Medicare For Dummies
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Your choice between traditional Medicare and Medicare Advantage has consequences. Here’s a quick summary of how each of the two systems works, very differently, in delivering Medicare benefits:

  • Traditional Medicare: This option is the original government system that has been in place since 1966; that’s why it’s also called original Medicare. It comprises Parts A and B, and it works on a fee-for-service basis.

    In other words, Medicare directly pays a portion of the costs of any medical service it covers to any provider that accepts Medicare patients. You, the patient, pay a percentage of the cost or, in some cases, a fixed amount for each covered service you receive. Overall, the government contributes subsidies amounting to about 75 percent toward beneficiaries’ medical costs.

  • Medicare Advantage (MA): Medicare Advantage is the name used collectively for Medicare’s private health plans. They deliver Medicare benefits in a different way from the traditional system and are run by Medicare-approved private insurance companies.

    Medicare pays each plan a monthly amount for each enrollee’s medical care, regardless of how much health care a person actually uses. You receive your medical benefits through the plan of your choice and pay the charges required by the plan. Because plans vary greatly in their costs and benefits, you need to compare them carefully to pick the one that best suits your needs.

At the outset, though, the key point to understand is this: Choosing either of these systems triggers a mini-cascade of other choices.

Considerations for choosing one plan over the other

If you decide on traditional Medicare, you must consider

  • Whether you need Part D prescription drug coverage: If so, you must enroll in a stand-alone Part D drug plan (one that provides only drug coverage), choose your plan from at least 25 plans offered in your state, and pay a monthly premium. You don’t need Part D if you have creditable (equivalent) drug coverage from another source.

  • Whether you want Medigap supplemental insurance: Medigap pays many of your out-of-pocket expenses in traditional Medicare. If you want it, you must choose a policy with the set of benefits that you prefer (out of a maximum of ten choices), contact insurance companies that sell that policy in your area for a price quote, and pay the monthly premium required.

If you decide on Medicare Advantage, you must think about the following:

  • Whether you need Part D prescription drug coverage: If so, you must choose a MA plan that includes drug coverage in its benefits package. If you have creditable drug coverage from another source such as the Veterans Affairs (VA) health system, you can choose a MA plan that offers only medical benefits with no drug coverage.

  • Which plan to enroll in: Where you live determines how many MA plans are available to you. A very few rural areas have no MA plans at all. Some big urban areas have 50 plans or more. Elsewhere, you still have plenty of choices.

    Each plan has its own mix of costs and benefits. Comparing them isn’t always an easy process. But you must choose just one, enroll in it, and pay a monthly premium (in addition to the Part B premium) if one is required.

How soon must you make this first cut? Well, when you first sign up for Medicare Parts A and B, you’re automatically enrolled in the traditional Medicare program; you’ll continue to receive your benefits from that program unless you specifically choose to switch to a Medicare Advantage private plan.

Similarly, if you’re already in either traditional Medicare or one of the MA private health plans, you remain with that coverage unless you take action to switch. In other words, you make the call.

You can decide to enroll in a MA plan when you first sign up for Part B, whether that’s during your initial enrollment period or a special enrollment period, if you want to. Of course, whichever system you choose, your decision isn’t set in stone. Regardless of which option you pick to begin with, you’re free to switch to the alternative at least once a year during an appropriate enrollment period.

An important limitation on your choice

You do face one limitation on this otherwise-open choice. What happens if you enroll in a Medicare Advantage plan and then want to return to traditional Medicare? Can you still buy a Medigap policy with full federal protections? You have that right in only a few circumstances:

  • You joined a MA plan as soon as you became eligible for Medicare at 65 and you’re still in the first 12 months of being in the plan.

  • You dropped a Medigap policy to join a MA plan, it’s the first MA plan you’ve ever been in, and you’ve been in it for one year or less.

  • You move out of your MA plan’s service area and decide to switch to traditional Medicare.

  • Your MA plan stops providing services in your area.

  • Medicare allows you to drop out of your MA plan after determining that the plan broke the rules or misled you.

The first two of these situations count as a trial period. The other three describe very specific circumstances. In all other situations, if you drop out of a MA plan and switch to traditional Medicare, you may still be able to buy a Medigap policy, but you won’t get the federal guarantees and protections (especially in regard to preexisting medical conditions).

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