Original Medicare vs. Medicare Advantage

August 29, 2024

Understanding the Key Differences

The second most important decision clients make with respect to Medicare—after they’ve decided to enroll in Medicare in the first place—relates to how they want to get their care. Faced with the choice of Original Medicare and Medicare Advantage, people often fail to understand that this decision can affect both the quality and cost of health care they receive both now and in the future.

Original Medicare

Thanks to aggressive marketing, Medicare Advantage plans have firmly established themselves as “the way to get your Medicare.” Completely lost in the shuffle is what Original Medicare actually is. It is health insurance, pure and simple, funded by the U.S. government. From its inception in 1965 Medicare Part B has always been based on the classic health insurance model where the insured pays a monthly premium (taken out of the Social Security check) and when a medical bill is incurred the patient pays an annual deductible plus 20% of the bill. The federal government pays the rest. Implicit in this is that the insured has complete freedom and control over how and where to get their health care. The only requirement is that the provider must accept as payment the amount Medicare has set for any given service (which may be less than what others will pay). Most providers do accept Medicare because it covers so much of the population.

There has always been a place for private insurance in the Medicare world as a supplement to Medicare. Originally, these policies were designed mainly to cover prescription drugs. When Part D was instituted in 2006, an official public/private partnership was established specifically for drug coverage where private insurance companies offer various prescription drug plans with both the insurers and the federal government bearing the costs. Medigap policies remained viable, however, covering some of the key costs not covered by Medicare, mainly the Part A deductible and the Part B 20% coinsurance.

A typical insurance plan under Original Medicare involves enrolling in Parts A and B, choosing a drug plan under Part D, and also choosing a Medicare Supplement (Medigap) policy. With Original Medicare a person is free to go to any doctor who accepts Medicare, and there are virtually no prior authorizations or denials of care. If a provider orders a service and Medicare covers it, it will be covered with little or no out-of-pocket costs to the patient.

Medicare Advantage

Medicare Advantage, originally called Medicare+Choice, was kicked off by the Balanced Budget Act of 1997. This expanded private health insurers’ involvement in Medicare and now encompassed the delivery of care, not just the payment of bills submitted by providers. Under Medicare Advantage, the government pays private insurers an annual “rate” theoretically equal to what it would cost to insure a person under Original Medicare. In exchange, the insurer promises to deliver all care under Parts A and B. This was deemed a cost-cutting and risk-mitigation effort by the federal government.

The key difference for enrollees is that Medicare Advantage plans may offer additional benefits and lower premiums, but they also place restrictions on care. Patients must choose a provider within the plan’s network and many services and procedures must be authorized beforehand—and may even be denied.

There is a lot to say, both good and bad, about how private insurers’ involvement in Medicare has evolved. Most people have an opinion about which is better, Original Medicare or Medicare Advantage, based on their own experience or what they’ve read. But it usually comes down to this:

• If your main concern is high-quality care and you’re willing to pay higher premiums for the assurance of seeing the provider you want and getting the care you need, either now or in the future, go with Original Medicare.
  
• If your main concern is costs and you’re willing to accept an insurer’s assessment of what you need in the way of care, go with Medicare Advantage, understanding that if your health worsens and you do need care, your costs could end up being higher.

The following table, contributed by Rich Arzaga, illustrates the choice in a simple manner:

So there you have it in a nutshell. I wish we could say that your decision would not be binding, that you could start with one form of Medicare and switch to the other if you’re not happy with your plan or if your health care needs change. And to some degree that’s true. There are on- and off-ramps for both of these options. But the one hard sticking point in most states is the Medigap Open Enrollment period. If you don’t buy your Medigap policy within six months of enrolling in Part B, you will be subjected to underwriting and may be denied a policy. So, starting out with a Medicare Advantage plan with the intent of switching to Original Medicare after a few years may not be feasible.

References and further reading

The History of Medicare Advantage: From Inception to Growing Popularity

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Social Security Gets Biggest Boost Since 1981

October 14, 2022

The Cost of Living Adjustment, or COLA, from the Social Security Administration (SSA) is announced every fall and has major implications for the 66 million people who receive benefit checks. With inflation surging, retirees need help maintaining purchasing power. The agency announced its 2023 COLA will be 8.7%, the highest since 1981.

For those concerned about medical costs eating into this increase, Medicare – the health insurance plan for older Americans – said last month it would drop its premiums next year by about 3% for its Medicare Park B Plan.

For more information and context, please read this article from CBS News.

For instructions on how to sign up for a “my Social Security” account with the SSA, which is the fastest way to find out when and how much you will receive, watch the video below: