It has long been assumed that Medicare Advantage plans are the way to go if you need a low monthly premium. The risk trade-off, of course, is higher out of pocket costs until you reach the annual spending limit. However, the premiums are so low on most of the basic plans that many seniors wonder, “are Medicare supplement plans worth it?”

There is, however, one Medicare supplement that has similar monthly premiums and an annual out of pocket limit, just like Medicare Advantage. It’s Medigap Plan K and the insurance wonks at MedicareWire think it’s worth a look.

It All Comes Down to Costs vs. Benefits

Like Medicare Advantage plans, Medigap Plan K offers partial coverage for the coverage gaps baked into traditional Medicare. Plan K beneficiaries pay all cost-sharing for covered services and benefits until they reach the annual out of pocket limit ($5,880 in 2020). When the beneficiary reaches the annual spending limit, their Plan K kicks in and begins paying all (100%) Medicare-approved costs for the rest of the year.

According to the Kaiser Family Foundation, in 2015, 46% of all Medicare Advantage enrollees have plans with a $6,700 out-of-pocket limit. This suggests that a Medigap Plan K policy would offer cost savings to nearly 50% of all people presently enrolled in a Medicare Advantage plan.

No First Dollar Coverage

Plan K does not offer “first-dollar” coverage, but it does offer 50% coverage on most Medicare benefit gaps. Comparatively, with a maximum out-of-pocket expense of $6,700 in 2020 (if you use in-network providers), many Medicare Advantage plans have co-payments for hospital inpatient and medical services that exceed Plan K’s out-of-pocket costs.

NOTE: As of 1 January 2020, Medicare supplement policies are no longer allowed to offer first-dollar coverage, as provided by Plan F and Plan C. If you have one of these plans you can keep it, but new policies can’t be issued.

 

More benefits of Medigap Plan K vs. Medicare Advantage Plans

Unlike Medicare Advantage plans, Plan K beneficiaries are not required to use provider networks or get referrals to see a specialist. This is a significant benefit, particularly if you want complete control over your healthcare options.

Plan K beneficiaries do not have to worry about the annual changes in Medicare Advantage plans. This includes service area changes, which occur frequently.

Plan K is a guaranteed renewable policy. This means the insurance carrier cannot cancel your plan if you continue to pay the premium. Medicare Advantage plans terminate at the end of each year. Renewal is not guaranteed.

Plus, Plan K benefits are fixed and cannot be modified by the carrier. Medicare Advantage plan benefits change on a yearly basis. There is no guarantee that a policy you sign this year will not change drastically next year.

Medigap Plan K Coverage

Plan K offers the following coverage on Medicare benefits:

Plan K pays at 100%:

• Medicare Part A coinsurance and hospital costs, including an additional 365 days of coverage after Medicare benefits are exhausted
• Preventive care Medicare Part B coinsurance

Plan K pays at 50%:

• Medicare Part A
  • Inpatient hospital deductible
  • Skilled nursing facility coinsurance
  • First 3 pints of blood
  • Hospice co-payment and/or coinsurance
• Medicare Part B
  • First 3 pints of blood
  • Co-payment or coinsurance benefit

All cost-sharing applies to the annual out-of-pocket limit.

Plan K pays at 0%:

• Part B deductible (applies to the annual out-of-pocket limit)
• Part B excess charges (do not apply to the annual out-of-pocket limit)

Plan K Simply Adds Up

A Medigap Plan K policy cuts your Medicare Part A and B co-payments by half, and all co-payments apply to the $5,880 annual out-of-pocket limit. If you reach the out of pocket limit, you will have paid less than if you enrolled in most Medicare Advantage plans (in 2020 the maximum out of pocket limit is $6,700 for in-network providers and $10,000 for out-of-network providers).

The most significant difference between a Plan K policy and an Advantage plan is your ability to see any physician or specialist you want without restrictions. Additionally, Plan K allows you to enroll in a stand-alone prescription drug plan (see here) that meets your needs, not what’s bundled with a Medicare Advantage plan.

You can compare Medicare Supplement Plan K rates here.

Need a Little More Coverage without a Lot More Cost? Look at Plan N.

Many seniors say they are frightened away from Plan K due to the potential out-of-pocket costs. This is just one of the reasons that Medicare supplement Plan N is becoming extremely popular.

Although Plan N does not have an annual limit, like K, it is a cost-sharing plan. Medigap Plan N covers all but two of the same benefits as Plan F. The two costs it does not cover are the annual Part B deductible and Part B excess charges.

Plan N’s cost-sharing component works on two costs, the Medicare Part A deductible, and the Part B coinsurance. With a Plan N policy, you pay 50% of the Part A deductible (when admitted to the hospital as an inpatient) and a $20 copayment when you see your doctor. You’ll also pay a $50 copay for emergency room visits that do not result in an inpatient admission.

It’s worth comparing these costs with the average costs in Medicare Advantage. For example, for 2020, the Medicare Part A deductible is $1,420. With a Plan N policy, you’d pay a $720 deductible. Easy math. However, most Medicare Advantage plans have a daily copay, for the first 5 days, averaging $295 per day. As a result, a simple 3-day stay in the hospital with a Medicare Advantage plan will likely cost you $900 or more.  Most urgent care and emergency room visits cost more under Medicare Advantage, as well.

Two Superior Options for Healthy Seniors

If you’re leaning towards Medicare Advantage because the quotes you’re getting for top-tier Medicare supplement insurance is too steep, it’s worth comparing your actual costs in Medicare Advantage vs. Plan K and Plan N. These two Medigap plans are an excellent way for healthy seniors to save money in their sixties and seventies while ensuring peace-of-mind in their eighties and beyond.

Still skeptical? Compare Medicare Advantage plan costs yourself with this tool.

David Bynon is a recognized expert on Medicare benefits, coverage, and policy. His books are available on Amazon.com.