Do you need Medicare Supplement insurance?

Original Medicare (Part A and Part B) was never meant to be a stand alone insurance solution.  It was designed to protect those 65 and over from the acute costs of Medicare rather than provide comprehensive insurance for all medical costs.  Over 80% of all Medicare beneficiaries have some kind of supplemental coverage.   The following are reasons you should consider Medicare Supplement insurance.

Reason # 1:  Medicare Part A – no limit on out of pocket costs

Part A deductible resets – Medicare Supplement insurance pays the deductible

Part A is your hospital insurance.  It covers room and board, general nursing and drugs while you’re an inpatient.  The deductible for Part A is $1,408 per benefit period.  Note this is NOT an annual deductible.  The deductible is for each benefit period.  Your benefit period begins when you are admitted to a hospital.  It ends when you haven’t received any inpatient care for 60 days.  Your benefit period and deductible reset at the end of these 60 days.  You will start paying down your $1,408 deductible again the next time you are admitted as an inpatient in a hospital.  There is no limit to how often this can occur.  Medigap coverage will pay the Part A deductible.

Part A daily coinsurance – Medicare supplement insurance pays the coinsurance

Medicare pays for your first 60 days in the hospital after you pay your Part A deductible.  You’ll have to start paying a daily coinsurance fee of $352 for days 61-90.  After day 90 Medicare will pay up to an additional 60 days, called lifetime reserve days. These days will cost you $704 each.  Once these lifetime reserve days are gone, you don’t get them back.  You are responsible for 100% of the costs after day 150.

You may need to stay in a skilled nursing facility after a hospital stay.  This usually occurs if you no longer need hospital care, but you need more care than you can receive in your home.  Some of the reasons are joint replacement surgery, stroke or other types of brain injury.  Your first 20 days in the facility are paid by Medicare.  Following this, you have to pay a coinsurance amount of $176 per day for days 21-100.  Your coverage completely ends after day 100.

Reason # 2:  Medicare Part B – no limit on out of pocket costs

Part B covers doctor services and outpatient care.  Medicare pays 80% of your Part B costs after you pay the annual deductible for Part B.  You are responsible for the remaining 20% of the Part B costs.  There is no annual or lifetime limit for what you pay out-of-pocket for this coinsurance.  To find out how Medicare supplement insurance interacts with Part B, go to Medigap Plans.

Medicare Supplement insurance can pay the 20% of your bill that Part B doesn’t pay

Doctor’s office visits

Medicare Part B will be billed for doctor office visits.  Medicare will pay 80% of the bill.  You have to pay the remaining 20% of the bill.

Inpatient costs

Medicare Part B, not A, will also be billed for all your doctor services while you are an inpatient in a hospital.  This means Medicare will only pay 80% and you’ll pay the remainder.   These physician services can add up quickly when faced with a chronic condition like cancer, heart disease or stroke.

Outpatient costs

The trend in healthcare is towards more outpatient procedures due to innovation and technological advances.  For example, chemotherapy is often administered in a hospital outpatient setting, or a doctor’s office or stand-alone clinic.  You are responsible for 20% of these costs because services received in this setting will be billed to Part B, not A.

Observation status

Your “status” while you’re in the hospital can make a big difference in your final bill.  “Observation status” is a type of outpatient status.  You may spend a few nights in the hospital under observation status if your doctor has to determine whether or not your condition warrants an inpatient stay.

For example, you go to the emergency room because you are having chest pain.  The hospital recommends you spend a few overnights to determine the condition of your heart.  You are placed under observation status while you receive several tests administered by nurses.  You leave the hospital after a few days having passed all the tests.  Part B, not A, will be billed for all the tests, blood draws, X-rays, oxygen and the hospital’s base hourly outpatient observation services.  You are responsible for 20% of the bill.  You aren’t covered under Part A’s day 1-60 full coverage.

Reason # 3:  Medicare Advantage – many limitations

A Medicare Advantage plan essentially replaces, not supplement, Original Medicare.  All the deductibles, coinsurance and copays found in Original Medicare are replaced by the deductibles, coinsurance and copays of the Medicare Advantage plan.  Medicare pays Medicare Advantage providers a set fee per enrollee to provide all Part A and B benefits.

If you decide to replace Original Medicare with Medicare Advantage, be aware of the following issues:

          Restrictions of a Medicare Advantage plan

1. 1. • Some Medicare Advantage plans are structured as an HMO.  An HMO limits your access to  providers by requiring you to seek non-emergency medical services from a defined network.  This can be particularly troublesome if you are traveling or if you want medical service from one of the specialty hospitals located across the country.  In contrast, Original Medicare, and by extension any Medigap plan, allows you to see any provider in any location that accepts Medicare.
      • You will likely need prior authorization for expensive services such as inpatient hospital stays and Part B drugs.  Nearly 80% of all Medicare Advantage enrollees are in plans that require prior authorization for some services, according to the Kaiser Family Foundation.  Original Medicare, in contrast, doesn’t generally require prior authorization for services.
      • You may be required to use “step therapy” for Part B drugs if you’re in a Medicare Advantage plan.  This means you are required to try an inexpensive drug (and fail to improve on those drugs) before you receive approval to try a more expensive drug.  Original Medicare does not allow step therapy for Part B drugs.
      • You are subjected to an insurance company’s input as to what is “medically necessary”, and therefore covered, if you’re enrolled in a Medicare Advantage plan.  In contrast, Original Medicare covers all “medically necessary” procedures, which is determined by federal government guidelines and your doctor’s diagnosis.
      • There are limited time frames each year to make a change to your Medicare Advantage plan.  In contrast, a Medigap plan can be switched any day of the year after answering health questions.
      • You may need to get a referral to see a specialist if you have a Medicare Advantage plan.  In contrast, in most cases, you don’t need a referral to see a specialist with Original Medicare.

        Financial Exposure of a Medicare Advantage plan

1. 1. • You may find yourself in financial trouble from the high MOOP of your Medicare Advantage plan.  This can happen if you are diagnosed with a chronic illness such as cancer.  As a result, you may want to switch to a Medigap plan.  However, as a result of your illness, you may not be able to pass the health questions of the Medigap provider. This means the Medigap provider can deny you coverage.
      •  You may have a hard time budgeting for future medical expenses with a Medicare Advantage plan.  This is because exposure to a high MOOP introduces variability in potential expenses each year.
      • You will be subjected to a high Max Out Of Pocket Limit (MOOP) if you’re enrolled in a Medicare Advantage plan.  According to the Kaiser Family Foundation, for 2019, Medicare Advantage enrollees’ average out-of-pocket limit for in-network services was $5,059 and $8,818 for out-of-network services.  In contrast, Original Medicare paired with a Medicare Supplement can severely limit your out-of-pocket costs by paying for all of the gaps in Part A and Part B.
      • You are subjected to an insurance company’s input as to what is “medically necessary”, and therefore covered, if you’re enrolled in a Medicare Advantage plan.  In contrast, Original Medicare covers all “medically necessary” procedures, which is determined by federal government guidelines and your doctor’s diagnosis.

          Maintenance while on a Medicare Advantage plan

1. 1. • You will spend more time shopping for the correct Medicare Advantage plan because the plans aren’t standardized like a Medigap plan.  Each plan carries different copays and deductibles for every medical service.
      • You will be subjected to annual changes in your Medicare Advantage plan’s cost sharing provisions and possibly service area.  In addition, providers can leave a plan’s network and your plan can drop a provider at any time.  You will be notified of these changes with an Annual Notice of Change sent to you each September.  The changes can affect the continuity of your medical treatments.  You will need to review your current plan and make any necessary changes during this fall annual enrollment period.