It seems pretty obvious that there has been a big push for Medicare beneficiaries to enroll in a Medicare Advantage plan. You’ve seen the commercials on TV, heard the radio ads, and gotten a mailer (or 20) in your mailbox. Medicare Advantage plans are being advertised to everyone, everywhere, with no regard to which individuals even have these plans available in their location. It certainly seems like Medicare Advantage plans are being pushed onto beneficiaries.
But why? Are these plans all they’re advertised to be? Are they indeed better than Medigap plans? To understand the reasons Medicare Advantage plans have been plastered all over the media, we’ll need to know how they differ from Medigap plans and how agents are compensated for selling any kind of Medicare plan.
Medicare Advantage versus Medigap
We won’t get into the weeds here, but let’s discuss a birds-eye view of how the two types of plans differ. Both are offered by private insurance companies to individuals who are already enrolled in Medicare Parts A and B.
Medigap plans (also called Medicare supplements) are standardized by the federal government. There are currently ten plans available to Medicare beneficiaries, and each of these ten plans remains the same, regardless of which insurance company offers them. For instance, Plan G is a popular Medigap plan. The coverage you’ll receive from Plan G is the same whether you purchase it from Company A or Company B. The only thing the insurance carrier is allowed to choose is the monthly premium. Medigap plans cover only what is also covered by Original Medicare and do not offer any additional benefits.
Medicare Advantage plans are quite different. They are not standardized, so insurance companies have the freedom to create their own plans as long as they offer at least as much coverage as Parts A and B. They typically offer extra benefits not found in Original Medicare like routine dental, vision, and hearing services, prescription drug coverage, meal delivery, gym memberships, etc. And Medicare Advantage plans are known for low premiums, sometimes as low as $0 per month. It’s easy to see why beneficiaries are drawn to these plans.
Agents are compensated directly by the insurance carrier. An agent can either be independent or captive. Independent agents contract with many insurance companies so they can offer their clients a wide variety of plans. Captive agents offer products from just one company. Regardless, agents make their money from the insurance company, not from the client. (There are some agencies that charge their clients to work with them, but we’re not one of them!)
Agents are compensated differently if they sell a Medigap plan versus a Medicare Advantage plan. Again, we won’t get too far into the inner workings of compensation, but we’ll give you an idea of how these commissions work.
Medigap Commission Rates
When an agent sells a Medigap plan, they earn an initial enrollment commission. The commission rate is not regulated, but it’s usually around 20% of the plan’s annual premium. If an agent sells Plan G and the annual premium for that plan is $1680, the agent earns $336. If the individual who purchased the plan renews the policy the following year, the agent will earn a 10% residual commission of $168. That residual income continues for as long as the individual has the plan.
Medicare Advantage Commission Rates
The Centers for Medicare and Medicaid Services (CMS) sets a national maximum commission rate for Medicare Advantage plans every year. Insurance companies can choose to use this rate or a lower rate but typically cannot pay an agent any more than the rate set by CMS. Areas with high costs of living (like California) are allowed to pay their agents a higher rate. The rate an agent is paid depends on the insurance company and their contract with that company.
The national maximum commission set by the CMS for 2022 is $573 for each initial Medicare Advantage application. ($715 for those in California.) Every time the beneficiary renews their plan or switches to a similar plan, the agent receives a residual earning of $287. ($358 for California agents.)
Based on the example we gave for a Medigap plan, an agent earns 70% more for selling a Medicare Advantage plan initially and for each residual earning. Could this financial incentive be why some agents are so keen on Medicare Advantage plans?
Of course, it’s not only agents who seem to be pushing Medicare Advantage plans. In recent years, the government has also taken a strong position on Medicare Advantage. This began with the Obama Administration, whose goal was to decrease healthcare expenses and improve beneficiaries’ health. Managed-care plans like those seen in Medicare Advantage were the pathway to accomplish these goals since that was already their priority as well.
Are Medicare Advantage plans bad?
The government wants to see an increase in Medicare Advantage plans, and agents are compensated better for selling these plans. Does that mean they’re better for Medicare beneficiaries? That depends.
These plans do offer many benefits that you won’t get in Original Medicare or a Medigap plan. Plus, having all of your coverage rolled into one policy is a lot easier to keep track of than having four or five cards floating around your wallet.
A Medicare Advantage plan may be an excellent choice for you. Or, it may not. It’s largely going to depend on where you live and what kind of access you have to providers who participate in Medicare Advantage plan networks.
You should consider both Medigap and Medicare Advantage plans when you enroll. You should also work with an independent agent who educates you on the pros and cons of each type of plan, not just one or the other. At Senior Benefits Solutions, we’ll discuss all your options with you. We will be transparent about the benefits of each type of plan and make sure you understand your coverage and benefits prior to enrollment.