When you turn 65 and are no longer covered by a group health plan, you will be eligible for Medicare. Medicare was never intended to cover 100% of all health care costs, and typically only covers 70% to 80% of all medical expenses. The remaining 20% to 30% is your responsibility, and most people choose a Medigap insurance plan. There are two types of Medigap programs, the Medicare Supplement Programs, which have been around since 1965, and the Medicare Advantage Programs, also known as Medicare Part C, which have been around since 2006. Supplemental insurance plans are similar to traditional group health insurance, with out-of-pocket costs for deductibles and copayments for services rendered. Medicare Advantage plans are network plans that offer coverage based on price agreements with hospitals and doctors. These plans are health maintenance organizations, preferred provider organizations, and private fee-for-service plans.
The first real difference between the plans is that Medicare Advantage plans are contracted to provide Medicare Parts A and B. Medicare pays an insurance company to take care of all your health care needs. This means that you do not deal with Medicare at all, you will only deal with the network provider. Now all Advantage plans are required to offer at least the same amount as regular Medicare, so there is no difference in the amount of coverage, the difference is in how costs and expenses are controlled.
Advantage plans offer lower monthly premiums but higher out-of-pocket costs. This means that if you don’t get sick or need to see a doctor, you’ll get by. Out-of-pocket costs are also capped each year. Supplemental plans have higher premiums but little to no out-of-pocket costs.
Advantage plans typically come with a prescription drug plan and save money by using a large group size for better pricing. Supplemental plans don’t have prescription drug plans, so you usually get a separate plan that can meet your prescription drug needs.
Advantage plans use local networks to control costs and benefits can change annually, but not less than what is covered by Parts A and B. Supplement plans are standardized, which means that Medicare sets what each supplement will cover and is guaranteed that will be accepted anywhere in the United States that accepts Medicare.
The last big difference is that when you sign up for an Advantage plan you have to stay with that program for a full year, and if you choose to change providers you can only do so from October 15 to December 7 for the next year. You can switch to Complementary at any time of the year.