Medicare Advantage Plans Explained

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    This article will help you understand Medicare Advantage Plans.  Our intent is to focus on the Pros and Cons of Medicare Advantage Plans so you can make an informed decision. Medicare Advantage Plans Explained is written to help you answer the question, are Medicare Advantage Plans right for you?

    Your First Medicare Decision

    As you know from my Medicare Explained video, before you make any other decisions with Medicare you must first be enrolled in both Medicare Part A (inpatient services) and Medicare Part B (outpatient services).

    From there you can make one of three choices.

    1. Do nothing. Just keep Medicare Part A and Medicare Part B (aka Original Medicare) as your insurance coverage and add Medicare Part D prescription coverage.  Of course, with just Medicare Part A and Medicare Part B and no other coverage, a person still has unlimited financial risk should you get sick or injured.  Your portion of the medical cost could still result in financial hardship.
    2. A second option is to increase your insurance coverage by enrolling in a Medicare supplement plan and use that coverage in addition to Medicare Parts A and B.
    3. A third option is to trade in your Medicare Part A and Medicare Part B for a Medicare Advantage Plan.

    This article discusses the pros and cons of the third option, Medicare Advantage Plans.

    Follow this link if you are also interested in the pros and cons of Medicare Supplement Plans

    What Is a MOOP?

    An important Medicare insurance term you should be aware of as you research different Medicare choices is your MOOP.  MOOP stands for your annual Maximum- Out -of- Pocket financial risk.  Your MOOP is the most money you will be liable for in approved Medicare bills for in-patient or outpatient services during any calendar year.  It’s a great way to measure the coverage of one health insurance plan versus another.  The plan with your lowest MOOP has the most insurance coverage because your financial risk is the lowest. Once your out-of-pocket expenses has reached your MOOP you have 100% coverage for the remainder of the calendar year.  Your MOOP resets every January 01.

    It’s important to know that your MOOP never includes the cost of prescription drugs or your premium to purchase the plan. Prescription drugs are always separate.  Even if your Part D is bundled with your Medicare Advantage Plan.

    It is also very important to understand that the MOOP is only in reference to APPROVED Medicare services or procedures.  If a procedure or service is not approved, you will bear 100% of the cost and it will not count toward your MOOP.

    Original Medicare Parts A & B have no MOOP.  You have unlimited financial risk.  All Medicare Advantage Plans and Medicare supplement Plans have a MOOP.  Which is why people are attracted to them.

    What Is a Medicare Advantage Plan?

    A Medicare Advantage plan is also referred to as Medicare Part C.  It is a privatized version of Medicare Part A and Part B.   You are trading in your Medicare Part A and Medicare Part B for roughly equivalent coverage (technically referred to as Actuarily Equivalent) operated by a “for-profit” insurance company.   Mind you, you must continue paying your Medicare Part B premium.  That premium is typically deducted from your Social Security Income.

    About 98% of all Medicare Advantage Plans are structured as either an HMO or a PPO.

    What is a Medicare Advantage HMO?

    HMO stands for Health Maintenance Organization. Health Maintenance Organizations are designed to maintain the health of their patients in a cost-effective manner.  The HMO is local healthcare coverage with a network that may be confined by your county or a local area the size of most counties.

    Typically, you must stay within the network of medical providers contracted with the HMO.  Outside of the network you have no insurance, except for emergency and possibly urgent care.  In other words, if you see a doctor not in the HMO network, you will pay 100% of the cost.

    There are some exceptions offered by some plans.  It’s up to the consumer to understand and follow these exceptions.

    With most HMO’s you must designate a Primary Care Physician (PCP).  That Physician will control your healthcare, is contracted with the HMO and typically rewarded for helping the HMO control their costs.

    You must obtain permission from your Primary Care Physician to see another doctor like a specialist.  Without permission, the HMO will not pay for your care.

    What Is a Medicare Advantage PPO?

    The term PPO stands for Preferred Provider Network.  A Medicare Advantage PPO is designed to save money by encouraging the consumer to use medical providers and facilities that have contracted with the insurance company.  Those providers are grouped as a network and are contracted to offer their services at a low rate in turn for being a preferred provider.  The medical providers and facilities get more business, and the insurance company saves money.  Note, neither benefit necessarily includes the consumer.

    With a PPO the consumer is allowed to see medical providers out-of-network.  However, there are two major drawbacks to the out-of-network option.   The first drawback is that the out-of-network medical provider must agree to accept your insurance.  If they do not accept your insurance, then the insurance company will not pay for their services.  If you see that medical provider, you will bear the full cost.

    The second drawback is that if the medical provider agrees to accept your insurance, you will still pay more that you would if they were in network.

    Most Medicare Advantage PPOs have a separate MOOP for approved out-of-network services.  Typically, that MOOP is much higher than in-network services.   Of course, any procedure that is not approved or is performed by an out-of-network doctor that does not agree to accept your insurance is not included in your MOOP.

    Why Choose Medicare Advantage Plans?

    Why would a person trade in their Original Medicare Parts A and B for a Medicare Advantage plan?

    Primarily to limit financial risk in the case of a medical event. Original Medicare Part A and Medicare Part B on its own has no limit to your financial exposure.  A medical event can be costly enough to create financial hardship.

    In Medicare, the two ways a person can limit their financial risk is to either increase their insurance coverage by selecting a Medicare supplement plan or by trading in their original Medicare coverage for a Medicare Advantage plan.

    This is an important difference between Medicare Advantage plans and a Medicare Supplement.  With a Medicare supplement you do not give up anything to limit your financial risk.  You get additional insurance coverage to limit your financial risk.  With a Medicare Advantage plan, you give up the benefits of Original Medicare in order to have limited financial risk.

    It is very important to understand that a Medicare Advantage plan is not a Medicare supplement.  It is not Medicare supplemental coverage.  It is a Medicare replacement.

    If you purchase a Medicare Advantage plan, you can only switch back to Original Medicare during select periods and if you qualify medically. 

    In addition to limiting financial risk, Medicare Advantage plans provide an aura of convenience to the consumer.  They will often bundle a Medicare Part D prescription drug plan and throw in some extra services that give the appearance of greater coverage.  For example, some throw in basic or preventative dental services, hearing tests and services and things like gym memberships.

    These are benefits not provided by Original Medicare. But when it comes to providing hospital or outpatient care, the Medicare Advantage Plan is, by law, the actuarial equivalent of Original Medicare.

    What Is an Actuarial Equivalent?

    By law a Medicare Advantage plan is an actuarial equivalent of Medicare A and Medicare B.  That means it is intended to provide a benefit of equal value to Medicare Part A and Medicare Part B without a supplement.   I have linked my CMS source for this information below. But the consumer must give up something in order to get this annual limit on their financial risk plus these other added benefits.

    It is very important to understand that a Medicare Advantage plan is not a Medicare supplement.  It is not Medicare supplemental coverage.  It is a Medicare replacement.

    Disadvantage of Medicare Advantage Plans

    If you keep Original Medicare, you have the right to see any doctor or go to any hospital in the US as long as they accept Original Medicare. You have national insurance coverage. In addition, Medicare’s intent is to cover everything that is medically necessary. To determine medical necessity, they lean on your doctor’s diagnosis and opinion.

    When you enroll in a Medicare Advantage plan you lose that freedom of choice, and your doctor must get each service or procedure approved by the insurance company. Prior authorization for each procedure can have a meaningful negative impact on your healthcare.   Unfortunately, insurance companies never ask for your doctor’s guidance when defining what is or is not medically necessary.

    There are a number of different types of Medicare Advantage plans.  Some do allow a person to see medical providers out-of-network.  However, it would be at a higher cost to you.  Staying in a hospital that is out-of-network is often cost prohibitive.  In addition, even though the insurance agent may tell you that you can “See any doctor in Medicare” with some plans.  What is not said (and often not understood) is that you can only see an out-of-network doctor if they decide to accept your insurance.  More often than not, the Medicare provider will reject your insurance and decline to see you.

    It’s also very important to understand that with a Medicare Advantage plan the insurance company is the arbiter of what is and is not covered by their insurance.  They are supposed to cover everything that Original Medicare would cover, but that is proven not to be the case.

    I the problem with Medicare Advantage Plan denying service and the first of two Inspector General Reports on the subject here:  Medicare Advantage Denial of Service

    Let’s stop there for a moment.

    First, I feel like I am beating up on Medicare Advantage plans, but I don’t mean to be.

    Our Philosophy on Medicare

    In addition to offering all Medicare supplement plans, my company also offers Medicare Advantage plans in almost every state.   No matter what your choice, we make certain the consumer knows what they are getting and what they are giving up.  We will go over in a moment who should be considering these plans and why.  What I am trying to lay out here is a simple truth that is brushed over by most insurance agents that sell Medicare Advantage plans.

    Some Agents Are Motivated by Commissions

    Medicare Advantage plans are high commission products. The insurance agent selling Medicare Advantage Plans is paid two to five times more than what is paid for a Medicare supplement.  Sadly, this creates a financial incentive to brush over the truth.  I have a video that details how you can identify when an agent is financially motivated, and their advice is tainted.  It titled Do I Need a Medicare Insurance Agent.

    Still, some consumers choose the Medicare Advantage plan because of other conveniences.  These will typically include a bundled Medicare Part D plan and may also include health activities like a gym membership, limited dental services and hearing aid benefits and so on.

    Because Medicare Advantage plans are less insurance than a Medicare supplement and because the consumer must give up some of the greatest benefits of Medicare when they trade it in for a Medicare Advantage plan, I have a strict philosophy on how we approach advising consumer.   I believe the consumer should first look at the Medicare supplement plans that are available.  Only if there is no Medicare supplement that fits the consumer’s needs and budget do we move to examine Medicare Advantage Plan options.

    I believe the consumer should first look at the Medicare supplement plans that are available. Only if there is no Medicare supplement that fits the consumer’s needs and budget do we move to examine Medicare Advantage Plan options.

    Please Watch the Medicare Advantage Video for More

    In the video linked to this article I reveal many other facts that every consumer should know before choosing a Medicare Advantage Plan.  The links below are the ones promised and discussed in detail in the video.  I encourage you to peruse the links and, if you are so inclined, to watch the video.


    Your first opportunity to purchase a Medicare Advantage Plan is during your Medicare Initial Enrollment Period. That is a seventh month window that includes your birthday month and the three months before and after.

    Every year between October 15and December 07 a Medicare eligible person can purchase a Medicare Advantage Plan for the first time, or switch from one Medicare Advantage Plan to another.  Your new plan will then start on January 01.  You can also use this time period to switch from an Advantage plan back to Original Medicare.

    The Annual Open Enrollment for Medicare Advantage Plans is from January 01 through March 31.  During this time period you can 1. Trade your Medicare Advantage Plan back to Original Medicare Part A & B. 2. Make one (1) change in your Medicare Advantage Plan if you don’t like your current plan.

    Most Medicare Advantage Plans come with a bundled Part D prescription drug plan.  These are referred to as Medicare Advantage Prescription Drug Plans (MAPD).  Some do not have a prescription drug plan.  If your Medicare Advantage HMO or PPO does not have a Part D plan bundled with it, you cannot purchase a standalone Part D Plan.  If you do, you will lose your Medicare Advantage Plan.

    If you move out of the service are of a Medicare Advantage Plan, you will have a 60-day Special enrollment Period to get a new plan based on your new address.

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    Matthew Claassen, CMT and CEO of Medigap Seminars Insurance Agency. Medigap Seminars is an award winning premier national Medicare Insurance Brokerage, ranked among the top in the U.S.A. Matthew is considered a leading national expert on Medicare and Social Security. Mr. Claassen is a distinguished member of the Forbes Business council, an invitation only organization of business leaders and entrepreneurs. He and his team have received awards from many of the countries largest insurance companies including Mutual of Omaha, Aetna, Humana, Cigna, United American, United Healthcare and others. His videos have become the most popular Medicare educational videos on YouTube with millions of views. As a financial analyst Matthew lead a team of researchers to win the 2009 Best Equity Research & Strategy Award from The Technical analysis magazine.


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