Terry Savage: The disadvantages of Medicare Advantage

As Medicare open enrollment continues through December 7, it appears those media commercials for Advantage plans are working. Now, more than half of Medicare participants have left traditional Medicare plus supplements behind, lured by the enticements of “more benefits at lower monthly cost.”

But before making the switch, you should understand the costs and restrictions that could occur with Advantage plans, and the limitations of the enticing promises. In the long run, and especially if you have a serious illness or condition, you may wish you had stuck with traditional Medicare, despite the added costs of a supplement (Medigap) policy and a Part D drug program.

Let me acknowledge upfront that there are many happy participants in Advantage plans. But as Diane Archer, founder of the Medicare Rights Center, a nonprofit policy and advisory group (800-333-4114), explains, “It’s impossible to know in advance which plan is truly consumer-friendly — and whether it will remain that way in the future as cost pressures arise.”

Archer notes that while you might take the recommendation of a friend or insurance agent, that road has its perils. Did you know that the potential commission for the agent on a first signup is over $600, while renewals each year add about $300 to the agent’s income in the form of a “trailing commission”? Obviously, there’s a great incentive for the agent to sell the most expensive Advantage policy, which you will renew every year!

Traditional Medicare offers one great advantage over Advantage policies in general: You can use any physician or hospital or testing service (think mammograms or MRIs) that accepts Medicare. Period. And most do accept Medicare.

With traditional Medicare, your physician makes all the decisions about ordering tests, suggesting surgery and choosing your meds. But with an Advantage plan, not only are you limited to participating physicians and hospitals, but the administrators of the plan must generally give their approval for all of the above. And those second-guesses by administrators are designed to keep costs down so the plan makes a profit over the government’s annual per capita payment to them.

And it’s those profits that pay for those enticing radio and TV commercials!

Many physicians are tired of having their decisions second-guessed by Advantage plan administrators. They say it compromises patient health. And some are dropping out of Advantage plans. Where would that leave you?

Here are some shocking facts about coverage decisions under Advantage. Last year, the Department of Health and Human Services issued a report saying Advantage plans wrongly denied 18% of payment claims. The Kaiser Family Foundation found that Medicare Advantage plans denied more than 2 million prior authorization requests in 2021. And according to SocialSecurityWorks.org, the rate of denials has tripled since 2019, as Advantage plans use artificial intelligence to make decisions.

Cost is the main appeal of Advantage plans, if you only look at their lower monthly premiums compared to Medicare supplements and drug plans. With Advantage, sometimes called Part C, you’ll still pay for Medicare Part B. The standard Part B premium for 2024 is $174.70 per month (though it could be higher based on last year’s income). Part B premiums are typically deducted from your Social Security check. Supplements and drug plans range in costs, and can be compared easily at Medicare.gov.

With Advantage, the additional monthly premium, if any, is your only cost — until you get sick. Then you start paying co-insurance or flat-fee copayments for doctor visits, for example. Medicare Advantage out-of-pocket costs vary by plan and can change every year. But all of these Advantage plans have a maximum out-of-pocket annual spending limit.

For 2024, that limit is $8,850 for in-network services, although some plans have lower limits. So when you get excited by that lower monthly Advantage premium (ranging from zero to $200, but averaging $18.50 per month), don’t forget to consider the additional money you’d have to spend if you become sick. And check on the separate but higher cost for your plan if you use out-of-network services.

Choosing Medicare Advantage can have huge long-term financial and health implications. Getting two free dental cleanings each year may not be a good trade-off for restricting your choice of physicians!

Get unbiased advice from your state State Health Insurance Assistance Program (SHIP) at shiphelp.org.

It pays to think long term, especially if you plan to live long term! And that’s The Savage Truth.

(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)

©2023 Terry Savage. Distributed by Tribune Content Agency, LLC.