You probably see them advertised on television all the time: "all-in-one" Medicare plans that are full of extra benefits but claim to cost $0 each month.
It sounds too good to be true. Is it a scam?
Medicare Advantage, technically called Medicare Part C, is a different way to get your Medicare benefits. Benefits are provided by private insurance companies with a Medicare contract.
Many Medicare Advantage plans bundle hospital, medical, prescription drug coverage and more into one insurance policy having a $0 monthly plan premium.
The low premium is real but there are a few strings attached.
First, Medicare Advantage members must continue to pay their Part B premium; for most people, it is $148.50 each month and automatically taken from their social security checks as a matter of convenience.
Second, most Medicare Advantage members are subject to a doctor network and other managed care techniques like referrals. Co-pays for many covered services are common up to a maximum annual amount.
Those old fashioned managed care techniques aren't the only reasons these plans can charge such low (or no) premiums.
The way our government funds the Medicare Advantage program is complicated.
Generally speaking, insurance companies make an offer to provide Original Medicare benefits to their enrollees in exchange for a set amount of money every month. This is called their "bid".
The bid amount is compared against what the Medicare program would expect to pay for the same level of coverage and the bids of other insurance companies wishing to operate Medicare Advantage plans.
If the insurance company's bid was lower than what the government says it would have spent, the company must spend the difference (the Medicare amount minus their own bid) on extra benefits, lower premiums or both.
The Medicare program pays a typical Medicare Advantage plan around $1,000 per member per month. That is their allowance, so to speak, for paying all the claims incurred by their members.
Sometimes the actual cost of care is less than what the government has paid the insurance company, in which case the company keeps the difference (up to a maximum permitted amount). But if the care ends up costing more than the monthly allowance from Medicare, the insurance company must pay the difference out of its own pocket.
We've been trained throughout our lives to be skeptical of free things. Sure, those $0 premium Medicare plans sound too good to be true, but they are not a scam.
Remember that with any insurance option, you should make sure you understand how the plan works and what you will pay in monthly premiums and other out of pocket costs like co-pays or co-insurance.
The fine print matters. Never enroll in a plan you do not understand.