Upon turning 65, most Americans are eligible to enroll in Medicare parts A and B (aka Original Medicare), which covers Hospital and Medical insurance, respectively. Part A coverage is free if you OR your spouse worked for at least ten years during your lifetime. Part B costs $164.90 per month, but this figure could be greater if your taxable income exceeded $97,000 (if filing single) or $194,000 (if filing jointly) in 2021. Medicare goes back two years on this Part B income-related premium calculation. If your income is above this threshold, it is probably something we should talk about because there are strategies to minimize or eliminate these income-based surcharges.

Having only Medicare Part A and B simply isn’t enough. 80% of your Medicare-approved charges are covered, but this means that 20% of your Medicare-approved charges are not. One lengthy stay at the hospital or a bad diagnosis could EASILY lead to tens of thousands of dollars in medical bills. Also, drugs are not covered under Original Medicare, but I could write an entire blog series on prescription drugs in the U.S. We’ll save that discussion for another day.

There are two options out there for those worried about covering the other 20% of your medical costs: Supplemental Medicare (aka Medigap) and Medicare Advantage. While both insurance options are offered by private insurance companies that are effectively paid from the Medicare trust fund to provide adequate coverage to Americans who have paid into Medicare their entire life, there are significant differences between the two options.

Supplemental Medicare is a standardized health insurance plan that helps cover some of the out-of-pocket costs that Original Medicare does not fully pay, such as deductibles, copayments, and coinsurance. It is differentiated only by the letters A through N designed on each type of Supplemental plan. Each lettered plan offered by different insurance companies is completely identical. For instance, two companies offering plan A have the exact same benefits, co-pays, deductibles, etc. The only differentiator is the name and reputation of the company who offers the plan and the monthly premium. Plan F had the most extensive coverage plan of all the choices, but it is no longer available to people who turned 65 beginning in 2020. The next most comprehensive plan is Plan G, which typically costs a little over $100 per month in Alabama. Since it is the only Supplemental Medicare plan that covers excess Medicare charges (when a doctor charges more than the Medicare-approved amount for a service), it is the only plan I recommend for my clients. In Alabama, a doctor can legally charge 115% of the Medicare-approved amount for a service. The other Supplemental Medicare plans will only pay 100%, which means you will receive a bill for the remaining 15% of the total charge. On a large medical bill, that could be a hefty sum. Once you pay the Medicare Part B deductible ($226 in 2023), plan G typically pays for 100% of your covered medical services.

On the other hand, Medicare Advantage (aka Medicare Part C) is an alternative to Original Medicare. Medicare Advantage plans are offered by private insurance companies approved by Medicare, and these plans combine the benefits of Part A (hospital insurance) and Part B (medical insurance) into a single plan. Rather than supplement Original Medicare, as Supplemental Medicare does, Medicare Advantage replaces Medicare with an “all-inclusive” concept. Most Medicare Advantage plans also include prescription drug coverage (Part D) and additional benefits like dental, vision, and hearing. Medicare Plan G does not offer these additional benefits, and they must be purchased separately if desired.

Here are a few key points to compare Medicare Plan G with Medicare Advantage:

1. Provider Choice: With Plan G, you have the freedom to choose any healthcare provider that accepts Medicare. Medicare Advantage plans, however, often have a network of doctors and hospitals. If you choose to go outside the network, you may have to pay higher costs.

2. Cost Structure: Plan G typically has a higher monthly premium compared to most Medicare Advantage plans. In Alabama, the most popular Medicare Advantage Plans have a $0 monthly premium. However, Plan G provides more predictable costs, as you generally pay only the monthly premium and the $226 Medicare Part B deductible. Medicare Advantage plans require copayments, coinsurance, and deductibles for various services. And, again, if you go outside of their network (even accidentally, in the event of an emergency or while traveling), you could have even more expenses.

3. Prescription Drug Coverage: Plan G does not include prescription drug coverage, vision, dental, and hearing. While you may be okay without the latter items, prescription drug coverage is not something you want to go without. If you choose Plan G, you need to enroll in a separate drug plan. It is imperative to make sure that the drugs you take are included in your drug plan’s formulary each year when you review your drug policy. Drug plans like to reshuffle the deck and change what is and isn’t covered. It’s very important to make sure your drugs are affordable under your plan. Many Medicare Advantage plans, however, include prescription drug coverage as part of their package.

4. Out-of-Pocket Maxes: This is what I call the worst-case scenario. If you have lengthy stays or expensive operations, the Out-of-Pocket max is the most you have to pay in a given year. Plan G has an out-of-pocket max of $0. This means that after you pay your deductible of $226, you have no additional out-of-pocket expenses (other than your monthly premiums) throughout the year. That’s literally it. With Medicare Advantage, the $0 premium plans in Tuscaloosa County have an out-of-pocket max range of $3,400 to $10,000. This means that in a worst-case scenario, you would be responsible for that amount. And, it resets in January every year. So be very mindful of what your Out-Pocket-Max is if you’re shopping for Medicare Advantage plans.

Ultimately, the choice between Medicare Plan G and Medicare Advantage depends on your specific healthcare needs, budget, and preferences. My advice is usually to opt for Plan G if the premium is not an issue for your budget. If cost is an issue, it becomes very important to review Medicare Advantage Plans with a qualified agent who represents ALL of the insurance companies in your area. Each Medicare Advantage plan covers different hospitals, doctors, and drugs. You need to make sure everything you require is in network. It’s very important to carefully review and compare the details of each plan to determine which one aligns best with your circumstances. As always, I am here to help.