Insurance

Medicare Advantage plans at first glance can seem very appealing when considering the $0 premium or low premium options. However, in light of current trends, the unknowing beneficiary may be setting themselves up for a future fall that will potentially undo all the "perceived savings".

Medicare Advantage plans or Medicare Part C is when a private insurance company contracts with the federal government to offer coverage to Medicare beneficiaries. This coverage typically takes the form of an HMO or PPO plan. The government gives the insurance company a set amount for each beneficiary with the requirement that the insurance company set up a plan which has to be at least the actuarial equivalent of Medicare A and B. The beneficiary is still required to pay their Medicare B premium.

Most companies offer a $0 premium plan. Many of these plans offer additional benefits such as dental, vision, hearing and even gym memberships. These plans will typically include prescription coverage as well. To the layperson, these plans can look great and if you are a healthy person who rarely goes to the doctor or hospital, you can certainly come out ahead if you are paying $0 and tucking the savings in the bank. One other point to mention is that Medicare A and B do not cap your cost exposure. The majority of these plans have a maximum out-of-pocket limit thereby limiting the beneficiary's exposure to cost in a given year.

What are the pitfalls of the Medicare Advantage plans? The most obvious and well documented is the 500 billion (yes, I said billion) dollar cuts to Medicare over the next ten years. This comes courtesy of the 2010 Health reform. The majority of these cuts will come in the form of reduced subsidies to advantage plans.

Going forward, if the government is slashing subsidies on these plans, common sense should tell us that the companies will have to reduce their benefits. For example, in 2010, there was no cut in subsidy; however there was no increase either. The insurance companies have depended on these increases because medical inflation runs around 6-7%. The results are that benefits schedule on these plans have changed in ways that the average person would not recognize. For example, the maximum out of pocket limits went up on most plans shifting more cost exposure to the beneficiary. Those changes were reflected in the 2011 plans. If that happened with no cut in subsidy, imagine next year what will happen, when they reduce the funding?

Another big drawback is that the plans are not guaranteed renewable. This means if the company you choose drops their plan at the end of the year, you will need to search for a new plan.

Here's the bottom line. Most Medicare recipients are either retired or on their way, health coverage should be a primary consideration in the financial plan. Common sense suggests that as we age the chances are greater that we will have health concerns. So look at it this way. As time goes forward, folks with Medicare Advantage will have increased exposure to costs combined with the increased chances of needing health care. This is not a winning combination.

Medicare Advantage plans are good for folks who cannot afford a Medicare supplement. However if you can swing a Medicare supplement plan, you will have locked up the best coverage you can get.