In terms of entitlement programs, Medicare ranks right next to Social Security in importance for senior citizens. Although it's not solely for the elderly, as of 2013 some 55 million people (mostly seniors ages 65 and up) qualified for Medicare benefits. These benefits primarily help ensure that seniors have access to affordable medical care as they age.
However, Medicare isn't exactly a cut-and-dry program anymore. People who qualify for Medicare now have a choice between original Medicare and the relatively newer Medicare Advantage plans. If you aren't familiar with the sometimes subtle differences between these two plans, it could wind up biting you in the pocketbook.
With this in mind, we asked three of our Foolish contributors to name one key difference between Medicare and Medicare Advantage that Medicare beneficiaries and those in the workforce who may be nearing Medicare eligibility should understand. Here's what they had to say.
A key thing to understand about Medicare and Medicare Advantage plans is that while Medicare is essentially a health insurance program administered by the federal government, Medicare Advantage plans are offered by private insurance companies, such as UnitedHealth Group or various Blue Cross Blue Shield organizations.
Medicare Advantage plans debuted in 1995 in order to offer Americans of a certain age (those 65 and older) more options than just Medicare. The plans are offered and administered by private companies (typically health maintenance organizations (HMOs) or preferred provider organizations (PPOs)), but the federal government regulates them. A Medicare Advantage plan must offer at least as much coverage as Medicare (i.e., Part A and Part B benefits, respectively covering hospital and medical services), but it will often sport more than that, such as vision and/or dental care, in order to attract customers. The extras it offers can be in the form of lower copayments for services or broader coverage. Most include prescription drug coverage, too.
Choosing between Medicare and a Medicare Advantage plan isn't a permanent decision. At least once a year, you will be able to switch between them.
Perhaps the biggest difference between original Medicare and Medicare Advantage plans is what you will or could wind up paying for medical care.
Traditional Medicare covers Part A (your hospital insurance) and Part B (physician and outpatient visits and services). Typically Part A does not have a monthly premium attached, however eligible Medicare beneficiaries will pay a premium on Part B (which could go up depending on your income). Now here's the catch: traditional Medicare has no out-of-pocket spending limits. This means Medicare will foot 80% of the expense of your approved services, but you'll be responsible for coming up with the remainder, regardless of cost.
Medicare Advantage plans (also known as Part C), as Selena described above, are offered by private insurers and completely replace original Medicare. Now, don't get too concerned, because you're still entitled to the same services as original Medicare offers under a Medicare Advantage plan, and there are rules in place to prevent you from paying more than original Medicare for certain services.
The big difference arises in the monthly premiums and in the out-of-pocket costs. Medicare Advantage plans have substantially higher monthly payments than original Medicare, but they come with the peace of mind of a capped annual out-of-pocket limit. The maximum out-of-pocket limit in 2015 is $6,700, with HMOs and PPOs carrying average out-of-pocket limits of $4,869 and $5,250, respectively, this year.
Seniors should examine both pathways to decide which one works best with their needs, but it really comes down to original Medicare offering cheaper premiums, and Medicare Advantage plans giving members peace of mind.
There are some subtle differences between original Medicare and Medicare Advantage plans when it comes time to consider changing your options. The open enrollment period for Medicare Advantage and Medicare prescription drug coverage runs from October 15 to December 7, and during that period, you can switch from original Medicare to a Medicare Advantage plan or switch from one Medicare Advantage plan to another. That same period applies for decisions regarding prescription drug coverage, including switching drug plans, enrolling in them for the first time, or dropping prescription drug coverage entirely.
For those who are already in Medicare Advantage and want to go back to original Medicare, a different period applies. The Medicare Advantage Disenrollment Period goes from January 1 to February 14, and during that time, you can leave your Medicare Advantage plan and sign up for a prescription drug plan to supplement your new original Medicare coverage. Other moves, such as switching between Medicare Advantage plans and moving from original Medicare to Medicare Advantage, aren't available during this timeframe and must be done during the regular open enrollment period.
Finally, initial enrollment periods differ for the two programs. The general enrollment period for Medicare Part B goes from January 1 to March 31, but the typical time to sign up for Medicare Advantage when you first get Medicare is April 1 to June 30. Keeping track of these timeframes is important to avoid penalties and make sure you have the coverage you want.