When you reach the age of 65 and are no longer covered by a group healthcare plan you become eligible for Medicare. Medicare was never intended to cove 100% of all healthcare costs and in general it 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, Medicare Supplemental Programs, which have been around since 1965, and 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 from deductibles and copays for services rendered. Medicare Advantage plans are network plans that offer coverage based on agreements about pricing 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 handle all of your healthcare 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 if you do not get sick or need to see a doctor you will come out ahead. The out-of-pocket costs are also capped for each year. Supplemental plans have higher premiums but little or no out-of-pocket expenses.
Advantage plans usually come with a prescription drug plan and save money by using a large group size to achieve better prices. Supplemental plans do not have prescription drug plans, so you usually get a separate plan that can be catered to your prescription needs.
Advantage plans use local networks to control costs and the benefits can change annually, but not less than what Parts A and B cover. Supplemental plans are standardized, meaning Medicare sets what each Supplement will cover and they are guaranteed to be accepted anywhere in the United State that accepts Medicare.
The last major difference is when you sign up for an Advantage plan you have to stay with that program for an entire year, and if you choose to change providers you can only do so from October 15 to December 7 for the next year. You may change a Supplemental at anytime of the year.
