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How Safe Is Your Medicare Advantage Plan?

By Dan Caplinger - Sep 11, 2017 at 5:02AM

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Be sure you understand what's involved with these private alternatives to traditional Medicare.

Medicare Advantage plans have become increasingly popular over the years as older Americans look for ways to cut back on their out-of-pocket healthcare costs. By combining the coverage of traditional Medicare, a Medicare prescription drug plan, and a Medicare supplemental insurance policy into one package, Medicare Advantage plans have the advantage of simplicity and can also bring cost savings. Yet it's also important to understand the potential risks of Medicare Advantage plans so you can evaluate whether it makes sense to choose one over traditional Medicare.

The key trade-offs with Medicare Advantage plans

The way that Medicare Advantage plans are able to offer customized coverage at lower rates than you'd pay for similar coverage options elsewhere is by using the same tactics that private insurance companies use with health insurance coverage for working-age people. Traditional Medicare offers coverage for any medical professional who accepts Medicare, but many Medicare Advantage plans establish more limited networks of medical professionals. If you stray outside of your network, you could be responsible for a greater proportion of your healthcare costs -- or even get left with no coverage at all.

Different people will put different values on having a full range of choices of their healthcare professionals. In general, those who are relatively healthy are better able to navigate less inclusive provider networks because they don't have the complex medical histories that make familiarity more valuable. By contrast, if you have a chronic condition or have suffered major health issues during your lifetime, the work involved in bringing a new in-network professional up to speed could make any financial savings from using a Medicare Advantage plan not worth the extra effort.

Stethoscope on top of a notebook with Medicare written on it.

Image source: Getty Images.

Competitive risk -- and rewards

One reason that Medicare Advantage plan premiums can be so attractive is that the private insurance companies that offer Medicare Advantage plans compete to boost their customer counts. The more people belong to a particular plan, the more favorable the risk elements are for the entire pool. That allows an insurance company either to reduce premiums or to increase their expected profits on their underwriting.

The key question is whether the industry to offer Medicare Advantage plans will always be as competitive. As those in many locations within the U.S. have seen with plans offered under the Affordable Care Act's insurance marketplaces, health insurance companies can change their mind and decide to withdraw from providing healthcare coverage if conditions make it unprofitable to do so. If that were to happen with Medicare Advantage plans, then you could expect to see any premium advantages disappear or even reverse themselves over time.

The escape valve you always have

One key thing to remember with your Medicare coverage is that you always have the right to move from a Medicare Advantage plan back to traditional Medicare. Each year, open enrollment from Oct. 15 to Dec. 7 gives you the right to make a wide variety of changes to your Medicare coverage. If you're part of traditional Medicare, you can switch to a Medicare Advantage plan. Those who are currently on Medicare Advantage can change providers or go back to traditional Medicare. Changes in prescription drug coverage are also available.

In addition, the Medicare Advantage Disenrollment Period runs every year from Jan. 1 to Feb. 14. During this period, you can move from Medicare Advantage back to traditional Medicare. Other moves aren't allowed, but this gives you the ability to make changes if your Medicare Advantage plan doesn't live up to your expectations.

Finally, there are other situations in which you can make changes to your coverage. Events like moving to a new location, losing current alternative healthcare coverage, or your Medicare Advantage plan suffering a change in status with the federal government that precludes it from continuing to offer plans will give you the ability to make changes beyond the usual open enrollment period. That can be vital in ensuring the safe coverage of Medicare participants.

Medicare can be a complicated program, and Medicare Advantage is attractive in part because it can simplify the many coverage options that the traditional Medicare program offers in separate pieces. By being aware of the risks involved with Medicare Advantage and how to minimize them, you'll be in a better position to get the most from Medicare Advantage plans while knowing what to do if something goes wrong.

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