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How Can Medicare Advantage Plans Be Free?
By Donna Frederick
After retiring from a career as an executive travel counselor in 2006, Donna Frederick embarked on a second career as a licensed insurance agent. During that first year, many clients told Donna how ov ...erwhelmed they felt by Medicare, but that her assistance helped them finally understand the Medicare program. That experience inspired Donna to focus her efforts on educating her clients to ensure they fully understand their Medicare options. Today, Donna takes pride in providing outstanding customer service and going the extra mile to make sure each client knows all of their options and has a sound understanding of their Medicare plan, from costs to coverage and all points in between.Read more
Sep 28, 2020
Many people are surprised to learn that some Medicare Advantage medical insurance plans seem to be free. These plans aren’t actually free, but come close enough for many: they have no monthly premiums. And, there isn’t some secret catch here, these plans truly have a $0 premium.
However, the situation is more complex than it seems, as there are still other fees associated with these plans. We’ll run through all of the details, so you can determine if one of these plans is right for you.
What Is Medicare Advantage?
Before getting into the details, it’s important to understand what Medicare Advantage is. Medicare Advantage plans, also known as MA plans or Medicare Part C plans, are health insurance plans that are offered by private insurance companies, but available only to Medicare beneficiaries. If you are eligible for Medicare, you can choose to buy a Part C plan, and your Medicare benefits can go towards that plan, rather than being wasted.
Medicare Advantage plans have pros and cons. For some people, they are a great fit, and for others, they are a waste. Because these plans are private, there is more variety in the offerings than there is with Original Medicare (Parts A and B) which is completely uniform. Plans will vary in price and many will offer additional benefits. With Medicare Advantage, you won't pay your usual Medicare Part A or Medicare Part B costs: no Part B premium, no Part A deductible, etc.
There are some restrictions on MA plan costs and coverage. Plans must cover at least the same amount that Original Medicare covers, although they can also offer more. This means that if something is covered by Original Medicare, it will also be covered by Medicare Advantage. Plans also have provider networks, as most private insurance plans do. You will have to choose between an HMO or PPO plan when you buy Medicare Advantage.
Part C Eligibility
Eligibility for Medicare Advantage is the same as for Original Medicare. If you already receive Social Security benefits, and are turning 65, you will be able to enroll in a Part C plan. If you have End-Stage Renal Disease (ESRD) you will be able to enroll in Medicare Advantage during your Open Enrollment Period.
How Is Medicare Advantage Priced?
Unlike Original Medicare, Medicare Advantage can vary a lot in price. Essentially, Part C plans will vary in price as much as regular insurance plans, although there are some limits on how expensive they may be.
Some Medicare Advantage plans offer prescription drug coverage, and these will naturally cost more. If you have one of these plans, you won’t be able to purchase a Part D Medicare prescription drug plan at the same time, since the coverage would be redundant. In general, plans that offer more coverage will cost more.
Plans can also vary in how much of the cost goes into the premium and how much goes to the deductible. This variation is useful to have on the market since some people don’t use their insurance plans as often as others.
If you don’t use your insurance plan often, a high-deductible plan can be useful. The idea behind this choice is that the plan won’t be used often enough to justify a higher premium, and you won’t need to reach your deductible for normal care. However, you will still have access to more intensive coverage, if needed, once you reach your deductible.
This option works for some, but not for others. As always, it’s important to investigate your situation and determine what works best for you. Plans can also vary with respect to the out-of-pocket fee structure. Some plans will use a copayment, others a coinsurance and some will have a mix.
What Plan Options Are There?
More options and flexibility are the main draws of Medicare Advantage for many people. There are many types of plan options available if you’re looking for a Part C plan, and you’ll be familiar with many of these if you’ve had private insurance in the past.
Most plans will be either an HMO (Health Maintenance Organization) or a PPO (Preferred Provider Organization) plan. Generally speaking, HMO plans translate to a lower premium with a smaller selection to choose from in the plan's network, while a PPO gives you the freedom to see more doctors, but has a higher price. The specific costs and network sizes can vary, and you should always make sure that your preferred physician is in the plan network that you’re looking at.
SNP and PFFS Plans
Special Needs plans are fairly simple: they are plans that are restricted to people with certain conditions. These plans may be uniquely tailored to the given condition so that you can receive more coverage specific to your unique situation.
SNPs will have various requirements. For example, some plans require you to be eligible for both Medicare and Medicaid, while others are only available to individuals in nursing homes. If you come across an SNP that fits your situation, it can be worthwhile to explore.
PFFS plans can be a bit difficult to understand, but on the patient end, they will function similarly to any other private health plan. PFFS plans may or may not have a provider network, and will usually be priced similarly to other Medicare Advantage plans. If you come across a PFFS plan, it’s best to look at the details of that plan individually, to see if it fits your needs.
You can find more information about PFFS plans from the Centers for Medicare and Medicaid Services (CMS) here.
So, How Are Some Plans Free?
As you can see, Medicare Advantage plans mostly function as private health insurance plans. If you’ve had private health insurance in the past, you know it’s far from free. So, how can it be that some Medicare Advantage plans are free?
These “free” plans are actually just premium-free, meaning that you pay $0 monthly. The trade-off will be higher out-of-pocket costs. This means that although you won’t pay any premiums, you may end up paying high cost-sharing percentages or copay fees when you do visit your health care provider. High deductible plans require you to pay a substantial cost out-of-pocket before your Medicare coverage even begins.
For some people, premium-free Part C plans can end up being more expensive than ordinary ones, because the out-of-pocket fees are higher than the premiums would be. The idea behind zero-premium Medicare Advantage plans is that they are worth it if you very rarely visit your doctor. If this is the case for you, you should check these plans out.
However, remember that insurance companies are always out to make money. If they couldn’t make money offering premium-free plans, they wouldn’t: if it sounds too good to be true, it probably is.
Can Medigap Plans Help Mitigate the Cost?
Medigap plans, also known as Medicare Supplement plans, are plans that cover out-of-pocket Medicare costs. These plans don't directly cover health care services, but just cover other fees like your Part B deductible and coinsurance, depending on which plan you choose.
Medicare Supplement insurance can help keep you from paying high out-of-pocket costs, but it doesn't apply to Medicare Advantage plans. If you have a zero-premium plan, you will have to fully pay the out-of-pocket costs, with no help from Medigap.
Premium-Free Medicare Advantage: What to Keep in Mind
Although premium-free plans can sometimes seem like an oddity or novelty, some people can benefit from them. There is usually some risk involved, these plans can provide substantial savings to some beneficiaries. Most people will feel more comfortable with a less risky Medicare Advantage plan, which still usually provides extra benefits. Understanding how these premium-free plans work can certainly expand your options.
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