid programs that cover such gaps or costs.

A Quick Overview of Traditional Medicare

Also known as Original Medicare, Traditional Medicare was created in 1965 as the government-funded health insurance program. It is structured to offer eligible seniors a standard benefits package that covers health services that are medically necessary. The fact that it doesn't include coverage for prescription drugs means that you may have to buy Medigap or a separate Part D prescription drug plan.

Traditional Medicare is generally made up of the following:

  • Part A, which covers various costs including skilled nursing facility care, in-home care, hospice care, and the general hospital care.
  • Part B revolves around medical insurance and generally covers visits to the doctor, lab tests, preventive care, and medical equipment.

You have to keep in mind that traditional Medicare has deductible amounts, copayments, and coinsurance. This means that traditional Medicare only offers good basic coverage and pays about 80% of the hospital costs, visits to the doctor, and medical procedures. The remaining 20% will be your personal responsibility and there's no cap on the amount that you might be required to pay in a calendar year.

Many seniors are automatically enrolled in the traditional Medicare plan. So if you're already benefitting from Social Security or qualify for disability benefits when you attain 65 years, you're most likely automatically enrolled in traditional Medicare, which includes Part A and Part B.

According to recent statistics, nearly two-thirds of senior Americans choose traditional Medicare. They, however, supplement their Part A and Part B with Medigap. Even though this may seem to be an expensive route, it brings a few benefits to the table. With both the traditional Medicare and Medigap, you are covered for any hospital or doctor visits in any facility that accepts Medicare, and most hospitals and doctors do. In other words, you won't need any authorization or even a referral from your primary care doctor to get care services in another hospital or from another doctor.

Needless to say, this type of cover can be an excellent option for seniors who love to travel across the United States or spend time in different parts of the country. It is also a great choice if you have a specific hospital or physician that you want to use.

A Quick Overview of Medicare Advantage Plans

As we noted earlier, Medical Advantage is technically a Part C program that gives you another option of accessing Part A and Part B, as well as Part D or prescription drug coverage. This plan has been in place since 1970 and is offered by private health insurance companies that are approved by Medicare or the Federal government. Medicare Advantage plans are sold to consumers under various names including Humana, Aetna, Kaiser Foundation, and many more.

Medicare Advantage plans lower premium when compared to traditional Medicare particularly when the traditional Medicare is bundled together with Medigap and Part D. Perhaps the only downside to choosing Medicare Advantage plans is that they are operated as Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO).

While PPOs let you access care outside your plan's network, you'll have to pay more for such type of care. Most of these plans will require prior authorization from your primary care doctor if you want to receive specialist care at another facility. They may also not cover an area outside the plan's geographical area. If you choose an HMO plan, you have to keep in mind that you'll be limited to using specific doctors and hospitals with that plan's network. As such, you cannot just receive care in any part of the country.

In addition to covering Part A, Part B, and Part D, Medicare Advantage can also cover additional health services including:

  • Vision services
  • Dental services
  • Hearing services
  • Fitness services and other health bonuses

The best part about Medicare Advantage is that it removes the necessity of having various health insurance plans to cover your medical costs. Instead, it gives you the chance of having all your health coverage bundled together in one place.

And even if you're eligible for Medicare Advantage, you'll only enjoy the benefits if you live in the plan's service area. You have to keep in mind that you'll be required to pay Medicare Part B premium even though it doesn't cover a type of kidney failure known as end-stage renal disease.

Differences between Traditional Medicare and Medicare Advantage Plans

As we noted at the start of this article, the choice you make will determine how you get your medical care. For you to choose wisely, it's of great importance to know the differences that exist between traditional Medicare and Medicare Advantage plans. Here are the differences to look at.

Enrollment

Under the traditional Medicare, you'll automatically qualify for Medicare Part A if you meet the requirement of at least 40 quarters of employment paying into Social Security. As such, you won't have to pay monthly premiums. You have to keep in mind that you automatically eligible for traditional Medicare when you enroll for Medicare for the first time.

You will also have to pay a monthly premium to cover Part B. In essence, you have to choose whether to accept or to decline this coverage plan. It has a deadline and you may be subjected to penalties if you do not enroll during the initial enrollment period set by the government.

When it comes to enrolling for Medicare Advantage plans, you have to specifically choose this option as you become automatically eligible for the traditional Medicare. In other words, you cannot be enrolled in Medicare Advantage plans without your authorization unless you have certain Specific Needs Plans. You will be eligible for Medicare Part A and Part B, as well as other additional benefits; it only gives you the chance of deciding that your Medicare benefits be provided via a private plan.

Going to the Doctor

As a senior, there are various medical issues that will require a visit to the doctor. With traditional Medicare, you get to access any primary care doctor or specialist as long as they accept Medicare. In other words, you are not limited to a specific doctor or specialist and you do not require referrals to see any doctor. More importantly, you do not have to worry about your doctor jumping ship or leaving your plan's network. If anything, a study by Kaiser Family Foundation stipulates that 93% of doctors across the United States accept Medicare so you have very high chances of getting a good doctor within your traditional Medicare coverage.

On the contrary, Medicare Advantage is structured in such a way that you'll have private health insurance similar to the one you had through your employer. You can choose to go with either an HMO or a PPO. Remember, HMO is more restrictive and offers you specific doctors and physicians who will direct your care and will have to authorize any referrals. On the other hand, PPO can let you access doctors outside your plan's network but at an increased cost.

In essence, accessing care with traditional Medicare is a lot easier as you can go to any doctor or hospital within the country that accepts Medicare. You don't require any form of prior authorization to access these services. Under Medicare Advantage plans, you are somehow limited in terms of the doctors you can access. You are only allowed to access doctors with your plan's network and will require prior authorization to access medication outside the network.

Costs

Unsurprisingly, many seniors always find it very difficult to budget for their healthcare costs in retirement. This is because they generally do not know whether their healthcare expenses will be low or high. But thanks to both traditional Medicare and Medicare Advantage plans, you can at least have an idea of what to expect.

When it comes to traditional Medicare, the Federal government always sets the premiums, coinsurance, and deductible amounts for your Part A and Part B coverage plans. For instance, you'll be required to pay 20% of a visit to the doctor or lab test bill. The Federal government also comes up with a maximum deductible rate for Part D even though the copays and premiums may vary from plan to plan.

If you choose the traditional Medicare, you always have to remember that you may have to purchase Medigap to cover out-of-pocket costs, which are more likely to run into thousands in a year. The fact that these out-of-pocket costs have no annual cap is a reason enough to include Medigap in your traditional Medicare.

Under Medicare Advantage, you'll be required to pay the annual Part B premium set by the government as well as any additional premium for the Medicare Advantage plan. The difference, however, arises in the sense that you won't have to pay the 20% coinsurance amount when visiting the doctor. Instead, there's a set copay amount that will lower your out-of-pocket costs. Better still, Medicare Advantage plans have caps on the out-of-pocket costs that you will be required to pay in a year if any.

The Types of Care Covered

As a senior, Medicare will cover most of your healthcare and medical needs. However, you should always remember that there are other medical services such as cosmetic surgery that the program doesn't cover. Under the traditional Medicare, you'll be eligible for several medical services including doctor visits, diagnostics, hospitalization, scans, X-rays, blood tests, and outpatient surgery.

If you choose Medicare Advantage plans, you'll not only be eligible for all the services provided by the traditional Medicare but you'll also access additional services such as vision, hearing, and dental care. Some Medicare Advantage plans also offer gym memberships, access to wheelchair ramps, transportation to the doctor's office, and meal deliveries. Remember, these additional services may vary from plan to plan.

Logistics

When speaking about logistics, it's all about the ease of access and flexibility that each type of coverage offers you. As a senior, you certainly want coverage that is a lot easier to access, with fewer limitations, so it's upon you to choose what works best for you and your situation.

If you choose the traditional Medicare coverage, you'll get a full range of services but you will have to enroll in Part A, Part B, and Part D, as well as Medigap. You will have to file claims for each of the services and Medicare will have to review each and this can be quite tiresome. You should, however, keep in mind that it gives you the flexibility of accessing any doctor across the nation as long as they accept Medicare.

On the other hand, the Medicare Advantage plan is an all-under-one-roof program as it combines Part A, Part B, prescription drugs, as well as any other additional medical services that seniors are always in need of. With this plan, you won't have to worry about enrolling for Medigap or Part D. However, you have to remember that you can only access a doctor who is associated with your plan's network.

In essence, each plan has its pros and cons in terms of offering better logistics and flexibility. It's, therefore, upon you to choose a plan that suits you and your circumstances.

Your Geographic Location

As we've noted a couple of times, traditional Medicare gives you the flexibility of accessing medical care anywhere across the country provided that the doctor or hospital accepts Medicare.

On the other hand, Medicare Advantage plans are structured in such a way that a particular plan uses a given network of providers that are located in particular geographic locations. As such, Medicare Advantage plans may not be an ideal choice if you travel a lot. You may be in an area where there are no care providers associated with your plan or you may have to pay more to access care. Even though Medicare Advantage plans are available throughout the country, most of these plans are available in rural areas.

Appealing Denied Claims

Whether you choose the traditional Medicare or Medicare Advantage plans, you've got the right to appeal harsh decisions that may affect the type of services that you get. But even with that, there are different deadlines and timeframes depending on the plan that you have.

Top 5 Medicare Advantage Plans

Before highlighting the top 5 Medicare Advantage plans, we have to note that it's impossible to rank the top plans for traditional Medicare as it is run by the government and you can access care from just about any doctor or hospital throughout the country as long as they accept Medicare.

With that in mind, here are the top 5 Medicare Advantage plans.

Kaiser Permanente - Best Overall

Offering Medicare Advantage plans in Colorado, California, Georgia, Oregon, Maryland, Washington, Virginia, and Hawaii, is among the largest non-profit healthcare plans in the country. It is one of the highly-rated Medicare Advantage providers and puts a lot of emphasis on customer satisfaction.

Humana - Best for Veterans

With over 4 million members in all the states across the United States, Humana takes about 18% of Medicare Advantage enrollees and offers one of the widest varieties of plans including PPO, HMO, SNP, and PFFS (Private Fee for Service), which gives you the flexibility of accessing any Medicare-approved doctor as long as he/she accepts the terms of payment.

UnitedHealthcare - Best for Perks

Serving all the states in the country, UnitedHealthcare is in partnership with AARP and is known to offer some of the best extras for enrollees. You get access to AARP Staying Sharp, which is an exclusive brain health program, Renew Active fitness program, as well as its passport feature, which allows you to access medical services when you travel to areas with the passport service area.

Aetna - Best for Extensive Medicare Information

Available in more than 45 states across the country, Aetna is known for offering members lots of educational tools to help them understand Medicare and their overall health. It is one of the best rated Medicare Advantage plans and offers unique supplemental benefits such as fall prevention programs and companionship benefits.

Cigna - Best for Special Needs Plans

Available in over 26 states, Cigna is one of the best rated and oldest Medicare Advantage plans in the country. It offers a free Case Management program to all enrollees and helps you in transitioning from hospital to home. It is one of the most stable plans and gives you the peace of mind knowing that you're in safe hands.

How to Determine the Best Plan for You

Here are a few tips that can help you determine whether a traditional Medicare or Medicare Advantage plan is the best for you.

Medical Services

Traditional Medicare can be ideal for you if you're in good health and rarely fall sick or visit the doctor. On the other hand, Medicare Advantage plans can be excellent for you if you're sickly or require extra services such as hearing, vision, and dental services.

Health Condition

Traditional Medicare may not be best suited for you if you have various chronic conditions such as stroke, dementia, and heart failure. This is because it may not cover all your needs. As such, you can consider Medicare Advantage plans such as Special Needs Plans (SNP) could be the best option for those with chronic conditions.

Medications

Traditional Medicare usually doesn't include prescription drugs unless you include Part D in your coverage plan. On the other hand, Medicare Advantage plans include prescription drugs and are the best plan for you if you require constant medication.

Budget

Under traditional Medicare, you will pay monthly premiums for Part A and Part B, as well as annual deductibles for Part B. Differently; Medicare Advantage plans give you the option of paying monthly premiums but with additional costs that depend on your plan. It's, therefore, important to consider the amount of out-of-pocket costs you can afford in a year. Remember, traditional Medicare doesn't have caps on out-of-pocket costs while Medicare Advantage plans have annual caps on out-of-pocket costs.

Provider and Travel Flexibility

Traditional Medicare gives you the flexibility of accessing any doctor across the country while Medicare Advantage plans do not offer this freedom as you have to use doctors within your plan's network.

If you love traveling, traditional Medicare may be the best option as it offers coverage across the nation while Medicare Advantage plans do not.

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