If you’re like a lot of people preparing to enroll in Medicare, you may be used to your employer picking up most of your health insurance tab. But as you approach age 65, you may be quite surprised to learn how costly coverage can be.
"Not only is Medicare not free, it can be downright expensive. And, it doesn't cover all medical expenses," Steve Feinschreiber, senior vice president of the financial solutions team at Fidelity warns consumers. "You'll likely need an additional or 'gap' insurance policy to fill in the payment holes. Otherwise, you are on the hook to pay outstanding balances."
Before you decide on the plans to buy, research your options to find where you’ll get the best advantages. There are 2 choices for how you can buy Medicare and supplemental insurance:
- Through the federal government via Original Medicare. You enroll in Parts A and B, then choose a Part D prescription plan and a separate Medigap policy.
- Through an all-in-one Medicare Advantage (MA) insurance plan. Also known as Part C, this option combines Parts A, B, and D, plus supplemental insurance.
At first glance, it can look like Medicare Advantage plans are much more affordable. But beware the details. You’ll want to look under the hood before you make your final decision.
Here are 8 questions to consider before signing up for a Medicare Advantage plan:
Many people who chose these all-in-one plans like a more packaged approach—and the price. Medicare Advantage plans typically have lower premiums than Original Medicare plus a Part D prescription plan and Medigap policy. Plus, Medicare Advantage plans usually cap out-of-pocket spending. In 2024, the cap is $8,850 for in-network Part A and B covered services. That means you'll pay your co-share costs up to the cap, then your plan will pay 100% after that. (While the cap is $8,850, plans may, and do, set lower limits for individual plans. Be sure you understand how much money you may need to spend out-of-pocket.)
Many Medicare Advantage plans add coverage for health care not included with Original Medicare, such as vision, dental, and hearing aids. Some MA plans offer discounts for nutrition services, non-skilled in-home support, and home modifications such as grab bars in the shower or temporary wheel chair ramps that allow seniors to remain at home.
2. How much does Medicare Advantage cost?
There is a wide range of costs. Your specific policy will depend on the ZIP Code of where you live in retirement, the features you choose, and how much flexibility and convenience you want.
Each plan has different out-of-pocket maximums, different access to doctors, and other varying features. And remember, the specifics of these plans can change annually.
3. What's the catch with $0 or very low premiums?
A network. That's the catch. In order to use most MA plans, you agree to get your standard medical care (not including emergency care) within a specific network of physicians, hospitals or clinics, and pharmacies, and you'll need referrals to specialists. If your doctors are not part of the MA network, you may want to choose another insurance plan.
4. Do I still have to pay for Medicare Part B premiums if I get an MA plan?
Yes, as well as any IRMAA (if applicable) for Parts B and D, if your plan includes prescription drug coverage. You can think of Medicare Advantage plans as primarily supplemental plans. You can choose MA after you enroll in Medicare Parts A and B. A difference with MA plans is in how the payments flow between Medicare, the health insurance companies, and the providers of health care services.
In the case of MA plans, Medicare pays the insurance companies a fixed dollar amount per month for coverage, then the insurer pays the providers a negotiated amount for services performed. In Original Medicare, payments are made to the hospitals or providers for Medicare's share of any covered services you receive. You pay your share of Part B by way of a Medigap plan or from your pocket, depending on the plan you choose.
5. Will I be covered by my MA plan if I live in 2 places during the year?
It depends. Medicare Advantage plans rely on a tight network of local providers, typically in one single area. However, some of the larger insurers have set up networks in multiple states. If you live in both New York and Florida, your insurer may have networks set up in both locations. Ask if your Medicare Advantage plan has a feature that allows you access it in both places where you live.
6. How do I get covered if I have an MA plan when I'm traveling?
Emergency medical is covered under any Original Medicare or Medicare Advantage plan. Your MA plan may include a travel option. Or, if you plan to travel internationally, you can purchase separate travel insurance and/or a medical evacuation policy for the duration of your trip. Check your coverage with your current Medicare Advantage or Medigap provider along with the Medicare website.
7. Can the cost of my Medicare Advantage plan increase?
Yes. Typically, insurance companies assess their pricing policies annually. Your plan will notify you if there is an increase in premiums. Social Security will notify you if there is an increase in Part B premiums.
8. Can I switch to Original Medicare and add a Medigap plan if I change my mind later?
Yes. Each year during open enrollment those in any Medicare plan have the option to change plans. From October 15 through December 7, you can switch between MA plans available to you or switch to Original Medicare.
Use caution before giving up your MA plan and trying to switch to a Medigap plan.
In many cases, insurance companies can charge you a higher premium or deny coverage based on your health history and current situation. For example, if you are a 66-year-old diabetic who has had 2 heart attacks, it's unlikely you'd be a candidate for switching plans.
Explore your options
Making Medicare decisions is an important part of transitioning into retirement. There are many options and the information can be overwhelming. Get an early start researching your options and finding the plan with the best advantages for you. Follow these 3 steps:
- Use Medicare's Plan Finder to:
- Compare the various MA plans available in your local area.
- Compare the costs of choosing MA vs. Original Medicare with a Medigap policy. - Consider how a provider network will work for you.
- Check with your doctors to see what they recommend and which plans they accept.
Talk to your employer
"There's one more key step in your planning," Feinschreiber adds. "Check with your employer when you turn 64 to see if there are any other options available when you retire. Your employer or union may offer a Medicare Advantage plan to you when you retire. In some cases, they have negotiated a better premium or will subsidize your premiums. In general, you have the option to sign up for that plan or choose another plan, including Original Medicare."
Tip: It can be difficult to decide which plan will work best for you when you are relatively young and healthy. Ask insurance companies how their plan works when you are 80 and have a host of medical issues—or if you get cancer at 68 or need a hip replacement at 87. No one wants to experience the cost of these medical situations, so it is best to be prepared.
5 common Medicare Advantage pitfalls to avoid
| Common pitfall | Tip |
|---|---|
| Prioritizing free/low monthly premiums and underestimating their total out-of-pocket liability. | Read the full policy before signing up for a plan with $0 premiums. You may face stiff out-of-network fees and high annual out-of-pocket costs. |
| Failing to consider the impact of limited provider networks on plans to travel. | Emergency needs are covered when traveling, but all other health issues are not. Consider adding travel insurance for each trip you take especially for international travel. |
| Losing coverage if you live in multiple states throughout the year. | Ask if your Medicare Advantage plan is available in multiple locations. If not, find another MA provider that offers coverage in multiple states. |
| Thinking it’s easy to switch from MA to Original Medicare with a Medigap plan. | Medigap plans generally require medical underwriting if you try to enroll after your Medigap Open Enrollment Period. |
| Hoping you won't need expensive prescription drugs and not enrolling in Medicare Part D. | If you fail to enroll in Part D on time, you are assessed a 1% per month penalty with no cap when you do enroll. |
Plan ahead
Medicare costs are a key component in your retirement income plan. "Along with deciding when to claim Social Security and determining how you will generate cash flow in retirement, choosing Medicare—including looking at all the Medicare Advantage options available to you—is one key decision you'll make as you approach retirement," Feinschreiber reminds us. "The costs should be mapped into your overall retirement income plan from the beginning." Work with a financial professional to help determine which options make sense for you.