What Retirees Must Know About Medicare Advantage Plans

If you need additional help covering medical expenses, here's what you need to know.

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Medicare can cover most of your health care costs starting at age 65, but it leaves some big gaps: expensive deductibles and co-payments for hospital stays and doctor's visits, and no coverage for prescription drugs. Most people supplement their Medicare coverage with a medigap plan and a Part D prescription-drug policy offered by private insurers. But the costs can really add up when you have to buy three kinds of coverage. In addition to the Medicare Part B premium of $104.90 per month (or $121.80 per month for new enrollees in 2016 -- and even more for people with high incomes), the most popular medigap plan, Plan F, has an average cost of $2,293 in 2016 for a 65-year-old man ($191 per month), according to Weiss Ratings, and the average Part D plan costs $34 per month. Altogether, the average person pays $3,959 in premiums a year -- not counting co-payments, deductibles and other out-of-pocket costs.

No wonder more beneficiaries are intrigued by Medicare Advantage plans, which let you trade government-administered Medicare for comprehensive medical and drug coverage through a private insurer for much less than the cost of a medigap policy. The average Advantage plan costs $37 per month above your Part B premium, and some plans charge nothing above that premium. “The most exciting reason to use Medicare Advantage is to save a lot of money,” says Aaron Tidball, manager of the Allsup Medicare Advisor, which helps people with their Medicare decisions. “There are plans that have no added premiums, $5 co-payments for primary care and no co-pays for generic drugs.” It’s also easier to have one policy, instead of juggling three types of coverage. Nearly one-third of beneficiaries have coverage through an Advantage plan rather than original Medicare.

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.