Open enrollment for Medicare starts October 15 and runs through December 7. Let’s run through some basics. Traditional Medicare has three parts. Medicare A for hospitalization. Medicare B for outpatient care. Medicare D for prescription costs. As traditional Medicare has copays which can be significant one can (and should) buy a supplement policy to cover what is not covered by traditional Medicare.
What is Medicare Advantage? Medicare Advantage is health insurance sold by insurance companies which have a contract with Medicare. Medicare Advantage is also referred to as Medicare part C. Medicare pays the private insurance company based on the number of people insured and the severity of their medical problems. Medicare Advantage plans have copays and deductibles. Many Advantage plans have strict and limited networks of hospitals, pharmacies and care givers. Hospitals specializing in certain care, such as cancer specialty centers, may not be in network. The copays and deductibles vary depending on the plan. The least expensive plans have the highest copays and deductibles. One plan available in MN at zero premium has an out of pocket maximum of $5,900 for in network care and $8,900 if out of network. Copays for various services vary from $15 to 50% of the price billed. Dental, eye and hearing care are often given minimum coverage. Newer and more expensive prescription medications have higher copays than older and generic medications.
It is important to remember that Medicare Advantage insurance companies have extra expenses compared to traditional Medicare. They do extensive marketing in order to attract customers. They have computer systems to track the patient’s medical diagnosis, receipt of claims and payment of claims. They have well paid executives. The for profit health insurance companies have a need to make profits and, this is key, the less they pay out for healthcare the higher their margin (profit).
The above explanation leads to a fundamental question: Why is it cheaper to buy a Medicare Advantage plan than it is to buy supplemental insurance to back up traditional Medicare?
- The government is overpaying the Medicare Advantage plans relative to the costs in traditional Medicare. The reasons for this are a bit complex but you can research this if you are curious (search: Are Medicare Advantage plans overpaid?).
- The Medicare Advantage plans have figured out how to market in order to get a healthier (less expensive) population.
- At least some of the Medicare Advantage plans have manipulated the patient’s diagnosis codes in order to make the insureds look sicker which gets the insurance company higher payments from Medicare.
- The Medicare Advantage plans have extensive prior authorization programs which they use to deny and delay care for many patients.
For example, your doctor may say you need a test, or prescription, or surgery. The insurance company can say they disagree and will not pay (in 2025, 12% of prior authorization requests were denied.). The more care they can deny the better their profits.
Bottom line: Medicare with a supplement plan is more expensive for you upfront than is a Medicare Advantage plan, but if you get seriously ill or have an unusual medical problem a Medicare Advantage plan may not give you satisfactory coverage and you will have significant copays. There are plenty of folks who are satisfied with Medicare Advantage but there are also a large number of people who have had problems with Medicare Advantage. Buying health insurance is difficult. If you buy a cheap toaster, and it fails after a month or always burns the toast, it is irritating but most of us can afford to go out and buy a better toaster. With health insurance it is not so easy. A problem can lead to delayed or denied care and your illness getting worse. If your plan does not pay for something you need, it can create a large and unaffordable expense.
Let’s step back and look at the health insurance for the 65 and older asking “How would you design Medicare from scratch?” Premiums would be set based on income so everyone would have excellent health insurance. People would be automatically enrolled at age 65. All significant health problems would be covered including eyes, hearing and dental. It could be simple. It should be simple.
Unfortunately the current situation is far from simple. Medicare publishes a book every year explaining how Medicare works. The book has 131 pages. That does not include the pages folks need to look at from the different insurance companies when they are trying to decide which policy to get. It is a mess. I have 2 suggestions.
- Have your favorite headache remedy available when you sit down to try to decide among your Medicare options.
- Let you elected legislators know how unsatisfied you are with this unnecessary mess….and you expect them to fix it.
Mark Brakke