By Elizabeth O'Brien

Medicare isn't likely to be spared changes as Elon Musk's DOGE team looks for budget savings across the federal government.

The team has targeted improper payments in the Medicare program, which provides health insurance to more than 66 million people, including those 65 and over and younger people with certain disabilities. It remains to be seen how that effort will affect beneficiaries directly, if at all.

A larger goal outlined in Project 2025 -- the conservative playbook guiding the DOGE efforts -- would accelerate the privatization of Medicare by making Medicare Advantage the default enrollment option. This privately run alternative to traditional Medicare imposes more restrictions on care than the government-run, fee-for-service model.

Under current law, most changes to Medicare would have to go through Congress. Funding for Medicare benefits is considered mandatory spending, and as such it doesn't go through the annual congressional budget process. What's more, the Medicare benefit structure is generally stipulated by law, and it would take an act of Congress to change it.

That said, concern over the future of this bedrock program is understandable. For now, the best you can do is to control what you can. And that includes understanding the difference between traditional Medicare and Medicare Advantage, and differences in cost and care involved.

Traditional Medicare vs. Medicare Advantage

The big choice at the Medicare eligibility age of 65 is whether to enroll in traditional Medicare run by the federal government or in Medicare Advantage, which is run by private companies like Humana that contract with the government to provide Part A hospital coverage, Part B outpatient coverage, and often Part D drug coverage at no extra premium.

Advantage comes with perks not included in traditional Medicare, like free gym memberships, transportation benefits, or limited dental and vision coverage. Yet supplemental benefits have been curtailed this year as Medicare Advantage insurers such as Humana struggle with rising costs.

Even robust supplemental benefits shouldn't be the primary consideration for enrollees. More important is access to doctors and care. Medicare Advantage plans tend to limit doctor choice through restrictive provider networks and to impose hurdles to care in the form of referrals and prior authorization requirements. For-profit insurance companies make more money if they spend less on patient care.

"You may be healthy today, but you need to look at the future -- does it make sense for me to be in a Medicare Advantage policy as I get older?" said Ron Mastrogiovanni, CEO of HealthView Services, a provider of retirement healthcare tools and data, at a recent Barron's Live event.

If you don't like Medicare Advantage, it can be hard to return to traditional Medicare and buy a Medigap supplement plan to cover out-of-pocket costs that traditional Medicare doesn't. Those policies are medically underwritten, and you can be denied coverage or charged more due to pre-existing conditions, outside of certain limited circumstances and a handful of states -- including Connecticut, Massachusetts, Maine, and New York -- that have stronger protections.

The stakes for patients would grow if Medicare Advantage becomes the default enrollment option and new beneficiaries have to actively choose traditional Medicare. Those who don't opt in by a certain time might find later on that it's too late to switch.

On average, Medicare Advantage doesn't confer cost savings to enrollees, according to HealthView Services. A healthy 65-year-old male who lives to age 83 will spend an estimated $172,482 in healthcare costs on traditional Medicare throughout retirement, versus $189,465 on Medicare Advantage.

What's more, Medicare Advantage doesn't save the government money, although that was the original intent. The Medicare Payment Advisory Commission, an independent congressional agency that advises Congress on Medicare, projected last year that in 2024, Advantage plans would receive an estimated $88 billion more than what would have been spent under fee-for-service Medicare.

Consider Tax Planning for Medicare

Many people don't realize that your Medicare premium for a given year is based on your income from two years prior -- typically from the last tax return on file. It's too late to make changes for 2025, but some tax planning may help lower your premiums in the future.

This year, the income threshold for the Income-Related Monthly Adjustment Amount (Irmaa) is $106,000 for a single person and $212,000 for a couple, so anyone with a modified adjusted gross income above that in 2023 will pay higher premiums for Part B and Part D. These income thresholds are adjusted for inflation every year.

Beneficiaries in the highest income tier of $500,000 or more for a single person and $750,000 or more for a couple will pay $628.90 a month for Part B, versus the standard premium of $185. Some older adults are concerned that these premiums -- or other cost-sharing -- could rise in the future if Medicare becomes more means-tested to shore up the program's finances.

Post-tax money doesn't count toward your taxable income for the year, so withdrawing money from a post-tax Roth IRA may help lower your income below the Irmaa thresholds. Just keep in mind that any Roth conversions you do from age 63 onward could affect your Medicare premium two years later.

Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com

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February 21, 2025 21:30 ET (02:30 GMT)

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