9 Ways to Compare Medicare and Medicare Advantage
Copyright © 2014 AARP. All rights reserved.
So how do traditional Medicare and the Medicare Advantage program stack up generally in delivering health care? There are a range of issues to consider: overall costs; premiums; co-pays; the long-term stability of costs, benefits, and care; choice of providers and whether care is coordinated; extra benefits; geographical service areas; and quality of care.
Thinking through these issues and applying your personal preferences makes gravitating toward one system over the other easier for you. Look at the details of traditional Medicare and the different types of Medicare Advantage plans to refine your thoughts and settle on the system that works best for you. Don't be afraid to get down to the nitty-gritty of comparing individual plans.
On the whole, MA plans offer lower out-of-pocket costs than traditional Medicare. In fact, they were originally intended to provide a lower-cost alternative for people who couldn’t afford Medigap supplemental insurance. Here’s how it happens:
Managed care plans, such as HMOs (health maintenance organizations) and PPOs (preferred provider organizations), keep costs relatively low by limiting access to doctors, hospitals, and other providers within their own provider networks and service areas or by charging enrollees more if they go outside them. They may also require enrollees to ask for prior authorization before covering certain kinds of treatment.
A change in the law in 2003 allowed Medicare to pay the private plans far more on average for enrollees’ care than it pays for people enrolled in the traditional system. The extra payments allowed the plans to charge enrollees less and/or to offer better benefits than traditional Medicare.
But under another law, the Affordable Care Act of 2010 (ACA for short), those overpayments are gradually being reduced, which may cause the plans to cut back on their benefits and/or raise charges — or may result in the plans’ becoming more efficient and competitive.
MA plans must set an annual limit on their enrollees’ total out-of-pocket expenses (deductibles and co-pays) — also a recent requirement of the ACA. The limit is set by law, though individual plans can choose to set a lower cap. Traditional Medicare has no out-of-pocket limit.
However, Medicare Advantage’s private plans may not be the less expensive option for everyone. Several studies have suggested that people with greater health care needs may ultimately pay more for their care in MAs than if they were in traditional Medicare, though these reports don’t reflect recent developments in the law.
Many people in traditional Medicare pay three monthly premiums — one for Part B, one for prescription drug coverage (Part D), and one for a Medigap supplemental insurance policy. In contrast, most people in Medicare Advantage plans pay at most two premiums — one for Part B and one for the plan itself, which may or may not include Part D drug coverage.
However, some plans offer routine vision, hearing, or dental care as separate packages for an additional premium. And some plans charge no premiums of their own at all, even if they include all those extras.
Medicare Advantage plans usually charge fixed dollar co-pays for doctor visits, which may be less expensive and more convenient than the percentage of the cost (typically 20 percent) that traditional Medicare charges.
A flat co-pay is also more predictable: If your plan charges $20 this year to see your primary care doctor, you know in advance that this amount will be your payment for every visit throughout the year; however, you can’t be certain what 20 percent means in dollar terms when the total cost on which it’s based may fluctuate.
Stays in the hospital are also charged quite differently under traditional Medicare and MA plans — but whether one costs more than the other depends mainly on how long your stay is.
Cost and benefit stability
MA plans can change their costs and benefits each calendar year, increasing or reducing them as they choose. Traditional Medicare is more stable, but it increases the Part A and Part B deductibles slightly each year, and the 20-percent coinsurance it charges for most Part B services also tends to rise as health care costs in general go up.
Services that traditional Medicare covers (and which, by law, MA plans must cover too) generally don’t change much from year to year, although sometimes new ones are added.
Traditional Medicare is there, year after year. Medicare Advantage plans can choose annually whether to stay in Medicare or withdraw, or whether to enter or exit a particular service area. Occasionally, Medicare doesn’t renew a particular plan’s contract. If any such changes occur, affected enrollees are notified in advance and can switch to another private plan or to traditional Medicare, but this change can be a disrupting experience.
Provider choice and care coordination
The main reason people give for choosing or staying in traditional Medicare is that they can go to any doctor or hospital they please — or, at least, any that accepts Medicare patients, and most providers still do.
In contrast, the majority of Medicare Advantage plans — those that provide managed care through HMOs — limit the choice of providers to those in their networks and service areas. However, this arrangement may be considered a benefit rather than a restriction if care is properly coordinated.
Because your medical needs are handled and monitored by a single local system, you’re more likely to be encouraged to get tests and screenings early enough to prevent serious health problems later on and less likely to be prescribed drugs that may interact badly with each other.
Traditional Medicare relies on the fee-for-service system and has therefore never coordinated care. Nonetheless, that may change in the future. Many studies have shown that properly coordinated care improves health outcomes — especially for people with chronic conditions such as diabetes and heart disease — and saves tons of taxpayer money, mainly because fewer patients need expensive hospital care.
As a result, Medicare has set up a series of pilot programs in which providers get rewarded not for the number of services they bill to Medicare but for the outcomes of their patients’ care. This new approach goes by various names, including patient-centered medical homes and accountable care organizations.
All MA plans must provide the same medical services as traditional Medicare. But they can also offer extra benefits that may be well worth having. Some plans with these extras don’t charge higher premiums, but many do — often quite a lot more. Look at the coverage details of extra benefits carefully when comparing plans; some are significant, whereas others are very limited.
Geography is a key consideration if you travel a lot or live in another state for part of the year. Traditional Medicare covers you anywhere in the United States, whereas most MA plans require you to either see providers in their service area or pay more to go outside the network.
However, all plans must cover emergency treatment or urgently needed care anywhere in the country. Some Medigap policies and MA plans also cover emergency care abroad.
Medicare has an elaborate system of testing the quality of services provided by MA plans and stand-alone Part D plans, using feedback from customers, complaints, surveys, undercover spot checks, and so on. Based on this info, Medicare gives each plan a quality rating that is posted on the Medicare plan finder website for all to see.