Are Medicare Advantage plans really an advantage?

Here are 8 questions to consider before you sign up.

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Key takeaways

  • The cost of Medicare Advantage premiums can vary widely based on factors such as convenience, flexibility, and where you live.
  • Check with your employer about Medicare options when you turn 64. In some cases, they may have negotiated better premiums or may subsidize your premiums.
  • Medicare costs are a key component in your retirement income plan. Work with your financial advisor to determine which options make sense for you.
 

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. According to a Fidelity survey of men and women 55 and older, when asked if Medicare is free, only 43% knew that it was not free. A startling 31% had no idea.1

"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 a supplemental 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:

  1. 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.
  2. 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:

1. What are the "advantages" of 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 2019, the cap is set at $6,700 for in-network services. That means you'll pay your co-share costs up to the cap, then your plan will pay 100% after that.

Many add coverage for health care not included with Original Medicare, such as vision, dental, and hearing aids. New this year, 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 where you live in retirement, the features you choose, and how much flexibility and convenience you want.

For example, if you live in Fort Myers, Florida, and take 2 generic prescriptions, there are 23 MA plans with drug coverage available. Of those plans, 17 are offered at $0 additional premiums; the other 6 range from $42 to $148 in monthly premiums. Each has different out-of-pocket maximums, different access to doctors, and other varying features.

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. 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 MA plan has a "passport" feature that allows you access 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, 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:

  1. 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.
  2. Consider how a provider network will work for you.
  3. 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.

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 your financial advisor to help determine which options make sense for you.

Next steps to consider

Call or visit to set up an appointment.

Get help building health costs into your retirement income plan.

Learn how Medigap works and if it may be right for you.

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