It’s True, Medicare Advantage Costs Less Than Original Medicare But…

We’re in the middle of the Medicare Open Enrollment Period. Turn on the television and what are you likely to see? A commercial, and then another one, all for Medicare Advantage plans. These commercials, hosted by celebrities and former football players, tout the benefits of this coverage.

Commercials, as well as mailings and websites, preach this point: Medicare Advantage costs less than Original Medicare. Here are some examples.

This is all true. Medicare Advantage can cost less than Original Medicare. That’s because Medicare Advantage plans must have a maximum out-of-pocket limit. In 2023, the maximum for in-network services will be $8,300 and, for in- and out-of-network combined, $12,450. (The limits this year are $7,550 and $11,300.) Plans can set any amount as its limit, up to the maximum.

On the other hand, Original Medicare, just Part A, hospital insurance, and Part B, medical insurance, has no limit on out-of-pocket costs. For example, when receiving outpatient services under Part B, there is a deductible of $233 this year ($226 in 2023) and then 20% coinsurance with no cap. A beneficiary could face unlimited medical costs, possibly totaling considerably more than an Advantage plan’s maximum limit.

However, there’s one big BUT you need to know about and Medicare.gov does mention that when talking about limits. With Original Medicare, “there’s no yearly limit on what you pay out-of-pocket, unless you have supplemental coverage – like Medicare Supplement Insurance (Medigap).”

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Once enrolled in Part A and Part B, a Medicare beneficiary can choose to purchase a Medicare supplement plan, commonly known as a Medigap policy. Plans are standardized by letters in 47 states. Each letter plan offers a different combination of benefits and cost sharing that comes with predictable out-of-pocket costs. For example, the increasingly popular Plan G covers every Original Medicare cost, except the Part B deductible. The plan doesn’t have a maximum limit because the beneficiary’s costs are capped at the Part B deductible, which will be $226 in 2023.

(Two notes: Medigap Plan K and Plan L do have out-of-pocket maximums. That’s because the beneficiary pays 50% and 25% for most services in these plans. Massachusetts, Minnesota, and Wisconsin have their own standardization models, but plans work the same way.)

Bottom line: Medicare Advantage doesn’t always cost less

It’s very possible that Original Medicare with a Medigap policy Plan G can cost less than a Medicare Advantage plan for those with medical issues. Check out these two situations.

  • A beneficiary in Chicago broke her hip. Her medical care included an emergency room visit, x-rays, an MRI, hospital admission, a skilled nursing facility stay, and outpatient physical therapy. With Original Medicare and Plan G, her total costs were capped at $1,637 (monthly premium of $117 plus $233). Copayments with a Medicare Advantage PPO (preferred provider organization) plan totaled $3,140.
  • Another beneficiary living in New York may need chemotherapy treatments in 2023. If he has Original Medicare with a Medigap Plan G, his annual cost would be $2,662 (monthly premium of $203 plus the Part B deductible of $226). If he has a Medicare Advantage HMO (health maintenance organization) plan, he would pay 20% of the treatments, up to an out-of-pocket maximum of $6,500.

Here’s a little sage advice if you’re getting ready to shop for Medicare coverage to limit your out-of-pocket costs.

  • If you choose a Medicare supplement plan, you will pay monthly premiums and then have predictable out-of-pocket costs. You’ll also need to add a Part D, prescription drug plan.
  • If electing Medicare Advantage, check the benefits and coverage rules; then, pay attention to the costs for services you may need. Consider setting aside funds to cover the plan’s maximum limit, just in case.

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