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The ABCs of Medicare: Original vs. Medicare Advantage

MA plans provide more complete coverage, but finding the right one can be tricky.

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.

Simplicity is one of the main advantages of joining an MA plan. With such a plan you receive more complete coverage so there is no need to buy additional supplemental insurance, including prescription drug coverage.

You'll want to use the tools on this

Web site to screen your choice of plans. The Compare Health Plans and Medigap Policies in Your Area link, located toward the bottom of the screen, will allow you to see all the MA plans available in your zip code.

The list also includes some essential information including the monthly premium charge (if any), the estimated annual cost you should expect to pay (including premium and costs not covered by your insurer) and select plan benefit components.

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The real meat of the information, though, is available once you click on the plan name. Here you will see contact information, out-of-pocket limits (a key figure), coverage for both inpatient and outpatient care, preventative services and more details on prescription drug, vision and dental benefits.

Narrowing down the ones you want to look at is the tough part. My recommendation is to call your physicians first and find out which plans they take (they will also probably know what plans the local area hospitals belong to).

Unfortunately, the list you first see on the Medicare site is a plan name -- which is a marketing name and not the name of the insurer, which is what your provider will most likely give you.

For instance, when I put in my zip code, one of the plans I find is called Medicare Masterpiece. But when I click on the link, I find the insurer is Universal Healthcare.

(One hint: AARP plans are provided by UnitedHealthcare, a unit of UnitedHealth Group (UNH) - Get UnitedHealth Group Incorporated (DE) Report.)

You can find a list of the largest Medicare Advantage providers in each state at the end of this article.

Once you have eliminated the ones your physicians don't accept, you will need to dig into the details to compare cost and coverage among the plans.

Keep in mind that the plan premium amount does not include the Part B premium you have to pay to Medicare. So if the plan charges $19 per month, that is on top of the $96.40 Part B premium deducted from your social security check.

One interesting item: If you use the Compare Health Plans and Medigap Policies in Your Area tool and enter Original Medicare as your current coverage, it will give you the estimated annual cost you will incur. Results for my zip indicated a cost of $4,950 -- approximately $1500 to $2000 more than most of the MA plans listed. The reason is Original Medicare is not complete coverage and therefore it will cost you more to cover the gaps -- which is why you need to purchase supplemental insurance if you are going with Original Medicare.

Donna O'Rourke joined Weiss Ratings, now Ratings Inc., in 1999, and is the senior analyst responsible for assigning financial safety ratings to health insurers and supporting other health care-related consumer products including Medicare supplement insurance, long-term care insurance and elder care information. She conducts industry analysis in these areas. She has more than 10 years experience in credit risk management and analyses. Previously she served as an assistant vice president at the Union Bank of Switzerland, where she analyzed hedge funds, insurance companies and structured products in support of the derivatives and foreign exchange businesses. She holds a bachelor of science in management from Binghamton University and a master's of science in health systems administration from the Rochester Institute of Technology.

While O'Rourke cannot provide investment advice or recommendations, she appreciates your feedback;

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