Traditional Medicare or Medicare Advantage? A Confusing Choice for Seniors
Before 2003, the majority of Americans covered by Medicare were in the traditional fee-for-service model that included hospital care (Part A) and outpatient medical care (Part B). In 2003, Medicare Part D was created for prescription drug coverage and the Centers for Medicare and Medicaid Services (CMS) renamed the managed Medicare option Medicare Advantage (MA).
Over the last few years, CMS has actively promoted the benefits of MA Plans to traditional Medicare (TrM) enrollees and age-ins (seniors turning 65). The aggressive marketing by both CMS and private health plans has significantly increased enrollment in MA Plans. In a Kaiser report for 2020, MA enrollment has doubled since 2011, reaching 39% of Medicare enrollees for a total of 24.1 million Americans. The same report shows that the MA market is dominated by four large insurers: United Healthcare (26%), Humana (18%), Blue Cross (15%), and CVS Health (11%). Those four insurers provide coverage for 70% of all MA enrollees.
The enrollment surge has resulted in significant profits for large health insurers in the MA market. The average gross margin (premium-medical costs) per covered person from 2016–2018 was double the margins in the group (employer) or individual markets and topped out at $1608 per member. These large margins have insurers developing new offerings in every market and most MA markets are now saturated with so many plans that choosing one is a daunting task. In 2021, enrollees can choose from an average of 33 MA offerings and there are now 3550 MA Plans available nationwide.
The confusing state of the MA enrollment process has resulted in many seniors not understanding the plan they choose. In a survey of Medicare enrollees, 59% of both MA and TrM enrollees did not understand the difference between MA and supplemental Medigap insurance. Another 44% of MA enrollees did not understand out of pocket costs and why they were charged for them. This confusion has forced CMS to redesign their online tools to help seniors compare plans, but seniors still find that they are difficult to use and provide inaccurate information. The only option left for seniors is to learn the basics about MA and TrM and get some help.
The first step in making a decision is to understand the difference between TrM and MA. TrM consists of Part A (hospital care), Part B (outpatient medical services), Part D (prescription drug coverage), and supplemental insurance or Medigap to help pay for co-insurance and deductibles not covered in TrM. TrM has a national network of providers and you can choose any physician, hospital, home health, and durable medical equipment (DME) vendor without a referral. Most physicians accept TrM.
MA Plans are managed care plans. Enrollees need a referral by a primary care physician for higher cost services and those services need to be approved by the MA Plan. In 2020, 98% of MA enrollees needed prior authorization for approval of DME, skilled nursing stays, and Part B drugs (infusions). MA Plans also have networks of providers that enrollees must use. Health Maintenance Organizations (HMOs) tend to be the more restrictive networks and Preferred Provider Organizations (PPOs) tend to be larger networks of providers but they are all local networks.
In TrM, Part A is free for anyone who was employed for 10 or more years, Part B has a monthly premium determined by income, and Part D and supplemental insurance have premiums through private insurers. In MA (also called Part C), enrollees pay a monthly premium (which can be zero), the same plan B premium tied to income just like TrM, and most plans include Part D prescription drug coverage. In 2020, the average premium for MA plains was $63 per month, with 60% of enrollees opting for a zero premium plan.
TrM has no out of pocket maximum. For hospital care, Plan A has no cost for admissions up to 60 days after a $1484 deductible, but there is a daily co-insurance charge if the hospital stay lasts for more than 60 days. Plan B has a $203 deductible, after that, there is a 20% co-insurance cost based on the approved Medicare rate for the service. Most TrM enrollees (83%) eliminate or reduce their out of pocket exposure with a supplemental Medigap Plan.
In MA, there are published maximum out of pocket expenses (MOOP) for each plan offering. It’s important to know that those published maximums only apply to in-network and approved services. In HMOs, the enrollee is responsible for all out of network costs. With PPOs, the MOOP is usually higher and will include some out of network coverage, with maximum costs ranging between $8800 and $9000. These are all annual maximum costs and Plan D out of pocket drug costs are not included in the MOOP calculation.
So when seniors are deciding between TrM and MA, they need to understand the two different approaches to cost. In TrM with a supplemental Medigap Plan, enrollees will pay more money each month in premiums even if they don’t need many services. These are referred to as upfront costs. What they get is the comfort of knowing that their out of pocket costs when they get sick are significantly reduced or eliminated by their Medigap Plan. With MA, seniors pay much lower monthly premiums and pay out of pocket every time they utilize a service. These costs are referred to as back-end costs. If enrollees are healthy, costs can be significantly lower than TrM, and if they get sick or have a chronic condition, costs can be much higher than TrM, because of the back-end costs. This is probably the most confusing part of MA plans and frustrates seniors the most because they don’t realize the true cost of their Plan until they get sick.
Additional Benefits In MA Plans
CMS has allowed MA plans to add benefits that are not available to TrM enrollees. In 2020, the most common benefits were vision (79%), Telehealth (77%), dental (74%), fitness (74%), and hearing aids (72%). These are not for comprehensive services. Most vision will cover an eye exam but not eyeglasses. Telehealth may have a co-pay. Dental will cover an exam. The point is these are all promoted to drive enrollment and benefits can change every year, so what is offered in one year may be excluded in the following years. That is why seniors should never choose their MA plan based on additional benefits.
Most Enrollees Don’t Switch Plans to Avoid the Process
Once a member chooses a MA Plan, they tend to remain in the Plan. Between 2016 and 2017, only 8% of enrollees chose another MA plan or exited to TrM during open enrollment. Critics fear that the process to choose is so complicated most seniors avoid comparing plans after they enroll in one despite having the option to switch during every annual open enrollment period.
Another issue seniors need to be aware of is that the only time a supplemental Medigap Plan must accept an enrollee with a pre-existing condition is during the initial enrollment period. So if a senior enrolls in a MA Plan and later wants to exit to TrM, the Medigap carrier can refuse to cover them or charge them a higher rate because they have a pre-existing condition.
Time to Decide
Seniors are in a difficult position as the information is so overwhelming that they don’t know where to begin to try and make an informed choice. But there are some circumstances that make TrM or MA the better choice:
- If seniors are frequent travelers or are snowbirds, they should choose TrM for the national network and avoid the potential of high out of network costs.
- If seniors are on a tight budget or are relatively healthy, and want the lowest cost choice then MA is the right decision for them.
- If seniors want the cost of their medical care to be more predictable every year, even if costs are higher, then TrM with a supplemental Medigap Plan is the better choice.
When choosing a MA plan, I suggest that seniors make a list of all their doctors, medications, ancillary services providers, and DME vendors. Then reach out to their local State Health Insurance Assistance Program for help at https://www.shiptacenter.org.
When choosing TrM, seniors need to decide if they want Plan D for prescription drugs (most do because they get a penalty for delaying) and choose a Medigap Plan that is best for them. All Medigap plans have a letter and CMS determines what coverage has to be provided by insurers for each letter. Click here to see the table with different coverages by letter. Then seniors can go to the Medicare.gov website and just look for plans with the letter coverage they are interested in. It’s much easier to choose than a MA Plan because there are not as many options and Medigap coverage is structured by letters so all plans offered will have the same coverage but different premiums and deductibles. Again, they can also use https://www.shiptacenter.org for extra help.
- The number of MA plans offered in most markets is 33, making the choice between TrM and MA confusing for most seniors.
- Zero premium plans are misleading as enrollees in MA still need to pay the monthly Medicare Part B premium.
- Maximum out of pocket (MOOP) costs are confusing as they do not include out of network costs or costs associated with prescription drugs.
- Seniors should never choose a MA Plan based on additional benefits as these can change each year.
- TrM has upfront costs to make annual costs more predictable, but tend to cost more than MA Plans for healthy enrollees. MA Plans have back-end costs that can make annual costs unpredictable when enrollees get sick.