Is a zero-premium Medicare Advantage plan cheaper than a Medigap policy? A side-by side analysis of the yearly out-of-pocket cost of Medigap insurance plan G with a monthly premium of $119 sold by an A-rated carrier, vs a zero-premium Blue Cross Medicare Advantage plan, reveals that "free" insurance can be very costly when illness strikes.
How Medicare Advantage (MA) Plans Work
About 11 million Medicare-eligible individuals enroll in heavily advertised MA (Medicare Part C) plans for good reason: zero or low premiums for what is billed as end-to-end healthcare, and benefits "straight" Medicare and Medicare Supplement (Medigap) policies don't offer, such as drug, hearing, dental and vision coverage.
The least expensive MA plans are HMOs and PPOs tied to networks of contracted, captive providers located in specific geographic regions. Such plans have rigid rules, and usually require pre-authorizations to control costs. They penalize patients who go "out-of-network," and rarely pay 100% for doctor, hospital, lab, diagnostic, rehab, equipment and nursing home charges.
Low- and zero-premium MA plans are a bargain for seniors on a budget, but only if they forever steer clear of expensive illnesses and injuries, and they don't access routine non-emergency care away from their home network areas. But if they suddenly need major care, a confusing and surprising array of deductibles, co-pays, co-insurance and perhaps out-of-network costs kick in, possibly pushing the final bill for care into the thousands of dollars.
Most MA plans have ceilings or caps, called the maximum out-of-pocket, or MOOP. MOOPs typically range from $4,000 to $10,000 a year and limit how high the tab can go for in-network services. The terms of some MA plans stipulate that the MOOP is unlimited if patients use out-of-network providers such as the Mayo Clinic.
Medigap vs Medicare Advantage Cost Analysis: The Scenario
The subject of the comparison study is a previously-healthy 70 year-old gentleman, non-smoker, living in Michigan. The following medical issues unfold:
- He suffers a stroke at home, is taken by ambulance to the ER, and is hospitalized for 5 days.
- Upon discharge, he goes to a skilled nursing facility where he receives therapy (speech, physical, occupational). After 30 days in the nursing home, he goes home.
- He undergoes 12 similar therapy sessions at a local out-patient facility.
- He obtains a $500 wheelchair.
- He visits his primary care doctor 6 times, various specialists 6 times, and has 6 assorted lab, x-ray, blood and diagnostic tests.
- He has cataract surgery on one eye.
Medigap vs Medicare Advantge: The Actual Out-of-Pocket Costs for All Services
- Blue Cross* Medicare Advantage Plan: $3,825, the year's tally for the above services under the terms of the gentleman's zero-premium Blue Cross plan. This total is a combination of "cost-sharing": a $200 deductible, several co-pays for hospital, physician, nursing home and other services, and co-insurance.
- Medigap Plan G**: $1,583, the year's tally for the above services under the terms of the Medicare Supplement policy. This total is a combination of the annual premium of $1,428 and a Medicare Part B deductible of $155.
- Medigap Plan G total savings over the Medicare Advantage plan: $2,242.
If this gentleman had additional medical, surgical or hospital services in the same year, his out-of-pocket expenses under his MA plan would balloon further, until he reached his annual MOOP of $5000. The sicker one gets, the more costly care under many MA plans becomes.
Significantly, if he relied on Medigap policy G instead of the MA plan as he used more healthcare services, his out-of-pocket would remain at $1,583. Medigap Plan G's MOOP is effectively the sum of the premium and a once-yearly $155 Medicare Part B deductible. Medigap Plan G specifically avoids co-pays, co-insurance and other deductibles (as does more-expensive zero-deductible Plan F). Other Medigap plans (A, B, C, D, K, K, L and N) vary as to payment for these charges, and are generally less comprehensive than Plans F and G.
Medigap vs Medicare Advantage When Enhanced Services are Considered
Dental, vision and hearing aid coverage are seldom included in zero-premium programs and never available as part of Medigap policies. Many seniors buy "high-end" MA plans because they feel the included extras are worth the premium expense. (Prescription drug coverage, Medicare Part D, packaged in with MA plans is of marginal value, since inexpensive prescription medicine insurance is available. Programs like the WalMart-Humana alliance offer similar coverage nationwide for as little as $15 a month.)
What if our hypothetical 70 year-old gentleman had opted for a benefit-rich MA plan costing $207/month and then used some of his added benefits? Would the Medigap plan still be cheaper?
Comparing a Blue Cross MA plan that includes dental, vision and hearing benefits vs the same Medigap Plan G, these services were added to the original scenario:
- The gentleman is fitted with two $2,000 hearing aids ($4,000 total).
- He receives two "free" teeth cleanings and dental exams (worth $300).
- He buys frames and lenses for $200.
- Blue Cross***: $8,084, the year's grand total for all the medical and enhanced services discussed in this article. The MA plan pays only $1,000 toward the $4,000 hearing aid bill, and only $50 toward the $200 eye wear tab. Fine print in the MA policy stipulates there is no limit on cost sharing for eye wear or hearing aids, which is why the gentleman's total exceeds the $5,000 MOOP.
- Medigap Plan G**: $6,083. Medigap pays nothing toward these services, so the gentlemen pays $4,500 out-of-pocket ($4,000 + $300 + $200 = $4,500).
- Medigap Plan G total savings over the Medicare Advantage plan: $2,001
MA plan costs and benefits vary widely, as do the actual services used, so the above comparisons are not definitive or illustrative of all situations.
*Michigan BCN Advantage HMO-POS Basic, H5883_C_2011SOB, January 1 to Dec. 31, 2011
** United of Omaha Plan G, Form UM24, Based on rates effective October 1, 2010
***BCN Advantage HMO-POS Option 3, H5883_C_2011SOB, January 1 to Dec. 31, 2011
George Daleiden - I was a science major in college and later a career member of the Institute of Food Technologists. I worked in the processed food and ...
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