'Tis the Season to Evaluate Your Medicare Options
It's not as fun as Halloween, Thanksgiving, Hannukah or Christmas, but the annual Medicare Advantage "open enrollment period” is an important time of year. At least to us "older" folks, which you realize all of you will be one day. Here are some things to think about if you're one of the lucky folks who've made it safely to your golden years. Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.
Medicare 101
Medicare Advantage open enrollment period runs from October 15 through December 7. If you're new to the fun, then you might not be familiar with the alphabet soup of Medicare plans. The subject can be very confusing and there are a lot of misconceptions out there. For example, many folks think that Medicare will pay for everything related to their healthcare needs after reaching age 65. Not so. In fact, Medicare's out-of-pocket costs can be a serious drain on your retirement savings account.
Let's talk about the A, B, C, D, and Medigaps of this family of plans that can have major health and financial consequences if not properly dealt with. I'm not a Medicare expert, but I'll share what I know about it based on a few...ahem...years of experience.
Alphabet Soup
Medicare is a fee-for-service health plan that includes:
Part A (hospital care) covers inpatient care, skilled nursing facility care, nursing home care (not custodial or long term), hospice care, and home healthcare.
Part B (outpatient care) covers medically necessary and preventive services, as well as clinical research and ambulance services, durable medical equipment, limited outpatient prescription drugs, and mental health inpatient, outpatient, and partial hospitalization services.
Part C (Advantage Plans) are private alternatives to traditional Medicare that usually come in a bundle of Plans A, B, and D, and additionally, may offer extra goodies such as gym benefits, dental, vision and hearing coverage. This bundling and the promise of lower premiums and out-of-pocket expense caps are what make Advantage plans appealing to folks, but be advised, they may only partially cover such costs. Advantage Plans often have higher deductibles and co-payments. And most Advantage Plans are Health Maintenance Organizations (HMOs), which offer less flexibility than Preferred Provider Organizations (PPOs). HMOs have a restricted networks of doctors, hospitals, health providers and often require patients to obtain referrals to see a specialist and prior authorization for certain drugs or services. So, keep these drawbacks and restrictions in the back of your minds…in short, be leery of those “free” lunches.
Part D ( prescription drugs)
Medigap (Supplemental) Plans help plug the gaps in this maddening array of plans. Also called Supplemental coverage, Medigap (often buttressed with separate Part D drug plans) usually charge higher premiums than Advantage Plans but cover more healthcare services. They are forms of private health insurance that, unlike Advantage Plans, help cover certain Medicare out-of-pocket costs such as deductibles, copayments and coinsurance. By the way, you must have Medicare Part A and Part B in order to enroll in a Medigap plan. And a Medigap policy only covers one person. If you and your spouse both want Medigap coverage, you'll each have to buy separate policies. I mention a separate Plan D coverage because Medigap policies are no longer sold with drug coverage. However, if an individual has an older Medigap policy that was sold with drug coverage (before January 1, 2006), he or she can keep it. To compare these various options, it’s wise to run a cost-benefit analysis using Medicare.gov’s plan finder.
What Does it Cost?
Now we've covered the basics, here are the costs associated with each:
Part A: For most folks, Part A is “free”. However, some have to pay a premium for this coverage. To receive premium-free Part A, the individual must have a specified number of quarters of coverage earned through payment of payroll taxes under the Federal Insurance Contributions Act (commonly called FICA) during the person's working years…and must file an application for Social Security or Railroad Retirement Board benefits.
Part B: Includes a premium of $164.90 in 2023 (or higher depending on income level), usually deducted each month from one’s social security check. This amount often changes annually. There is also an annual deductible of $226 (in 2023) before original Medicare starts to pay. General costs for services (called coinsurance) is 20% of the Medicare-approved amount after a deductible is met. If an individual joins a Medicare drug plan (Part D), he or she will pay a separate premium for drug coverage. There's no yearly limit on what one pays out-of-pocket, unless an individual has supplemental (Medigap) coverage.
Part C (Advantage): The plan holder pays the monthly Medicare Part B premium. Some Plan Cs have a $0 premium or may help pay all or part of one’s Part B premium. On the other hand, some Plan Cs have their own monthly premium. Different plans have different out-of-pocket costs for certain services, and have yearly limits on what one pays out-of-pocket for services Medicare Part A and Part B covers. Once a plan’s limit is reached, the insured pays nothing for services Part A and Part B covers for the rest of that year. Most Advantage Plans include Medicare drug coverage (Part D).
Check out my Trying to Make Sense of Medicare and its Moving "Parts" blog from last year to learn about three ways you can help mitigate costs over and above Original Medicare (Parts A an B) healthcare coverage.
How it Works
After an individual first enrolls in Medicare and during certain times of the year, they can choose how they get their Medicare coverage - in two primary ways:
Original Medicare (Part A and Part B), or a
Medicare Advantage Plan (Part C).
Some folks opt to get additional coverage, like Medicare Part D (drug coverage) and/or Medicare Supplement Insurance (Medigap). These additional plans come with additional costs, and are not cheap. However, if affordable, they’re worth considering.
When considering any of these plans, read the fine print...there's a lot to that.