A 5-Step Guide For How To Choose A Medicare Plan

Updated: Jul 18, 2022

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Key Takeways

  • Many Medicare Advantage plans offer extra benefits you can’t get with Original Medicare alone.
  • You could end up paying much less in out-of-pocket fees with Medicare Advantage.
  • Medicare Part D is optional, but you can be financially penalized for going without prescription drug coverage.
  • Most people have access to nearly 70 Medicare Advantage and Part D plans, meaning that you have a wealth of Medicare coverage options to choose from.

Some decisions have minor consequences, but others, like your choice of Medicare coverage, can have a major impact on your life. This is especially true when it comes to your health and finances.

You can enroll in Original Medicare as your default option, but if you learn how to choose a Medicare plan, you can find one that actually helps you achieve your unique, individual health goals. This five-step guide will help you make the right decision for you.

Step 1: Decide on the Medicare Benefits That You Consider as Must-Haves

If you’re used to employer group insurance, you probably have been provided with benefits such as vision and dental coverage. But what most people don’t realize is that these routine services aren’t covered by Original Medicare.

Medicare coverage under Part A and Part B (also known as Original Medicare) is limited to medically necessary services to prevent, diagnose, and treat illness and disease. Unfortunately, services associated with your vision, hearing, and oral health don’t fall under Medicare’s list of medically necessary services.

Most Medicare Advantage plans, however, include supplemental benefits beyond those provided by Original Medicare. Over 90% include Part D prescription drug coverage, and most people enrolled in Medicare Advantage have coverage for dental, vision, and hearing care.

It’s important to think about your Medicare coverage not just in terms of what you want today, but also what you’ll want in the future. The chart below shows the most common supplemental Medicare Advantage benefits, as well as the number of people who have them.

Medicare Advantage Extra Benefits

*Kaiser Family Foundation 2020 plan survey

Step 2: Think about how You Want to Manage Your Medicare Costs

Costs are a major determining factor in how to choose a Medicare plan. The fact is that most people don’t realize how unpredictable out-of-pocket costs can be with Original Medicare, and even with some Medicare Advantage plans.

If you choose Original Medicare, you can get more predictable costs by supplementing Part A and Part B with a Medigap plan (also known as Medicare Supplement Insurance).

In addition to your Part B premium (most people get premium-free Part A), you have separate deductibles for Part A and Part B, plus 20% coinsurance fees for outpatient services under Part B. If you have a lengthy inpatient stay, you’ll pay a daily Part A coinsurance. There’s also no cap on what you could pay out-of-pocket with Original Medicare.

Medicare Advantage is usually more predictable. This is because you pay a flat copayment for most services, and there is usually just one deductible each year. Medicare Advantage plans also cap your out-of-pocket costs. The maximum amount for these costs is set each year by Medicare, but some plans set their cap below the Medicare limit.

Medicare Plan Cost Comparison

Monthly premium
Original Medicare$144.60 for Part B (those with higher incomes may pay more), most people get premium-free Part A
Medicare AdvantageThe average premium is $23; however, 60% of enrollees are in a zero-premium plan*
Original Medicare$1,408 per benefit period for Part A (can pay this multiple times per year), $198 annual deductible for Part B 
Medicare AdvantageTypically only one annual deductible varies by the plan; some plans have $0 deductible
Original Medicare$352 daily coinsurance for hospital inpatient days 61-90, $704 per day for lifetime reserve days for Part A; 20% of allowable charges for Part B
Medicare AdvantageTypically pay a flat copayment at the time of service regardless of actual charges
Out-of-pocket maximum
Original MedicareNo limit on out-of-pocket costs
Medicare AdvantageMaximum $6,700; national plan average is $4,925*

*Data from the Kaiser Family Foundation 

Filling The Gaps With A Medicare Supplement Plan

If you choose Original Medicare, you can get more predictable costs by supplementing Part A and Part B with a Medigap plan (also known as Medicare Supplement Insurance). Medicare Supplement Insurance pays many of your out-of-pocket costs with Original Medicare.

You pay a separate monthly premium for this coverage. The premium varies according to where you live and the coverage you choose, but it typically ranges between $100 and $200 per month.

The most comprehensive plan currently available, Plan G, pays all your out-of-pocket costs under Part A and Part B, except the annual Part B deductible. Plan A provides the lowest level of coverage, and only pays the daily Part A hospital and hospice coinsurance and Part B coinsurance. Before you make any final decisions, it’s a good idea to compare Medigap premiums and benefits to determine if the coverage is right for you.

Step 3: Consider Your Lifestyle and Travel Plans

Travel is one of the perks of retirement, and many seniors even choose a dual-resident lifestyle, living in warmer climates during the winter. The good news for this niche of retirees is that there are no provider restrictions with Original Medicare, meaning that you can use Medicare with any provider in the country who accepts it.

Most Medicare Advantage plans, on the other hand, use provider networks to help keep costs low. If you choose an HMO plan, you have to get all your care from network providers, except in the case of emergencies. This means that if you’re outside your plan service area, your plan likely won’t pay for an office visit if you simply have a cold or need a regular checkup. Some plans do allow you to use any provider who accepts your plan, but you’ll pay more out-of-pocket when you go outside the plan network.

If international travel is on your bucket list, you should keep in mind that Medicare won’t pay for any medical care outside the U.S., except in extremely limited situations. Many Medicare Advantage plans have provisions for foreign travel emergencies, but the coverage varies by plan and may have certain restrictions.

Step 4: Review Your Part D Prescription Drug Coverage Needs

There is generally no coverage for prescription drugs you take at home under Original Medicare. As such, if you want help with prescription drug costs, you’ll need a Part D prescription drug plan.

Although enrolling in Part D is voluntary, you can be penalized if you go without creditable prescription drug coverage for more than 63 consecutive days. The penalty amounts to 1% of the standard Part D premium for each month you went without coverage, and you’ll pay this penalty for as long as you have a Part D plan.

Part D plans use a formulary, which is a list of medications the plan covers and the amount you’ll pay for each one. Medicare requires all Part D plans to cover certain medications, but beyond the base coverage, plans are free to decide which drugs they will cover. 

Part D is included in nearly all Medicare Advantage plans, but if you choose Original Medicare, you need to buy a standalone plan. Part D is private insurance, and each insurance company sets its own premiums. In 2020, the average monthly premium for standalone Part D is about $48, according to data from the Centers for Medicare and Medicaid Services (CMS). If you have Medicare Advantage with Part D, your monthly premium includes your prescription drug coverage.

There’s also an annual deductible with most Part D plans. CMS sets a maximum deductible for Part D each year, but plans can set their deductibles below this limit. The maximum Part D deductible in 2020 is $435, but data from the Kaiser Family Foundation shows that the average Part D deductible is $335.

If you currently take prescription medications, it’s important to make sure they’re included in the formulary of any plans you consider. Even if you don’t take daily medications, it’s still a good idea to review each plan’s formulary to see how many medications are covered in each drug class.

Kaiser data shows that 90% of all adults age 65 and overtake at least one daily medication, and over half take four or more daily prescription drugs. So, chances are good that you’ll need daily medications at some point in retirement. 

Part D Costs At A Glance

Monthly premium
$48, but if you have Medicare Advantage, you don’t pay a separate monthly premium
Annual deductible
Maximum of $435, but some plans have a $0 deductible
Varies by plan, but the majority of enrollees pay between $0 and $6 for preferred generics and between $40 and $47 for preferred brand-name medications*

*Data from the Kaiser Family Foundation

Step 5: Get Help Choosing a Medicare Plan if You Have Questions

The average person can choose from among 39 Medicare Advantage plans and 28 prescription drug plans. With so many options, it’s not surprising that people are perplexed about how to choose the best Medicare plan.

The good news is that you don’t have to figure it out all on your own. Medicare publishes comprehensive guides for choosing Medicare Advantage and Part D prescription drug plans to help you make an informed choice.

Every state has also a State Health Insurance Assistance Program (SHIP) that provides free Medicare counseling and assistance, and your local Area Agency on Aging may have useful resources as well. Another option is contacting a local Medicare broker, who can help you find and compare plans in your area. These experts usually have comprehensive information about available plans and the insurance companies that sell them.

The good news is that even after enrolling, you aren’t locked into one plan for the rest of your life. You have the opportunity to change your Medicare coverage at least once each year during the fall Open Enrollment Period, which runs from October 15-December 7.

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