Types of Medicare Coverage

Comparing Typical Bundles

There are two typical approaches for complete coverage under Medicare:

1. Original Medicare Part A (Hospital) and Part B (Doctor), with a Medigap supplement and a Part D Prescription Drug Plan from private insurers.
2. A single Medicare Advantage Plan (Part C) with drug coverage, from a health organization or a private insurer.

These are some of the differences between the two bundles:

Medicare Enrollment¹

Original Medicare with Medigap and Drugs
• 40 quarters of employment with Medicare payroll deductions automatically qualifies you for Medicare Part A (Hospital) with no monthly premium.
• Medicare Part B (Doctor) requires the payment of a monthly premium.
• There is an Initial Enrollment Period of 3 months before to 3 months after the month you turn 65. 

Medicare Advantage with Drugs
• You must be enrolled in Medicare Parts A and B first, then enroll in a Medicare Advantage plan.
• In 2017, 33% of Medicare beneficiaries were enrolled in Medicare Advantage plans.⁷

Medicare Access to Services¹

Original Medicare with Medigap and Drugs
• You can go to any doctor or hospital in the United States that accepts Medicare; there is no network.
• There are no referrals for specialists and no prior authorization for services. 

Medicare Advantage with Drugs
• Network providers, referrals for specialists, and prior authorization for certain services.
• Out-of-network care at a higher cost.
• Emergency and urgent care outside the service area, but not follow up or routine care.
• Plan changes at the open enrollment period only. 

Medicare Costs¹

Original Medicare with Medigap and Drugs
• Monthly premium for Part B (Doctor), and deductibles and coinsurance or copayments.
• Out-of-pocket maximum or cap with the separate Medigap plan.
• Purchase Part D drug coverage separately.

Medicare Advantage with Drugs
• Monthly premium for Part C.
• Out-of-pocket costs vary and may include yearly deductible, coinsurance or copayments for services, out-of-network provider charges, and other cost sharing.
• Cost sharing for chemotherapy, dialysis, and skilled nursing care cannot be more than Original Medicare charges.
• Maximum out-of-pocket limit on cost sharing.
• Plans may change benefits, premiums, and copays yearly.

Medicare Benefits¹

Original Medicare with Medigap and Drugs
• “Medically necessary health care services” as determined by Medicare.
• These are not covered by Medicare, but may be offered by a Medigap plan: dental care, eye examinations for prescribing glasses, dentures, cosmetic surgery, acupuncture, hearing aids and exams, and routine foot care.³

Medicare Advantage with Drugs
• Plan benefits must be at least equal to Original Medicare.
• Some plans may cover services which are not covered by Original Medicare, such as dental, hearing and vision care.

Medicare Ratings⁴

Original Medicare with Medigap and Drugs
• 6% of those with Original Medicare and Medigap plans rated their insurance as fair or poor in 2012.

Medicare Advantage with Drugs
• 15% of those with Medicare Advantage policies rated their insurance as fair or poor in 2012.
• Although enrollees spent less on premiums and out-of-pocket costs, they were more likely to report cost-related access problems.

Medicare Financing²

Original Medicare with Medigap and Drugs
• Part A: a 2.9% tax on earnings paid by employers and employees (1.45% each), for 88% of Part A revenue. Higher-income taxpayers (>$200,000/individual and $250,000/couple) pay 2.35%. The 11% balance is from premiums, Social Security benefit taxes, and interest.
• Part B: general revenues (75%), beneficiary premiums (23%), and interest and other sources (2%). Beneficiaries with incomes greater than $85,000/individual or $170,000/couple pay a higher premium of 35% to 80%.
• Part D: general revenues (78%), beneficiary premiums (13%), and state payments for dually eligible beneficiaries (9%). Higher-income enrollees pay a larger premium.

Medicare Advantage with Drugs
• Revenue sources are similar to Original Medicare, but HMOs are paid a total per enrollee, rather than fees per service.
• Beneficiaries pay the Part B premium and a premium for additional benefits.
• 2003 payment formulas purposely overcompensated Part C plans by 12% or more compared to original Medicare financing, to increase availability in rural and inner-city locations.⁵
• These subsidies to Medicare Advantage providers started phasing out with the Affordable Care Act.⁴
• Federal funding cuts since 2014 have led to some increases in Medicare Advantage premiums and copays of 50 to 55%.⁶

My personal decision was Original Medicare with Medigap and a Prescription Drug Plan. This was based on the ability to choose services independent of a network, the higher satisfaction of enrollees, and concern about decreasing Medicare Advantage subsidies. Networks and benefits vary greatly across counties, however, and you may find a perfect fit in a Medicare Advantage plan.

---

Footnotes

¹ “Choosing Between Traditional Medicare and a Medicare Advantage Plan”, Center for Medicare Advocacy, retrieved August 7, 2016.
² “The Facts on Medicare Spending and Financing”, Juliette Cubanski and Tricia Neuman, July 18, 2017.
³ “What Part A & Part B doesn’t cover”, Medicare.gov, retrieved November 28, 2017.
⁴ “Medigap Vs. Advantage plans”, Jennie L. Phipps, Bankrate.com, July 22, 2012.
⁵ “Part C: Medicare Advantage plans”, Wikipedia, retrieved December 1, 2017.
⁶ “Impact Of Medicare Advantage Cuts On Seniors Sharply Disputed”, Phil Galewitz, Kaiser Health News, February 23, 2014.
⁷ “Medicare Advantage”, Kaiser Family Foundation, Oct 10, 2017.