Today, we’re going to answer the question, “Are Medicare Advantage plans really free?” We do this by looking at the five main reasons why Advantage plans appear to be free (spoiler alert, they’re not free), then educate you about the various costs associated with Advantage plans. Let’s jump right in. 

Medicare Advantage Plans Explained

When you start your Medicare benefits, you have two options. The first is to stay on original Medicare and go with a Supplemental plan. The second is to go with a replacement or Advantage plan. Half of all Americans today go with advantage plans, and the other half choose supplemental plans. Many people who decide to go with an Advantage plan automatically assume they are free. Why? There are five main reasons why Advantage plans appear to be free. 

Zero Monthly Premium

The first and obvious reason why people assume Advantage plans are free is because of the very low or zero monthly premiums that come with an Advantage plan. Unlike Supplemental plans, you won’t be required to pay substantial monthly premiums to the Advantage company. Because of this, many people assume Advantage plans are free. 

Zero Co-Pays

The second reason many people think Advantage plans are free is that some co-pays are embedded within the Advantage plan, meaning there appears to be no out-of-pocket cost. This means you can usually see your primary care doctor and get your preventative services without having to pay a copay. 

Zero Perk Premiums

The third reason Advantage plans appear to be free is that there are zero premiums for perks. Advantage plans often throw in some dental benefits, some vision, and maybe even some hearing aid benefits and gym memberships. Now, even though they include these in the plan, it doesn't mean that all of those benefits are free. But since there's no added premium, many people think they’re free. 

Deducted Part B Premiums

The fourth reason many people believe Advantage plans are free is thanks to the fact that Part B premiums are deducted from Social Security checks. So anyone that's on an Advantage plan is paying their part B premium, but they may not realize it because it’s taken straight out of their Social Security benefits. 

No Health Issues 

The fifth and final reason why someone might think Advantage plans are free is simply that they are healthy and haven’t had to use their plan very much. Anyone who’s had a serious health problem, on the other hand, knows that their Advantage plan coverage is not free. 

Why Do Advantage Plans Appear Low Cost?

Now at this point, you’re probably wondering why are Advantage plans low or no cost? How can they offer some co-pays at zero cost and charge little to no monthly premiums? Glad you asked! 

When you enroll in an Advantage plan, you're getting what we call a replacement plan, meaning you’re replacing original Medicare with another plan. In fact, your Medicare A and B card is put in the drawer because Medicare does not pay claims on advantage plans. 

Here’s how it works: The advantage company receives on average $1,000 every month from Medicare on your behalf. So instead of Medicare paying individual bills (like they do when you stay on original Medicare), they just pay a flat thousand dollars to the Advantage insurance company on your behalf. You’ll take care of your co-pays and the Advantage plan will pick up the rest. 

Further, the reason they’re able to offer such low premiums and extra benefits at no apparent cost is that they take some of the Medicare money (the $1,000 sent to them each month) and throw in a few perks to make the plan attractive and marketable, while still giving them a hefty profit. Medicare requires Advantage companies to spend 85 cents of every dollar on someone's care. This means the private health insurance company can make a profit of 15 percent, and 15 percent from millions of people in Advantage plans result in billions of dollars of profit.

What Do Advantage Plans Cost?

Now that we know why so many people think Advantage plans are free, let’s look at the actual cost of Advantage plans. 

Part B Premium 

The first expense you’ll pay is your Part B premium. This year, the premium is $170.10. As we learned earlier, this amount comes directly out of your Social Security check each month. So even though you’re not personally sending in the check each month, you’re still paying for it. 

Co-Pays

Another expense you’ll pay on an Advantage plan is co-pays. While some of these co-pays are zero, the majority of them are not, meaning for most health services, you will have to pay out of your own pocket until you hit max out of pocket for the year.

Here’s a quick example of some of the co-pays you’ll be responsible to cover if you go with an Advantage plan: 

  • $25 to $50 copay to see a specialist (e.g. cardiologist or rheumatologist)
  • $40 copay for an urgent care visit
  • $120 copay for emergency room
  • $0 copay for preventative test labs and x rays
  • $50 for non-preventative test labs and x rays
  • $200 to $400 copay for MRI, CAT scans and PET scans
  • $300 to $400 copays for outpatient surgery (e.g. cataract surgery, gall bladder, hernia operation)
  • $300 to $450 per day for hospital stays

So as you can see, Advantage plans are not free. Many of the services are going to require a copay, which you will pay out of pocket until you reach your max out of pocket for the year. For example, let’s say you have a health issue come up and you have to go to your specialist maybe two or three times. The specialist decides that you need to do an MRI or a CAT scan. Then you end up in the hospital for maybe three or four days for the procedures. You're going to probably spend anywhere between $1,500 to $2,000 in copays for that one incident. 

But the good news is, all the Advantage plans put a limit on what you have to pay for the whole year. So if the bill is $50,000 or $100,000, you don’t have to worry because you’ll only have to pay the annual max out of pocket established by the plan. 

Conclusion

Contrary to what many people think, Advantage plans are certainly not free, but they’re most likely not going to break your bank, either. They offer very reasonable co-pays and set an annual max out of pocket (which resets every January). Once you hit that max amount, you no longer have to pay the co-pays until the next year rolls around. 

We understand how difficult making the right Medicare decisions can be. To take the next step, watch our full course here or schedule a free one-on-one call with a certified Medicare School Guide who can answer your questions, compare plans options, and even help you enroll. Click here to get started.

 

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