What is a Medicare Advantage plan?

Most Medicare Advantage plans have several features that help you to rein in your healthcare expenses. 

One of the main reasons why people join is that Medicare Advantage plans come with a simplified cost-sharing structure. The term “cost-sharing” refers to the deductible and copayments you are required to pay to receive your healthcare under the health plan. Components of this simplified structure include: 

No deductible. One common feature of the simplified cost-sharing structure that is found in many Medicare Advantage plans is that there is no deductible for hospital and doctors’ services. Remember, deductibles are the amount of money you are required to pay the hospitals or doctors directly before the insurance (either Original Medicare or private insurance) kicks in to start paying your bills, and before the deductible amount is met, you are usually responsible for 100% of the cost of the healthcare that you receive.

Therefore, a Medicare Advantage plan with no deductible means that its health coverage starts right away and that the plan begins to pay for your healthcare costs as soon as you sign up, creating an “effective date” of coverage. This is a great feature. 

Compare this to Original Medicare Part A, which requires you to pay the Part A deductible of $1,484 (2021) before Medicare will start paying your hospital bills, or to Part B, which requires you to pay the Part B deductible of $198 (2021) before it will start paying for 80% of the costs for your visits to the doctor’s office.

The “No Deductible” feature is a huge part of the “advantage” in Medicare Advantage plans.

Fixed copayments. Another welcome feature of Medicare Advantage plans’ simplified cost-sharing structure is that many Medicare Advantage plans set fixed copayments for each category of healthcare services covered by the plan. Here are a couple of examples:

1. Inpatient. If you are admitted as an inpatient to a hospital, under a Medicare Advantage plan, you are only responsible for one copayment for both the hospital stay and the doctors’ services that you receive. Under Original Medicare, you may be billed separately for these two services.
2. Outpatient. When you received an outpatient procedure, let’s say a gallbladder removal, under a Medicare Advantage plan you are only responsible for one copayment for the entire procedure. Under Original Medicare, however, you may be billed for three separate items:

•           The doctors’ services.
•           The services of the anesthesiologist who put you under for the procedure. And,
•           A facility fee if the procedure was performed in a hospital instead of an outpatient or doctor’s own clinic. Under the current law, the facility fee may be as high as Part A’s deductible ($1,484 in 2021), even if the procedure is performed outside of a hospital in what seems like a doctor’s private clinic.

In short, a Medicare Advantage plan’s simplified cost-sharing structure makes your medical expenses more predictable and subject to less guesswork. This is one of the main reasons why people choose to join Medicare Advantage plans. 

Another key reason why people choose to enroll in Medicare Advantage plans is that the plans come with an out-of-pocket limit for medical expenses. The out-of-pocket limit puts an end to the unlimited copayment obligation under Original Medicare and helps you avoid overwhelming medical costs during those times when you may need extensive medical treatments.

After you meet your Medicare Advantage plan’s out-of-pocket limit, your plan would pay 100% for medical services that Original Medicare covers—you won’t have to pay any more copays or deductibles for these services for the remainder of the year.

There are, however, three things that you should remember about Medicare Advantage plans’ out-of-pocket limit:

1. Even after you reach the Medicare Advantage plan’s out-of-pocket limit, you will still need to pay for the Part B premium, as well as the premium charged by your Medicare Advantage plan. These premiums are not considered to be part of your out-of-pocket medical expenses. (A premium is the amount of money charged by an insurance company to administrate the plan that you choose. Like other types of insurance, this is customarily a monthly expense.)
2. Even when your plan provides for prescription drug coverage, reaching the out-of-pocket limit does not end your copayment obligation for prescription drugs. Prescription drugs have their own out-of-pocket rules.
3. Out-of-pocket expenses, including copayments, for services not covered by Original Medicare, such as vision, hearing or dental, are not counted toward your out-of-pocket limit. 

Drug coverage is another valuable reason why many people choose to enroll in Medicare Advantage plans. Almost all Medicare Advantage plans in the Bay Area come with prescription drug coverage, so if you choose to enroll in a Medicare Advantage plan, you do not need to purchase a separate prescription drug insurance.

Keep in mind, however, that prescription drug coverage comes with its own out-of-pocket rules. Even if you reach the out-of-pocket limit for medical expenses, you are still obligated to pay for your prescription drugs’ copay. Prescription drugs are separate from “medical expenses”.

Medicare Advantage plans’ prescription drug out-of-pocket rules do not cap the drug cost, but after your out-of-pocket costs for the covered prescription drugs exceed a certain plan limit, the cost of the covered drugs will be substantially reduced. 

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