If you've paid into Social Security for 10 years, you qualify for Medicare Part A and Part B at age 65. The healthcare insurance coverage offered via Part A and Part B provides seniors with a safety net against costly illness or injury, but there are some gaps in Medicare coverage that could make signing up for a Medicare Advantage plan a good idea.
The nuts and bolts
Unlike Part A and Part B Medicare, Medicare Advantage plans are offered by private insurance companies such as Humana (NYSE:HUM). Although the total coverage offered by these plans can differ from insurer to insurer, all Medicare Advantage plans must provide, at a minimum, comparable coverage to what is offered by the government-run Part A and Part B.
That means that Medicare Advantage plans will cover hospitalization, which is covered by Part A Medicare, and expenses associated with doctors, lab services, X-rays, mental health services, and other healthcare services, which are covered by Part B. However, the costs associated with this coverage, such as deductibles and other out-of-pocket expenses may differ from traditional Medicare Part A and Part B.
For example, traditional Medicare Part A pays 100% of approved inpatient costs for the first 60 days you're hospitalized, and after 60 days, you share some of the costs of inpatient care. Part A's out-of-pocket deductible is $1,288 in 2016. Part B Medicare is optional and generally Part B pays 80% of the expenses associated with doctors, laboratory services, X-rays, mental health services, and certain other healthcare services. Medicare Advantage plans provide coverage for hospitalization and Part B covered items, but they can charge co-pays, deductibles, and other out-of-pocket costs that differ from traditional Medicare.
When Medicare Advantage plans make sense
Because traditional Medicare Part A and Part B doesn't have an annual cap on the amount of money a senior will pay for healthcare in any given year, many people prefer the out-of-pocket maximum that is offered by Medicare Advantage plans.
Currently, seniors enrolled in a Medicare Advantage plan have their out-of-pocket expenses capped at $6,700 per year. Given 1 in 5 seniors age 75 or older report being hospitalized and less than 5% report that they didn't require healthcare services in the preceding year, knowing your annual out-of-pocket maximum can provide peace of mind.
Medicare Part A and Part B also fall short because they don't provide coverage for prescription medicine. In order to obtain insurance coverage for medicine, seniors need to either sign up for a separate drug plan, known as Part D, or enroll in a Medicare Advantage plan that offers drug coverage.
Another advantage of Medicare Advantage plans is that they can include more comprehensive coverage for vision and hearing loss than traditional Medicare.
Part A only pays for vision loss that's associated with a medical emergency or traumatic injury requiring hospitalization and Part B doesn't pay for routine eye exams and only pays for eye glasses if they're required following cataract surgery. Any vision related expenses covered by part B are covered at the 80% rate, so seniors need to pay the remaining 20%. That could mean that many seniors have to pay more for vision-related healthcare on traditional Medicare than they would in a Medicare Advantage plan.
Seniors are likely to also pay more for hearing-related healthcare on traditional Medicare than they do on Medicare Advantage.
According to the National Institutes of Health, 30% of people age 65 to 74 years and 47% of people age 75 years or older have a hearing impairment and that suggests there's a very good chance that a person will eventually be on the hook for the costs of getting a hearing aid, which at UCLA's Audiology Clinic runs about $4,200 for a middle of the road pair. Traditional Medicare does not cover the cost of hearing aids, but some Medicare Advantage plans do.
In 2016, the average cost of Medicare Part B is $104.90 and in order to enroll in Medicare Advantage, you must be enrolled in Part B. On top of the Medicare Part B premium, some Medicare Advantage plans may charge additional premiums, depending on the state in which you live and the coverage the plan provides. In 2016, the average cost of a Medicare Advantage plan nationwide is roughly $65 per month, according to Healthpocket.
Seniors should also know that Medicare Advantage plans are usually HMOs or PPOs and those plans offer less choice in doctors and more restrictions regarding visiting specialists. Because Medicare Advantage plans can charge co-pays, co-insurance, and deductibles, the benefit of the extra coverage you receive through Medicare Advantage must be weighed against any possible increase in monthly premiums or care versus traditional Medicare.