Medicare Explained, the Secrets of Who and Why
Medicare explained, Medicare made easy, Medicare made clear, no matter how we word it in the title of all these videos that you’re watching, understanding Medicare is not always easy. I know. I have helped over 10,000 people with their Medicare in just the past five years. In this video, I will use that experience to help you.
The First Choice You Must Make
When you enroll in Medicare Part B you must make one of three choices.
Either you keep Original Medicare Part A and Part B and do nothing else, except get Prescription drug coverage through Part D.
Second, you trade in your Medicare Parts A and B for a Medicare Advantage Plan, also called Medicare Part C, many doctors refer to them as Medicare replacement plans. You can do this as an individual, or if you are continuing to work past 65, some large employers offer a group Medicare Advantage plan. I will talk more on that in a moment.
Or third, you build on your Medicare Parts A & B by adding a Medicare supplement.
Those are your three choices, and which choice you make can set the course for your healthcare for the rest of your life.
In this article, I am going to share with you the secrets of Who and Why. For each of these four choices, I will share the who (the demographics) and why people make that specific choice and what, if any the typical likes and regrets years later.
In addition, near the end of the article I will share with you what I see happening in the Medicare market over the next five years. This is going to be interesting.
If you would also to know more about the details of Medicare Part A and Medicare Part B, Advantage Plans and supplement plans, I suggest the video and article linked here; Medicare Explained – What Is Medicare? This linked video is Medicare simplified. It focuses on Medicare explained simply so you understand Medicare Part A & B, Medicare supplement plans and Advantage plans.
Why Demographics Are Important
Because of my experience in this industry, I am intimately familiar with why people make their decisions about Medicare and what, if anything, they regret about that choice years later or like about their choice in the years that follow.
When you understand the demographics and why people choose different directions with their Medicare, you will better understand which choice is right for you. This also comes in handy if you are a Snowbird or RVer as detailed in this linked article.
Choosing Just Original Medicare
Let’s start with your first choice; you enroll in Medicare Part B. Medicare Part A comes with it if you didn’t already have it. Now you have your red, white, and blue Medicare card showing both Medicare Part A and Medicare Part B. Now what do you do? What does Medicare cover? What does Medicare not cover?
What I Medicare Part A and Part B?
Your Medicare Part A is inpatient insurance coverage. It helps pay your bills when you are an inpatient in hospital or other medical facility. Medicare Part B is your outpatient coverage. It helps pay for your doctor visits, lab test, durable equipment, outpatient surgeries and so on. If you are not an inpatient under Part A, you will be using your Part B outpatient services.
These two insurance coverages combined are often referred to as Original Medicare or Traditional Medicare.
When I use the term Original Medicare, I am referring to Medicare Part A and Part B.
Both Medicare Part A & Part B have their own deductibles, copays, and coinsurance.
I have linked a cheat sheet on the benefits of Part A and B. I suggest you save and print this for future reference. Feel free to share it with friends too.
The deductible is what you pay out-of-pocket before your insurance pays any benefit. For example, the Medicare Part A deductible is $1,600 for 2023. If you are admitted to a hospital as an inpatient, you will pay the first $1,600 that’s billed before Medicare Part A pays anything. The Medicare Part B deductible is just $226 for 2023.
The biggest difference between these two deductibles is that the Part B deductible is an annual deductible. You pay it just once per calendar year if and when you receive outpatient services. The Part A deductible is a per event or benefit period deductible. It resets whenever you are out of the hospital for 60-days. Thus, it is possible for you to pay that deductible more than once per year.
This is important – before you start studying those numbers, you will only need to familiarize yourself with those details if you decide to just keep Medicare A & B and do nothing else. That’s choice number one that I mentioned. Either of your other three choices can render those details moot.
The Two Most Important Benefits of Original Medicare?
Who tends keep their Original Medicare and do nothing else? Why?
What is the good and bad of this choice?
Here is one of the most important things I have to say in this video:
The greatest feature of Original Medicare and the one that drives most decisions to use Original Medicare as your primary healthcare, is that you are no longer limited to a network and no insurance company is involved in your healthcare. With Original Medicare you can see any doctor, go to any medical facility in the US or its territories. As long as they accept Original Medicare. If there is a doctor on the other side of the country who can save your life, you can see them. You will have to get there, but if they accept Medicare, Medicare will pay their portion of the medical bill.
And you don’t need a referral from a primary care provider. You just set an appointment and go. In addition, your healthcare is between you and your doctor. No insurance company can deny your coverage or delay it with prior-authorization requests. Medicare’s intent is to cover everything that is medically necessary, and they lean on your doctor to make that decision.
The Weakness of Original Medicare
The greatest downfall of Original Medicare by itself is that there is no maximum out-of-pocket limit on the potential cost of patient care. For me, this goes back to the entire reason any of us get insurance, any type of insurance. The objective of insurance is to transfer the financial risk of an event off your shoulders and on to that of an insurance company. With healthcare, it’s so no medical event can become a financial catastrophe.
Without a maximum out-of-pocket limit, you are not protected against catastrophic loss. You also have no protection against Medicare part B excess charges.
Who Chooses Just Original Medicare?
According to surveys done by Medicare, 10% of Medicare beneficiaries have just Original Medicare, without a supplement or Medicare Advantage Plans. No maximum out of pocket limit.
Who is it that decides to get Original Medicare without either a standardized supplement or an Advantage Plan?
Most of this group have incomes that are too high to receive Medicaid, state sponsored help, but typically less than $40,000 a year. They also tend to be under 65 and qualify for Medicare through disability. To clarify, that’s most, not all.
Very few states offer Medicare supplement plans to people under 65. They offer Medicare Advantage Plans, but those often have too restrictive a network to meet the needs of this demographic. Many in this group can seldom find an Advantage plan that has all their doctors in Network. They keep Original Medicare so they can see the doctors they need to see.
Unfortunately, although this group is only 10% of all Medicare enrollees, they make up 30% of those who reported they have either delayed or turned down needed medical services due to high cost. Original Medicare was never intended to be standalone coverage.
Their biggest regret is they do not have a maximum out-of-pocket limit on their Medicare bills. The deductibles and copays of Original Medicare means their healthcare is still expensive. Thankfully, they get a new initial enrollment period when they turn 65.
Medicare Advantage Plans
Next, let’s look at choice number two, trading in your Medicare Parts A & B for a Medicare Advantage Plan.
Who typically chooses a Medicare Advantage plan, why and what regrets are common in the years that follow? There are two different groups or demographics with Advantage plans.
Demographics of Medicare Advantage Plans
First are those who choose an individual Advantage Plan. I will talk about this group first. Second are those who continue to work past age 65 and get a Group Advantage plan offered by their employer. I will cover that group second.
What Is A Medicare Advantage Plan?
Medicare Advantage Plans are privatized versions of Original Medicare. Nearly 90% of all Medicare Advantage Plans are either HMOs or PPOs. There are other types available in limited areas, but this discussion refers to the HMOs and PPOs.
I am not going to go into the details and differences of an HMO vs PPO here. I have a video called Medicare Advantage Plan’s Explained – linked here – that does that very well and much more. What I want to cover here is, as I indicated earlier, is the who and why. I can literally spend 30-minutes on MAPD plans pros and cons. In fact, I already have on my Medicare Advantage Plans Explained video. I also cover many of the disadvantages of Medicare Advantage in this linked article.
With a Medicare Advantage Plan, the insurance policy is supposed to offer you the same benefits offered with Original Medicare A & B without a supplement, only they add an annual maximum out-of-pocket to protect the consumer. They add other bells and whistles too, I will get to in a second.
In return for the maximum out-of-pocket risk, these advantage plans will place restrictions on your services to limit their costs. It’s a give and take. The more they give you, they more restrictions or limitations they create to control their cost.
I also wrote an article comparing the benefits of an Advantage Plan to Medicare Supplement plans titled Differences Between Medicare Advantage and Medigap you can find at this link.
The Cost of a Maximum Out-of-Pocket
What do they do? First, you give-up those two benefits of Original Medicare I mentioned earlier. You are no longer free to see any doctor. You’re restricted to a network. Your doctor must get pre-authorization from the insurance company before providing you with a treatment he or she may recommend. The insurance reserves the right to delay or deny your coverage. They have control.
Regarding networks: some plans have no out-of-network coverage. You pay 100% of out-of-network services. Other plans have some out of network coverage, but at a much higher price and potentially a higher out of pocket maximum.
The Medicare PPO
One very important caveat here. Many insurance agents and brokers in this industry do not fully understand Medicare PPOs. In fact, I have had to correct more than one Regional Vice President of major insurance companies on this one point.
Some agents will tell you that with a PPO you can see any doctor that accepts Medicare, just like a Medicare supplement. That is not true. If you want to go out-of-network with a PPO you can ASK a doctor if they will accept your Advantage Plan. Doctor’s can and most often do say no. As one doctor put it to me when having a conversation about this; “If I wanted to accept that insurance company, I would have a contract with them. I don’t and I won’t.”
What Do Advantage Plans Cover?
A second important point; I have known for a long time that these plans do not actually cover all the things that Medicare Parts A & B cover and when they do, it’s not always at the same cost. For example, many Advantage plans will charge you 50% of the inpatient medical bills if you are in a hospital out-of-network. With Original Medicare you get 60-days of 100% coverage after the deductible. Big difference!
I have listened to some frighting Medicare Horror stories over the years. My belief and my experience were originally supported in a 2018 report by the Inspector General for Health and Human Services. That report was followed by a second Inspector General Report in mid-2022. Both reports, from separate studies and separate authors, highlighted the problem of Medicare Advantage Plans denying coverage and using pre-authorization requirements to limit care. Both reports are linked below and on my website in the Resources page.
How Much Do Advantage Plans Cost?
One of the most attractive features of an Advantage Plan is that many have a zero premium or very low premium. You still must pay your Part B premium. But there is often no additional premium for the Advantage Plan coverage.
That zero premium is what attracts people to the plan.
That brings us to Who? Who is it that typically chooses an individual Medicare Advantage Plan?
Who Chooses a Medicare Advantage Plan?
This next topic may be sensitive to some. For that I apologize in advance. I am simply illustrating facts and statistics from both Medicare surveys and my experience.
The people who purchase an individual Medicare Advantage plan are typically people with whom budget is their primary motivation. Not benefits. According to Medicare’s own research, these are people who often make too much money to receive government financial aid. But most have a family income of $40,000 or year or less.
I am not suggesting benefits aren’t important. It’s just that budget is the first consideration.
A survey of 2,848 individual Medicare Advantage Plan beneficiaries by ehealth.com that was published in May of 2022, found that 73% could afford no more than $50 in monthly premiums, more than half of whom said they could not afford any premium at all. 14% said they could afford between $50 and $100 a month.
The bottom line is that most people, not all, seek out a Medicare Advantage Plan because they need a maximum out-of-pocket limit on their healthcare, but cannot afford a supplement.
They shop for premium first. This is the group that most benefits from Medicare Hold Harmless provision, protecting Medicare beneficiaries from experiencing a decrease in net income when Part B premiums increase more than their Social Security Income.
There are other groups of people we have identified over the years as well. That is those who have not done a lot of research or due diligence. For example, we hear every year people say they asked an agent for help but were never even shown a supplement plan and didn’t even know they existed. Advantage plans pay a high commission, much higher than a supplement. That’s why many agents are biased toward advantage plans.
Within that group is a decent percentage of people who simply chose what their fiends chose, without doing their own due diligence.
Employer Group Advantage Plans
Of course, with employer group Advantage plans, the fastest growing segment in Medicare, there are also people who choose the advantage plan out of comfort. It’s offered by their employer and has a benefit structure similar to their under 65 health insurance plan. And, by the way, many people with an employer sponsored group Medicare advantage plan didn’t know it was an advantage plan
Of course, with employer group Advantage plans, the fastest growing segment in Medicare, there are also people who choose the advantage plan out of comfort. It’s offered by their employer and has a benefit structure similar to their under 65 health insurance plan. And, by the way, many people with an employer sponsored group Medicare advantage plan didn’t know it was an advantage plan.
If you are not sure, here is a good way to tell; if you are required to have Medicare Part A and B and your plan is an HMO or PPO, it is an Advantage plan.
Is My Group Plan an Advantage Plan?
If you are not sure, here is a good way to tell; if you are required to have Medicare Part A and B and your plan is an HMO or PPO, it is an Advantage plan.
An employer group Advantage plan is still a Medicare Advantage Plan with all the pros and cons of an individual Advantage plan.
There is one difference thought. The employer is incentivized to offer this plan.
Thankfully, some employers have negotiated a unique plan design specific to their company. Often, that plan design is more consumer friendly than the individual Advantage plans available in your area. They may have a lower maximum out-of-pocket and so on.
Next, I will cover one other “hybrid” situation. It’s a mistake I see often, too often, and is a direct result of Medicare being confusing and the information provided by the government not being clear.
It’s when a person stays with their employer health plan, the same plan they had when under 65, but also enroll in Medicare Part B.
To be clear, in the situation I am about to describe, enrolling in Medicare Part A is fine. It’s encouraged. But not enrolling in Part B.
Who does this? Typically, people who have a younger spouse also participating in the under 65 group health plan. They enroll in Medicare Part B simply because they though it was what they had to do or should do.
Adding Medicare to Employer Group Coverage
What happens when you enroll in Medicare Part B while still on employer coverage? If your employer has at least 20 employees, Medicare becomes secondary to your employer plan. That means your employer coverage dictates your care and provides a maximum out of pocket. Your Medicare has been neutered and simply pays portions of what the employer coverage does not pay.
Just like an individual Advantage plan, you lose the two greatest benefits of Original Medicare. You are limited to the employer plan network and the insurance company has the right to deny or delay your care.
Medicare was not designed to work with employer coverage, and they don’t always fit that well. While it can mean less out of pocket than the first group with just Original Medicare, here is where the mistake and regrets come in.
The Risk of Starting Medicare Too Soon
Your enrollment in Medicare Part B starts a clock. From the day your Part B starts, you have six months, technically 180-days to choose a Medicare supplement plan. If that is what you want. After that 180-days you must qualify medically for a supplement, or the insurance company can turn you down.
I can’t count how often people who have made this choice reach out to us when they want to retire, but their health history is at that point makes them ineligible for a Medicare supplement. They have painted themselves into a corner where there only option that includes a maximum out-of-pocket is a Medicare Advantage plan.
This is why I stress in these videos to never start your Medicare until you are ready for Medicare to be your primary insurance.
There are a few states that provide some relief to people in this situation by providing a guaranteed issue option into Medicare supplement plans. But when you have a guaranteed issue, not all supplement plans are available to you. Check with us if you are in that situation and we can help with details.
The most common thing we hear is “I wish I knew”
Don’t start your Part B until you are ready to have Medicare as your primary healthcare.
That’s the who and why. What are their greatest regrets?
The single greatest regret we hear is when a person with an Advantage plan gets a medical condition and needs services. They sometimes battle with approval. They always are surprised by the out-of-pocket cost.
Medicare Advantage Plans Cancer Coverage
Look at your Advantage plans Summary of Benefits. The first item should be your maximum annual out-of-pocket. Then look at Cancer coverage. That’s usually near last. I believe what you will find is that you pay 20% of your cancer treatment up to your maximum out-of-pocket.
The maximum annual out-of-pocket allowed for 2023 is a maximum of between about $8,000 for in-network services and $12,000 out-of-network. Your out-of-pocket maximum can be less, but not more. This is devastating, any amount is devasting to people who could not afford $50 extra a month.
It’s relatively common to hear people say they regret getting an Advantage plan instead of a supplement once they need to use the policy.
Medicare Advantage Plan Regrets
Another point of regret happens when the Advantage Plan network changes and their doctors no longer participate. They are forced to find a new doctor. Or the benefits change, which they can do annually, and their copays increased.
An Advantage plan is not something you can purchase and forget about. According to a 5 year study of over 6 million Medicare Advantage enrollees, by the American Journal of Managed Care, 50.50% of new Medicare enrollees that choose an Advantage Plan when they turn 65 switch either to Original Medicare or a different advantage plan within their first five years. Many switched multiple times in their first 5-years.
Medicare Advantage Plan Extra Benefits
Last point – on what I call Shiny Objects
Many Advantage plans hype themselves on the bells and whistles they call “extra services”. This can be gym membership, limited dental services, free uber rides to the doctor or the grocery store. All sorts of stuff. These extras can be taken away or modified year by year.
I call these extras Shiny objects because they are intended for you to focus on them, instead on the healthcare benefits.
That is the Who, Why and regrets of Advantage Plans. I feel like I am beating up on them, but that is not the intent. Many people on Medicare Advantage plans have a great experience. It’s just that many do not.
But for most people on an Advantage plan, it’s their best option. It’s the only option they can afford that will provide a maximum out-of-pocket.
Medicare Supplement Insurance
Now let’s do the same with Medicare Supplement Plans, then I will go over the changes I expect to see in Medicare within the next five years.
Medicare supplement plans are also called Medigap plans. Same thing.
What attracts people to Medicare supplement plans?
This goes back to what I stated earlier was one of the most important observations about who chooses original Medicare.
When you choose a supplement plan, you are keeping Original Medicare as your primary insurer. That means you keep all the benefits of Original Medicare. You can see any doctor in the US or its territories, as long as the accept Original Medicare.
Your supplement has no say in your coverage. Medicare’s intent is to cover everything medically necessary and they rely on your doctor to make that determination. Your coverage is between and your doctor.
People who choose a Medicare supplement plans value their freedom to choose a doctor and have healthcare directed by their doctor.
In addition, they like that the benefits never change. Medicare supplement plans are Standardized. That means the benefits are the same regardless of the insurance company and they are guaranteed renewable. Once you have a Medigap plan, not even an act of Congress can change the benefits or take the plan away from you.
Control over their healthcare and being free of network limitations are the driving reasons for their choice. Premiums, the cost of the plan is secondary.
Which Medicare Supplement Plan is the Most Popular?
In fact, 66% of people who choose a supplement purchase a Medicare Supplement Plan G, the highest benefit available to those new to Medicare and highest cost. It is what I call the Peace of mind plan. I have a video linked above my shoulder on how I suggest you go about choosing which supplement plan is right for you.
Medicare Supplement Plan N
Of the people who choose Medicare supplement plans, 10% Choose a Medigap Plan N. Those are the more cost conscious of Medicare supplement purchasers. Then about 3% choose a high deductible supplement, which is typically the lowest premium plan.
Plan G offers the most insurance coverage of any of the Medicare options. You can lower your Maximum out-of-pocket for medical bills down to less than $250 a year. Much less than the $8,000 to $12,000 max with Advantage plans.
Who Chooses Medicare Supplement Plans?
Who prefers Medicare supplement plans? They are people who come from all walks of life, that can afford the premium and they do their own due diligence.
Medicare supplement buyers across the board are people who research their options instead of just relying on friends or advertisements, or the first salesperson to come to their door.
How Much Does a Medicare Supplement Cost?
I am often asked, what is a typical monthly premium for a supplement. Premiums are all over the place depending on your state, age, gender, tobacco use and the insurance company you choose.
In some states premiums for a supplement are under $100 a month. In other states they can be close to $300 a month. It depends on average claims history and how much the state has included added regulations that influence cost.
If you would like free personalized quotes, just send us a quote request – we have that linked here.
Do Medicare Supplement Buyers Have Regrets?
What is most interesting here is that I have never heard people with a supplement complain about their healthcare, because they and their doctor are in control.
Complaints about the cost of medical bills are almost unheard of. We do on occasion here from people who chose a high deductible plan because for the low premium and are then frustrated at the high deductible they must pay. That’s just voicing frustration. They know they have good care. Which is typically more important to them.
The only thing left is cost. The Medigap Plan premium. Premium increases are what frustrates Medicare supplement policy holders the most.
That brings me to looking ahead, what I see as far as trends in Medicare.
The Future of Medicare
Trends in Medigap plans.
There is no doubt that costs for Medicare supplement plans are increasing, more now with inflation than since these plans were modernized / improved in 2010.
Increasing inflation will be with us for several more years and will impact a lot of the decisions people make with their retirement. Many will put off their retirement, hoping for a market recovery and a little more retirement income. That will benefit Medicare to a small degree because of fewer enrollments.
What I am already seeing is those people who can afford a supplement plan, but not comfortably start looking an Advantage plan as an alternative. That is a trend that will grow in the years ahead and will help push Advantage plans to become the dominant Medicare plan.
When considering a supplement, we must consider that you may have 25-years ahead of you. Twenty-five years of prices compounding higher. You must plan for that when you consider what you can afford.
That is why we focus on companies that tend to have the lowest cost over your lifetime. Not today’s cheapest plan. Because if you want to change plans or insurance companies to save money, in all but a few states you must qualify medically to do so.
The Future of Medicare Advantage Plans
Where supplement plans increase premiums to keep up with inflation, Advantage plans will continue to see a decrease in benefits. The maximum out of pocket is rising. It’s increased from $6,700 to over $12,000 in just three or four years. That’s huge. That is a decrease in healthcare benefits because you risk more out-of-pocket.
Insurance companies are decreasing Advantage healthcare benefits but increasing the extra benefits. And insurance companies are becoming more creating with the “extras” they offer.
Medicare Advantage Plan Extra Benefits
This past year WellCare included a robot dog with some Advantage plans. I would love to hear from someone who got one of those. They were intended to combat loneliness. We are seeing this year food allowances to help food insecurity (much better idea). Home improvements to help disabled get around their homes.
Mostly good and creative ideas. The best being those that help people maintain a dignified quality of life. That will continue and it will grow, where health benefits decline.
I expect Medicare benefits to decline in the years ahead. That Medicare Part B that you pay $164.90 a month for, cost Medicare about $650 a month.
The Politics of Medicare Coverage
As Advantage plans become dominant, we are going to see more pressure on those insurance companies. Many have abused the Medicare payment system; they get money from the government for every person that enrolls. The abuses are alleged to amount to Billions of dollars. Politicians will be more inclined to pressure insurance companies under the guise of being fiscally responsible, without attacking Medicare.
Medicare (the bureaucracy not politicians) will also continue to try ideas that attack Original Medicare. Unfortunately, what I have seen so far are ideas that insert a third-party middleman into the equation. You can’t increase people involved in Medicare decisions and reduce cost at the same time. It doesn’t work.
The Future of Medicare Part D
Lastly, I believe the biggest change to Medicare in the next four to six years will be with Part D. The recent Inflation protection Act puts an out-of-pocket maximum on Part D. While that is a good idea, it was not well thought out and I believe it won’t work because the government is left with the burden of cost.
Instead, I expect to see a major restructuring of Part D. A complete redesign that will shift the cost, especially in catastrophic coverage, away from the government and toward insurance companies and drug manufacturers. That will raise the premiums of Part D, but significantly reduce the consumer cost for prescriptions while keeping some form of a maximum out-of-pocket.
For example, right now there are four phases of Part D. See the link here. That can be reduced to two phase.
For example, in Phase one the consumer pays 25% and the insurance company pays 75% up to the consumer MOOP. In Phase two, costs are shared by the insurance company, drug manufacturer and the government. With the government paying the lowest percentage. Think of it this way, if the manufacturers were forced to pay 50% of the drug costs after a certain level of benefits, it would be the same thing as forcing a 50% price cut in drugs. No negotiations needed.
A design that would force the manufacturers to provide a discount is the same as lowering the cost of drugs, because the manufacturer will pay the bulk of the price in phase two. But it’s by design instead of negotiation.
That’s what I see coming. That will help save Medicare.