Traditional Medicare Or Medicare Advantage?

Andrew Siegel MD   4/8/2023

I typically write about health, wellness, and urological issues, but occasionally digress into health-related topics, including the 21st Century Cures Act, Electronic Medical Records: Not Ready for Prime Time, Medical Care in the Air, and Patient Reviews of Doctors, etc. In today’s entry, I meander into the confusing topic of health insurance for seniors in an effort to sort out the mysteries of Medicare versus Medicare Advantage.

Please note that virtually anything having to do with health insurance is baffling, mysterious, challenging and sometimes impossible to comprehend – even for someone working in the medical trenches on a daily basis, and furthermore, even for the intelligent billing and medical insurance experts who are employed in my office. A shout out to Mireille and Donna, billing and insurance experts in my office, for helping me with this entry.

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  Let me begin with two adages to always keep in mind:

  1. “There’s no such thing as a free lunch.”
  2. “If it sounds too good to be true, it probably is.”

Traditional Medicare 101

When a US citizen becomes 65 years old, they are entitled to sign up for Medicare.  Thank you LBJ!  Traditional Medicare is a fee-for-service plan administered by the government and can be used for medical care provided by any MD or hospital that accepts it, anywhere in the US.  In general, the government covers 80% of the costs of most medical bills and beneficiaries the remaining 20% after a deductible has been met ($1600 for Part A and $226 for Part B).  Medicare Part A covers hospital care, skilled nursing facilities, hospice, and home health care and Part B covers outpatient medical coverage from MDs and other health providers, preventive services, and durable medical equipment.

In addition to Medicare many seniors elect to purchase separate Medicare supplemental coverage referred to as Medigap to help pay for the 20% that beneficiaries are responsible for – out-of-pocket costs for care and services including deductibles, copays, etc., that are not covered by the Medicare policy.  As an alternative to Medigap, a former employer (e.g., Verizon or the state of NJ) or union may offer a Medicare PPO (preferred provider organization).  If prescription drug coverage is desired, one needs to pay for a separate drug plan, Part D.  Medicare coverage does not include vision, hearing, or dental services, services that are often covered under Medicare Advantage plans, which is the “lure” of the Advantage plans.

Medicare supplemental coverage is offered by a variety of different insurance companies with exactly the same benefits but different pricing, so it pays to shop around. The “open enrollment period” for Medigap begins the month you turn 65 and enroll in Medicare Part B and lasts for a total of 6 months. During this period, you can purchase any Medigap plan offered in your state without any issues in coverage because of pre-existing conditions and you cannot be charged higher premiums or denied coverage. However, if you miss the open enrollment period, you can be denied coverage or charged a higher premium because of pre-existing conditions. If you sign up for only Medicare Part A at age 65 and continue working and receiving employer-based private insurance, when you do retire and sign up for Medicare Part B, you may enroll for Medigap without penalty within a 6 month window of retiring during a “Medigap Open Enrollment Period.” You cannot be denied a Medigap policy or charged more due to pre-existing conditions.

Most doctors participate with Medicare. 93% of primary care physicians (PCPs) accept Medicare, although only 70% of PCPs are accepting new patients.  The medical group that I work for, Summit Health, participates with Medicare.

Medicare Advantage 101

Medicare Advantage is a Medicare-approved plan that is provided by a private company offering an alternative to traditional Medicare, bundling parts A, B, and usually D into one package.  The cost to the patient is the same as the cost of the part B premium in traditional Medicare.  These plans, which are mainly HMOs and PPOs, use managed-care strategies to control costs as opposed to the fee-for-service traditional Medicare plan.  There is a yearly limit on out-of-pocket costs. 

These plans sound enticing because they may have lower out-of-pocket expenses and deductibles than traditional Medicare and may offer extra benefits like vision, hearing, and dental services, so getting a supplemental plan is not necessary.  The (big) downside is the requirement to use doctors in the Medicare Advantage plan’s more restricted and limited network, with reduced access to care – not only to physicians, but also to some hospitals.   Additionally (and significantly), Medicare Advantage uses “cost management tools” such that many diagnostic tests and treatments that are automatically green-lighted by Medicare require approval and authorization in the Medicare Advantage plans, resulting in delays and denials. Medicare Advantage plans frequently refuse guideline-appropriate options for our patients. A federal investigation conducted last year concluded that tens of thousands of Medicare Advantage patients were denied necessary care that should have been covered. Another disadvantage is that if you have been enrolled in a Medicare Advantage plan and are unhappy and wish to join traditional Medicare, Medigap insurers are not required to sell you a policy if you don’t meet the medical underwriting requirements. In other words, if you have pre-existing medical conditions, you might be out of luck in finding a supplemental policy or could be paying much more than if you started with traditional Medicare and Medigap at age 65.

Medicare Advantage plans are red-hot in the USA with about 48% (28.4 million of the 58.6 total) of Medicare beneficiaries currently enrolled in Medicare Advantage plans, more than double the enrollment from 2017, and a share that is projected to be 50% by 2025. UnitedHealthcare is the largest provider of Medicare Advantage plans has the largest Medicare Advantage network of all companies.

Of note, Medicare spends more per retiree in Medicare Advantage plans on average than it pays for similar enrollees in traditional Medicare. The Biden administration is currently working on combating widespread abuses, fraud, and systematic overbilling of the government within the Medicare Advantage program in an effort to shore up the Medicare trust fund. The big insurers including UnitedHealth Group, Humana, Cigna, etc., as well as the American Medical Association are vigorously opposing the government’s efforts at reform. This battle highlights how important and lucrative Medicare Advantage is to insurers, recipients of about $400 billion in taxpayer money in 2022, with profits on Medicare Advantage plans about double what insurers earn from other policies. The insurance companies receive a flat rate for every senior and receive bonuses for those with serious medical conditions. The fraud issues that have emerged are based on the insurance companies manipulating the system by attaching as many diagnosis codes as possible to patient records to harvest bonus payments.

Health Coverage Shifting to Medicare Advantage Plans: Not Always Your Choice

Many retirees whose former employers offer retirement health benefits are being surprised to discover that their former health plans are being replaced by Medicare Advantage plans.  Why?  Because it saves millions of dollars for employers.  About half of large employers that offer health benefits to their Medicare-age retirees have contracted with a Medicare Advantage plan, many of which do not give retirees a choice in the matter.  This shift to Medicare Advantage is a means of maintaining benefits, restricting costs, and not shifting costs onto retirees.

If a retiree is unhappy with the Medicare Advantage plan, their options are to give up retiree benefits with the ability to retain traditional Medicare and the option of purchasing Medigap. 

Bottom Line

Advantages of Medicare Advantage Plans

  • Generally, less costly than traditional Medicare plus a Medigap secondary (although not always the case).
  • There is a yearly limit on out-of-pocket services for Parts A and B, and once you reach your plan’s limit you pay nothing (versus traditional Medicare where there is no yearly limit on out-of-pocket costs unless one has Medigap).
  • Offers extra benefits that are bundled, including vision, hearing, and dental services and most plans include drug coverage.

Disadvantages of Medicare Advantage Plans

  • Limited network of physicians and hospitals (versus ability to go to any doctor or hospital in the USA that takes Medicare when covered by traditional Medicare).
  • Geographical limits with restriction to only doctors in your service area (for non-emergency care).
  • Like traditional Medicare, it does not cover 100% of medical costs, so copays and deductibles apply, and it can become expensive if illness strikes.
  • You may need a referral to see a specialist. The out-of-pocket costs are variable (as opposed to the 20% of Medicare-approved amount after deductible with traditional Medicare).
  • Many diagnostic tests and treatments, services, and supplies require prior authorization that may result in delays, denials, and the need for appeals.
  • Less flexibility to change to an alternative plan.
  • According to the billing and insurance experts in my office, many seniors are unaware that by signing up with Medicare Advantage that they have signed away their Part B benefits, believing that they have traditional Medicare with the Medicare Advantage as a secondary insurance.

I asked the three insurance and billing specialists in my urology office what they plan on doing themselves when it becomes time to make the decision between traditional Medicare with Medigap versus Medicare Advantage.  Their answer was unequivocally traditional Medicare.  My brother, a retired health administrator who just went through this decision-making process himself, advises that when confronting this decision it is useful to speak to a Medicare healthcare advisor, a professional who works with Medicare beneficiaries to help them select and enroll in the most appropriate plan for their specific situations.  My brother ended up choosing traditional Medicare with Medigap.

At this time, I have private group health insurance through work and am registered for Medicare part A, but when it comes time for retirement and the need to replace my private group health insurance, my vote clearly will be for Medicare plus Medigap. With respect to Medicare Advantage plans, buyer beware.

Wishing you the best of health,

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Dr. Andrew Siegel is a physician and urological surgeon who is board-certified in urology as well as in female pelvic medicine and reconstructive surgery.  He is an Assistant Clinical Professor of Surgery at the Rutgers-New Jersey Medical School and is a Castle Connolly Top Doctor New York Metro AreaInside Jersey Top Doctor and Inside Jersey Top Doctor for Women’s Health. His mission is to “bridge the gap” between the public and the medical community. He is a urologist at New Jersey Urology, one of the largest urology practices in the United States.  He is the co-founder of PelvicRx and Private Gym.  His latest book is Prostate Cancer 20/20: A Practical Guide to Understanding Management Options for Patients and Their Families. 

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Video trailer for Prostate Cancer 20/20

Preview of Prostate Cancer 20/20

Andrew Siegel MD Amazon author page

PROSTATE CANCER 20/20 is now available at Audible, iTunes and Amazon as an audiobook read by the author (just over 6 hours). 

Dr. Siegel’s other books:

THE KEGEL FIX: Recharging Female Pelvic, Sexual, and Urinary Health

Video on THE KEGEL FIX

MALE PELVIC FITNESS: Optimizing Sexual and Urinary Health

PROMISCUOUS EATING— Understanding and Ending Our Self-Destructive Relationship with Food

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