Original Medicare or Medicare Advantage: Which is Right for Your Client?

Christine Simone
February 7, 2024

Medicare Open Enrollment is just around the corner (October 15 – December 7), which means now is the time for you, a financial advisor, to familiarize yourself with this crucial planning opportunity. Your Medicare-eligible clients can make several changes to their coverage during the Open Enrollment period, including: 

  • Changing from Original Medicare to a Medicare Advantage Plan.
  • Changing from a Medicare Advantage Plan back to Original Medicare.
  • Switching from one Medicare Advantage Plan to another Medicare Advantage plan. 
  • Switching from a Medicare Advantage Plan that doesn't offer drug coverage to a Medicare Advantage Plan that offers drug coverage.
  • Switching from a Medicare Advantage plan that offers drug coverage to a Medicare Advantage plan that doesn't offer drug coverage.
  • Joining a Medicare drug plan (Part D).
  • Switching from one Medicare drug plan to another Medicare drug plan.
  • Dropping Medicare drug coverage completely.

These possibilities are great for ensuring that Medicare beneficiaries have the opportunity to optimize their coverage, but therein lies the problem — most people aren’t sure how to optimize their coverage. Because of this uncertainty, the breadth of options, and the aggressive advertisements, many enrollees pick one when they first enroll and stick with it year after year even if it isn’t the best plan for them anymore. For example, in 2020, 79% of Medicare Part D enrollees did not revise their drug plans, and 89% of Medicare Advantage enrollees did not revise their drug plans

This is partly because enrollees don’t have a trusted resource or person to turn to. In fact, one survey found that only 14% of pre-retirees feel they have a trusted resource to help them understand Medicare options. 

That’s where financial advisors step in. Not only will guiding clients through Medicare Open Enrollment help them optimize their coverage to their financial and medical needs, but you’ll also benefit by creating a more comprehensive financial plan, increasing the trust in your client-advisor relationships, and adding a unique service to your offerings.

And don’t worry: you don’t have to become an expert. Just knowing the differences between Original Medicare and Medicare Advantage, and what questions to ask clients to help them determine their ideal coverage, will take you far. And that’s exactly what this blog is going to teach you. 

Keep reading for a breakdown of the differences between Original Medicare and Medicare Advantage, and what criteria to look at to help clients pick the best Medicare coverage plan for their needs. For this blog, those are the two main areas I will focus on, but it’s important to note that your clients can also modify their Part D coverage (drug coverage.)

Original Medicare vs Medicare Advantage

Original Medicare includes Parts A, B, D, and a Medicare Supplemental (“Medigap”) plan whereas a Medicare Advantage plan is a single, all-in-one plan that covers Parts A & B, and often D, too, from a single private insurance company. While Medicare Advantage plans are simpler to manage, they might not be the right choice for certain clients. For example, someone who takes a specific medication might find that there aren’t any Medicare Advantage plans that cover their medication. Here are a few other key differences between Original Medicare and Medicare Advantage:

Providers:

  • Original Medicare allows enrollees to go to any provider that accepts Medicare, which is over 98% of physicians in the country. Enrollees also typically do not need a referral to see specialists.

  • Medicare Advantage plans, on the other hand, limit their beneficiaries to specific networks, much like employer or Marketplace plans. Enrollees will only be covered at providers that participate in that network. The type of Medicare Advantage plan your client chooses will also determine whether or not they need a referral to see a specialist.

Costs:

  • On Medicare Original, Parts A & B cover 80% of healthcare costs, leaving enrollees with a 20% coinsurance and the need for a Medicare Supplemental plan (“Medigap”) to help cover their 20%. If clients choose a drug plan, they’ll pay a separate monthly premium for that plan.

  • For Medicare Advantage plans, the costs vary greatly depending on the carrier, location, and other factors. Enrollees pay the monthly Part B premium and may also have to pay the plan’s premium unless they have a $0 premium. Most plans include Medicare drug coverage (Part D).

  • Income adjustments (IRMAA) will apply to both Medicare Original and Advantage options, applied to Part B and D premiums.

  • It’s also important to understand that clients, no matter whether they choose Original Medicare or Medicare Advantage, will have fixed and variable costs. Fixed costs are their monthly premiums, whereas variable costs are their out-of-pocket costs. For example, if a client will pay 20% of a medical service, this cost varies depending on the total cost of the service. Another reason it’s important to look at both fixed and variable costs is because of deductibles. Although a lower monthly premium is appealing, this often means your client will have a high deductible. In the example below, a client on Original Medicare would have $550.75 in annual fixed costs but on a Medicare Advantage plan their annual fixed costs would be $372.30. However, if the client chooses the Medicare Advantage plan, they expose themselves to potentially paying $11,167.60 if the worst-case scenario were to happen. Whereas on Original Medicare, their “maximum financial risk” is $6,854.

Coverage:

  • Original Medicare covers most medically necessary services and supplies in hospitals, doctors’ offices, and other healthcare facilities. Specifically, Part A covers facility-based healthcare costs, Part B covers medical services, and Part D covers drug costs.

  • Medicare Advantage plans are required to cover all medically necessary services that Original Medicare covers. Some plans also offer extra benefits that Original Medicare doesn't cover, such as vision, hearing, and dental services. Drug costs are typically included in Medicare Advantage plans.

The first step in helping clients choose a Medicare plan is to determine if Original Medicare or Medicare Advantage is the better choice for their health needs and budget. If your client chooses Original Medicare, they will need to choose a Medigap plan and a drug plan. If your client chooses Medicare Advantage, they have several private insurers to choose from. This next section will help you and your clients determine which Medicare Advantage plans work best for their needs and preferences.

Questions To Ask Clients

Below is a list of questions to further help you and your clients determine their preferences, goals, and needs to ensure they pick their optimal coverage. Schedule time to meet with your clients to go through the questions below with them, or simply email them the list of questions:

  • Are my current doctors and specialists in the plan’s network?
  • Is my current pharmacy in-network?
  • Are my current prescription medications in-network?
  • What’s my maximum for out-of-pocket expenses?
  • Am I comfortable with needing a referral from my primary care doctor to see a specialist? Or would I rather be able to see a specialist whenever I want to?
  • How much am I willing to pay in monthly premiums?
  • Would I prefer to have a higher monthly premium but a lower cost for individual medical services received, or would I prefer to pay less each month in premiums, but have a higher cost responsibility when I receive medical care? 
  • Do I have any preferences for insurance carriers?
  • Am I expecting any large medical events in the next year? Such as a planned surgery? 

Final Thoughts

Healthcare costs can either help or hurt your clients’ financial goals, and healthcare costs associated with Medicare are no exception. Even beyond costs, helping clients pick the best health plan for their needs can save them a lot of unnecessary stress. Let this blog serve as a resource to make choosing a plan easier, and be a quick reference when you or your clients need a reminder on the difference between Part A and Part B, or what the difference is between Original Medicare and Medicare Advantage. Finally, go through the list of questions and preferences listed above with your clients so you can help them pick the ideal plan for their needs, preferences, and financial goals. 

As we continue our Open Enrollment blog series, stay tuned for blogs about Part D (drug coverage), Medigap plans, and more.

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