Health insurance reform seems to be on hold,at least for now, but clients still go to doctors and hospitals, and still have to deal with escalating bills. For those near or past age 65, that often means choosing between original Medicare and privately run Medicare Advantage. Those who opt for original Medicare, still the most popular choice, may want to enhance their coverage with a Medicare supplement (Medigap) policy.

They should know that in June, Medigap will get a shake-up; some versions will be discontinued, new ones will be introduced and all the surviving plans will be changed. "Change means opportunity for advisors," says Fred Adams, co-founder of insurance agency HSA for America in Athens, Ga. "This is a great time to get together with clients who will be affected and go over their Medicare coverage. At the same time, you can see what other areas of financial planning are on their mind."

In order to discuss the new Medigap rules, planners should know how proposals in Washington might impact Medicare Advantage and thus influence clients' decisions. As Congress debated health insurance reform throughout 2009, "cuts in Medicare" were constantly in the headlines. In fact, both houses of Congress passed cuts in Medicare as a way to offset spending increases for expanded health insurance.

The biggest cuts-estimated at $120 billion in the bill that passed the Senate-were to be carved from Medicare Advantage, private health plans that receive federal funds. Medicare Advantage plans, sometimes called "Part C," can be health maintenance organizations (HMOs), preferred provider organizations (PPOs) or medical savings plans (MSAs); more controversial private fee-for-service (PFFS) plans are also now available.

The Balanced Budget Act of 1997 authorized Medicare Advantage, but the idea of private Medicare coverage dates back to the 1970s. The goal was to reduce costs and increase comprehensive care by providing competition for the original Medicare. Whether the initiative has succeeded has become a political hot button in Congress and an important part of the healthcare reform debate.

Although the future of healthcare legislation is still unclear, Medicare Advantage remains a prime target; as of this writing, President Obama had just proposed a more expensive health plan, to be financed largely by deeper downsizing of Medicare Advantage.

If funding decreases, Medicare Advantage plans are likely to react. "Enrollees may see higher costs," says Mary Beth Senkewicz, deputy insurance commissioner for life and health insurance at the Florida Office of Insurance Regulation. "They could see their benefits reduced. In addition, some plans might exit the Medicare Advantage program."

Any of these options will make Medicare Advantage less attractive in comparison to the alternative-the original fee-for-service Medicare. More enrollment in original Medicare, in turn, probably will boost seniors' interest in Medigap policies. "It is quite possible that the demand for Medigap will increase if insurers decide to pull out of the Medicare Advantage market at some point in the future," says Tricia Neuman, vice president and director of the Medicare Policy Project at the Henry J. Kaiser Family Foundation.

TAKING ADVANTAGE

In early 2010, Medicare Advantage plans had nearly 11 million enrollees, according to Neuman. That's more than double the number enrolled in the program in 2005. Today, about one-fourth of all Medicare participants are in Medicare Part C. On a percentage basis, Medicare Advantage is much more popular with urban Medicare beneficiaries (27%) than rural beneficiaries (14%), according to the Kaiser Family Foundation. Anecdotal information seems to show that the program appeals to people of all income levels who are trying to cut costs.

Indeed, it is cost concerns that seem to have caused the huge jump in Medicare Advantage, according to Senkewicz. Medicare Advantage enrollees generally pay a monthly premium. For that charge, those seniors may get comprehensive healthcare, including prescription drugs.

Original Medicare enrollees, on the other hand, might have to buy a Medigap policy and a Medicare Part D drug plan in order to have comparable coverage. "Joining Medicare Advantage tends to be less expensive than buying a Medigap policy," Senkewicz says.

The rapid growth of Medicare Advantage may not continue, though. From December 2009 to January 2010, total enrollment fell by about 335,000, the Kaiser Family Foundation reports. "This was mainly due to a drop in PFFS enrollment," Neuman says. "Most other plan types saw a modest increase in enrollment." Medicare Advantage PFFS plans grew enormously popular in the mid-2000s, promising inexpensive care without the restrictions of HMOs or PPOs, but enthusiasm has waned since passage of the Medicare Improvements for Patients and Providers Act, a 2008 law that will require some of these plans to have networks in place starting in 2011.