Medicare Supplements VS Medicare Advantage

First, a little history about Medicare. Medicare was enacted in 1965, and is administered through the Centers for Medicare & Medicaid Services (CMS. It is for individuals 65 and over and other individuals with qualifying disabilities.

In 2003, Congress passed the Medicare Modernization Act. This was the biggest change to Medicare since its inception.

Medicare+Choice was renamed Medicare Advantage. Prescription Drug coverage was added. Physical exams were added for new enrollees, and diabetes and heart screenings were also added.

The biggest change (besides the prescription drug coverage) was to how the Medicare Advantage program would be administered.

For reasons still unknown, Medicare advantage plans were given a priority by Congress.

This is how they are supposed to work. Each year Medicare estimates what the average monthly cost will be to administer Medicare coverage for every person in the United States that is on Medicare. The original plan was for every person that opted out of traditional Medicare and into a MA plan, the government would reimburse the plan administrators 95% of that average.

It sounded like a great idea. For example, if it costs Medicare approximately $10,000 each year for everyone on Medicare, and 1 million of them move to a Medicare advantage plan, then theoretically, Medicare would save $500,000,000 each year.

Currently there are approximately 50 million Medicare beneficiaries in the United States. It is estimated that about 20 percent of them have switched to a MA plan. That means that 10 million times the approximate savings of $500 per member should equal a total savings of about $5 billion dollars per year. WOW!! That is awesome.

The reality is that each year Medicare has to re-negotiate with the MA administrators and rather than saving 5 percent, it is estimated that it is costing Medicare 12 percent more than had they stayed in traditional Medicare. That means that the approximately 10 million people who have switched are now costing the program an extra $112 billion. No wonder Medicare is going broke!

What I have addressed so far deals only with the added cost of administrating the MA plans. Next I will address the benefits (or lack thereof) for Medicare recipients who switch to an MA plan.

Medicare consists of four parts.

Medicare Part A is free for those that qualify (meaning those that paid into FICA for enough quarters), and it covers the hospital inpatient and some skilled nursing facilities.

Medicare Part B covers physician and surgeon charges (basically anything that is not covered under Part A, except prescriptions). Enrollment is optional, but recommended the majority of the time. It is not free, and the premium is dependent upon one's income.

Part C is the Medicare Advantage program. Enrollment is optional, but if someone chooses this plan, he/she is leaving traditional Medicare and going into a private plan.

Part D is the prescription drug coverage. It is also optional, and usually recommended, unless an individual has something better.

Under Part A of Medicare an individual must pay a deductible before Medicare begins paying for the hospital stay. In 2009, this deductible is $1068. There are escalating co-pays after 60 consecutive days in the hospital, however, because of the DRG (Diagnostic Related Groups) program rarely does anyone stay that long. However, it is important to know that the hospital deductible is not a calendar year deductible, but rather a "Benefit Period" deductible. A benefit period is defined as beginning on the day a person enters the facility and ending on the 61st day after being released. If a person goes back into the hospital within the 60 days, they will not have another deductible. But if they return after 60 days (even if it is for the same reason as the original stay), they will have to meet another deductible.

Medicare Part A will also cover a skilled nursing stay, if the individual meets all of Medicare's requirements. A person must enter a facility within 30 days of a hospital stay of at least three days. It must be a Medicare approved facility, the individual must be receiving skilled care, and the prognosis has to be that the individual will demonstrate daily progress towards getting out. In other words, you can go there to recuperate, but not to stay. If you meet all of Medicare's criteria, they will pay the whole bill for the first 20 days. Beginning on the 21st day, you will have a co-pay ($133.50 in 2009) for days 21 through 100. After 100 days, Medicare will pay nothing. Usually Medicare pays for about 20 to 25 days.

Medicare Part A (or B) will also pay for blood, after the first three pints, and there is some limited coverage for hospice and recuperative home health care.

Medicare Part B covers in- and out-patient physicians care, surgical services and supplies, therapy, diagnostice tests, durable medical equipment, ambulances, and some preventative services. As I stated previously, the program is optional and the premium is indexed to your earnings. If you make less than $85,000 per year or your joint income is less than $170,000, the premium for 2009 would be $96.40 per month, and can be deducted from your social security check.

Medicare Part B pays most covered expenses at a rate of 80%, after you meet the Part B annual deductible ($135 in 2009). It does not cover 80% of your bill, but 80% of the portion of your bill that is approved by Medicare. If your whole bill is not approved and your doctor does not accept Medicare Assignment, then you could be responsible for the remaining 20% of the approved and any excess charges. Usually this is not a consideration as most (but not all) physicians accept Medicare's approved amount.

Part C is the Medicare Advantage program. It is an option to parts A and B. If you choose a Medicare Advantage plan (there are many types), you are essentially leaving the Medicare program for a private plan.

In 1992, Congress decided that the Medicare Supplement industry was very confusing for seniors, so they passed several laws regulating the insurance industry. The main effect was that Medicare Supplement (or Medigap) plans had to be standardized. At that time, 10 standardized plans were approved and were labeled Plans A throught J. Plan F was the most comprehensive and most popular at the time. No matter what company one purchased a plan from if you bought a Plan F, the benefits were the same from company to company. The main things that the consumers had to be concerned with were the cost of the plan, the company's ratings and the quality of customer service.

In 2003, Congress passed the Medicare Modernization Act. One of the biggest components of the act was the addition of prescription drug coverage (Part D).

However, another result of the bill was the proliferation of the new Medicare Advantage plans. Currently, there are approximately 160 different options available through the Medicare Advantage Program. It is very confusing for seniors (much more so than the Medigap plans prior to 1992). The plans utilize co-pays that vary from plan to plan. Quite a few of them have no cap on the amout an individual might pay out of pocket in a year. You can not carry a Medicare Supplement Plan if you are in a MA plan. They are optionally renewable each year. If they decide, they can pull out of a given area (and this happens frequently). If you move, and the plan is not available in your new location, you have to find another plan, or they can cancel you if you complain too much about the quality of care you receive. You can only see the providers within the network. With most plans, you must have a referral to see a specialist, and every procedure has to be approved by the plan administrator or it will not be covered. The plan administrators are doctors hired by the company, and their main responsibility is to find ways to deny procedures, surgeries, etc. In some cases they are actually given a bonus based upon how much money they save the provider each year. Also, your personal physician can leave the plan at any time he/she so chooses, but you are usually stuck in the coverage until the open enrollment periods (usually at the end or the beginning of the calendar year, depending on what type of plan you are in).

With most of the Medicare Advantage plans, there is no maximum to the amount an individual must pay from their own pocket in a calendar year. Last week, I was visiting with a man who has a Medicare Advantage Plan. He was 66 years old. He informed me that he had been hospitalized three times since August of 2008, and owed a local hospital around $5000. He was living strictly off of his Social Security which brought in about $1200 per month. After doing a financial profile, I determined that his expenses were also running him around $1200 per month. He was unable to pay the money he owed to the hospital. While I was visiting with him, his phone rang. The caller was from a collection agency trying to get him to pay the bill. He informed the caller that he would notbe able to pay the amount due. After he hung up, I advised him to contact the local legal aid society, and explain his situation to them.

All one has to do is go online and google Medicare "Disadvantages of Medicare Advantage Plans", and you will find many articles. A few of the more interesting ones, I've included links to here: http://www.sptimes.com/2007/10/30/50plus/The_unspoken_disadvan.shtml. The title of this article is "The 50 unspoken disadvantages of Medicare Advantage."

To quote an article from the Washington Post, "While the intent of the plans was to save Medicare money, the private plans have had the opposite effect, the three reports said.
The Medicare Advantage plans are paid, on average, 13% more than a comparable patient would have cost in a traditional Medicare plan, said the MedPac analysts."

You can read this full article at: http://www.medpagetoday.com/Geriatrics/Medicare/11936.

The bottom line is that Medicare Advantage is probably here to stay. However, Congress and the President have targeted it as one of the biggest boondoggles in the healthcare system. The message is clear. If this part of the system isn't fixed soon, Medicare will be completely broke very soon.

Medicare Advantage is not a viable alternative to Medicare, not good for the consumer or the government that is currently funding it.