Healthcare is one of the biggest uncertainties to prepare for during retirement. Strategies for managing retirement healthcare costs almost always make use of Medicare and Medicare Advantage plans — but it’s wise to not rely solely on these. More than one person has a Medicare Advantage nightmare story, where they had trouble accessing care, received unexpected medical bills, or experienced other major problems.
Whether you’re approaching or already enjoying retirement, hopefully you aren’t solely reliant on Medicare and Medicare Advantage for covering your healthcare costs. Here are some of the Medicare Advantage nightmares you might face, along with additional steps you can take to better prepare for retirement healthcare costs.
What Is Medicare Advantage?
Medicare Advantage plans are supplemental health insurance plans for seniors in the U.S. They’re designed to complement Medicare by filling in gaps, but they can still have gaps and other issues.
Medicare Advantage plans fall under Medicare Part C, and are some of the most comprehensive Medicare plans. Coverages may include:
- Hospitalization: Medicare Part C plans are legally required to at least match the hospital coverage provided by Medicare Part A plans.
- Medical: Medicare Part C plans are legally required to at least match the medical coverage provided by Medicare Part B plans.
- Prescription Drugs: Many Part C plans add prescription drug coverage, although this isn’t legally required and not all do.
- Other Coverages: Some Medicare Part C plans add on dental, vision and hearing coverages, although this is up to the plan provider.
Despite going beyond the protections of any other single Medicare plan type, Medicare Advantage plans still have their caveats. Certain prescription drugs, diagnostic tests, medical treatments, and providers might not be covered, which can leave you with extremely expensive medical bills if you still need the not-covered care.
Unfortunately, there aren’t many medical plans for seniors that are better than Medicare Advantage plans. The answer usually isn’t just to find the best plan you can afford, but also to manage and protect your financial savings well.
Nightmare 1: Limited Networks
One of the most common drawbacks of Medicare Advantage plans is that they can have limited provider networks. Because these plans are administered by private insurers, the insurers are allowed some leeway in what providers they include in-network. The number of providers they choose to include can seem small, especially if you need care from a provider who’s not included.
Not having a broad network of providers can result in several less-than-ideal situations for patients:
- Restricted Choices: If your preferred doctor or specialist is not in the plan’s network, you may have to switch providers or pay higher out-of-pocket costs.
- Out-of-Network Costs: Seeking care outside of the network can result in significant out-of-pocket expenses, and in some cases, the plan may not cover the services at all.
- Continuity of Care: Limited networks can disrupt ongoing treatments, especially for those with chronic conditions requiring specialized care.
Original Medicare Part A and Part B plans sometimes have broader provider networks, but they have their own drawbacks too. It’s the gaps in these plans that Medicare Advantage plans are trying to address, after all.
Nightmare 2: Unexpected Out-of-Pocket Costs
Medicare Advantage plans are often touted as having low monthly premiums, but the monthly savings can come with a major trade-off when you seek care. These plans frequently have higher deductibles, copays and coinsurances than Original Medicare plans do.
Depending on your plan and the care you need, a Medicare Advantage plan could leave you with unexpected out-of-pocket costs arising from:
Copays
Copays are a flat amount that’s paid for each covered visit. A high copay can quickly add up if you need to see a provider repeatedly over the course of a treatment.
Coinsurances
Coinsurances are a percentage of the billed cost that you’re responsible for. A coinsurance can instantly become expensive if you require advanced care, and are responsible for a high percent of the cost.
Prescription Drug Coverage
While most Medicare Advantage plans include at least some coverage for prescription drugs, the coverage provided can vary widely. Monthly costs can add up fast if you have to take any prescriptions that aren’t covered, and doubly so if you’re taking multiple prescription drugs that aren’t covered.
Annual Deductibles
An annual deductible is an amount that must be paid out-of-pocket each year before the plan will begin paying (except for specific items such as a check-up). An annual deductible can be thousands of dollars.
Not too many Medicare Advantage plans have annual deductibles, although some do. What’s more common with these plans is an annual deductible that’s specific to prescription drugs — which can require you to pay the full cost for medications several months into the year.
Annual Out-of-Pocket Maximums
Medicare Advantage plans generally have annual out-of-pocket maximums. This is supposed to be the most that you’ll need to pay for medical care in a calendar year. If you hit the annual out-of-pocket maximum, your plan will typically cover any more medical costs that are incurred during the remainder of the year.
An annual out-of-pocket maximum won’t always give as much protection as it seems. The maximum amount is often in the thousands, and sometimes closer to $10,000 than $1,000. Moreover, it restarts on January 1 of each year — the amount could be reset before you even finish paying off all of last year’s bills.
Nightmare 3: Prior Authorization Requirements
Prior authorization is a process where your healthcare provider must obtain approval from your Medicare Advantage plan before delivering a service. The goal is for you to receive the care you need, and that the insurer doesn’t pay for unnecessary care. The system is frought with problems, though.
There’s an obvious conflict of interest when an insurance carrier is determining what medical care is necessary. An insurance carrier simply isn’t your doctor. Disagreements can and do arise between providers/patients and insurance carriers, and this can have several negative consequences:
- Administrative Burden: At the very least, prior authorization requirements are an additional administrative burden that providers and patients must go through.
- Delays in Care: Waiting for prior authorization can delay treatments or procedures at times, which may affect your outcome.
- Denials and Appeals: If the prior authorization request is denied, you may have to go through a lengthy appeals process, adding stress, uncertainty and delay. It’s possible that a procedure or treatment is ultimately and fully denied even after an appeal.
- According to KFF, 7.4% of prior authorization requests were denied in 2022. Although appeals were usually successful, only 1 in 10 denials was appealed.
Nightmare 4: Changing Benefits and Formularies
Medicare Advantage plans can change their benefits and formularies (list of covered medications) annually.
This means that the services or medications you rely on may no longer be covered, or may require higher cost-sharing in the following year. There’s no guarantee that your provider will be in-network next year, nor that a specific prescription medication will be covered at the same rate.
While you can re-shop for a new Medicare Advantage plan each year too, there might not be another plan option that has similar cost, network, and coverage features as your current one. Even if your current plan has a change that affects you in a major way, there might not be a better option when you review other plans.
Nightmare 5: Geographic Restrictions
While traditional Medicare offers nationwide coverage, many Medicare Advantage plans have geographic restrictions. Coverage may be restricted to the area where you’re located unless you need emergency care. You’ll also likely find that there aren’t any in-network providers too far away from your area.
A geographic restriction can help keep plan costs lower, and might not be an issue if you stay local. It can create issues should you leave the area for travel — you might have to pay out-of-pocket expenses for care while traveling, or come back early from your trip. You also may only have access to out-of-network providers if you move during the year.
How to Avoid Medicare Advantage Nightmares
Avoiding pitfalls like these requires a detailed knowledge of Medicare Advantage plans, and also knowledge of how to prepare for out-of-pocket costs and protect assets from extremely high bills.
These are all things that a specialized financial advisor can assist with. Specifically, a financial provider who serves seniors and retirees may be able to help by:
Medicare Advantage Plan Selection
Guiding you through the various Medicare Advantage plan options, explaining coverages and costs. Choosing a good plan is the first step in avoiding nightmares. A knowledgeable advisor can help you make an informed choice that’s based on your particular healthcare needs and lifestyle.
Not all financial advisors are familiar with Medicare and the various plan types. You can find an advisor who is by using our online matching tool.
Saving for Medical Expenses
Healthcare costs are perhaps the biggest unknown during retirement. A financial advisor who regularly works with seniors can explain what average healthcare costs are during retirement, and how they might increase each year due to both cost increases and increased medical needs.
A financial advisor can also help you develop a strategy for managing these potential costs. A strategy might involve diversifying assets to reduce the risk of loss and maximizing Roth IRA or HSA savings.
Using a Trust
Even with the most prudent planning, you could still face extremely expensive costs that are difficult (or impossible) to afford.
This can particularly be an issue if you develop a medical condition that forces you into long-term care early. Long-term care (LTC) insurance is separately available but comes with its own limitations. High medical costs and expensive LTC can result in bills that simply are unaffordable.
Sometimes seniors and retirees have assets that they want to protect from this type of situation. A trust may be a viable way to legally protect assets from medical debt collectors or LTC facilities. A trust generally transfers assets from the individual to the trust, so that the individual no longer has them to pay with.
There are strict rules regarding trusts, and many states have waiting periods that must pass before a trust is fully in effect. This is an advanced legal strategy that calls for an attorney. A financial advisor can help you navigate the financial implications of using a trust, though.
If you want a financial advisor who’s familiar with trusts and similar strategies, use our financial advisor matching tool to find someone.
Work With Someone Who Knows Medicare Advantage
Successfully navigating Medicare Advantage requires both Medicare knowledge and financial knowledge. A lack of knowledge in either area could potentially lead to a nightmare scenario.
To get assistance from someone who knows both Medicare and finances, use our find a financial advisor tool. Answer just a few simple questions, and we at Invested Better will pair you with a well-qualified advisor in our network — someone who can help you with this particular challenge that seniors face.
General Disclaimer: The information provided on this site is for informational purposes only and should not be construed as financial advice. Invested Better does not guarantee the accuracy or completeness of the information provided. Please consult with a licensed financial advisor before making any financial decisions.
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