When you turn 65 and are no longer covered by a group health plan, you become eligible for Medicare. Medicare was never intended to cover 100% of all health care costs and generally only covers 70% to 80% of all medical expenses. The remaining 20% to 30% is your responsibility, and most people choose a Medigap insurance plan. There are two types of Medigap programs, Medicare supplement programs, which have been in existence since 1965, and Medicare Advantage programs, also known as Medicare Part C, which have been in place since 2006. Supplemental insurance plans are similar to traditional group health insurance , with out-of-pocket deductibles and copayments for services rendered. Medicare Advantage plans are network plans that offer coverage based on price agreements with hospitals and doctors. These plans are Health Maintenance Organizations, Preferred Provider Organizations, and Private Fee-for-Service Plans.
The first real difference between the plans is that Medicare Advantage plans are contracted to provide Medicare Parts A and B. Medicare pays an insurance company to take care of all your health care needs. This means that it does not take care of Medicare at all, it will only take care of the network provider. Now all Advantage plans must offer at least the same amount as regular Medicare, so there is no difference in the amount of coverage, the difference is in how costs and expenses are controlled.
Advantage plans offer lower monthly premiums but higher out-of-pocket costs. This means that if you don’t get sick or need to see a doctor, you will get by. Out-of-pocket expenses are also capped for each year. Supplemental plans have higher premiums but little to no out-of-pocket costs.
Advantage plans generally come with a prescription drug plan and save money by using a large group size for better prices. Supplemental plans don’t have prescription drug plans, so you usually get a separate plan that can be tailored to fit your prescription drug needs.
Advantage plans use local networks to control costs and benefits may change annually, but not less than what Parts A and B cover. Supplemental plans are standardized, which means that Medicare sets what each supplement will cover and is guaranteed they will be accepted anywhere in the United States that accepts Medicare.
The last big difference is that when you join an Advantage plan, you must stay in that program for an entire year, and if you choose to change providers, you can only do so from October 15 to December 7 during the next year. You can change a supplement at any time of the year.