The ABCs of Medicare: Original vs. Medicare Advantage

Editor's note: This is the first of three stories on Medicare. The second part looks at supplemental insurance, also known as Medigap and the third part looks at prescription drug plans.

It's time to do a Medicare health-insurance review if you or a close relative is 65 or older.

Each year, from Nov. 15 through Dec. 31, you can join, switch or drop your current prescription drug coverage plan. It is also the best time to sit down and review all your coverage.

In this three-part series, I outline the ABCs of Medicare, tell you what has changed and provide some tips to consider.

Stepping Through the ABCs

If you are 65 or over and don't have insurance through your current or former employer you have two choices on how to get health coverage.

Original Medicare, which is managed by the federal government, is broken into Part A (hospital coverage) and Part B (medical/physician coverage). With Original Medicare you can see any doctor, specialist or hospital that accepts Medicare. Original Medicare pays providers 80% of approved amounts so you are on the hook for the remaining 20%, an amount you are unlikely to know ahead of seeing a physician. Also, Original Medicare does not cover all costs so you need to buy supplemental coverage (we discuss this below) to fill in the gaps.

Most people don't pay for Part A coverage, but Part B will cost you a premium of $96.40 per month in 2008. If your modified adjusted gross income is greater than $82,000 (or $164,000 for joint filers) then your premium amount will be adjusted higher. Part B benefits don't kick in until you meet a $135 yearly deductible.

Your other choice is to use a Medicare Advantage plan offered by a private insurer (this is Part C of the Medicare program). You will pay a set co-payment for doctor visits so you will know in advance your cost obligations. On the downside, you will often be limited to a network of providers, and comparing health plans from different insurers is challenging.