Hey Paul: I will turn 65 next year and will start Medicare for my health insurance. I am confused on the how to choose among the different plans including prescription drug coverage. What do I need to know?
Medicare can be relatively straight-forward for most people but you do have some choices that can make a big difference in your out-of-pocket medical expenses as well as choice of medical providers. I’ve compiled a list of the most important terminology, plan selection process, and cost estimates. Fortunately the State and senior groups have excellent support services. So here’s the core knowledge you should arm yourself with as you go into the Medicare maze:
- Medicare is public health insurance for essentially all Americans 65+. If you (or your spouse) paid Medicare taxes for a decade then you are eligible for Medicare upon reaching age 65.
- Medicare also covers Social Security Disability recipients after two years of disability and those with kidney failure (ESRD).
- A related but separate program is Medicaid that provides public health insurance for “the poor”. A household must be below the 100% to 138% (depending on the state) of poverty level to be eligible for Medicaid.
- The Elderly can be on both Medicare and Medicaid if they are poor. Even a middle-class individual or couple can qualify for Medicaid once they run their assets down to essentially zero; Medicaid is a major payer for Nursing home care.
- Obamacare is essentially an extension of Medicaid up to 400% of the poverty level. Higher income households receive smaller subsidies in purchasing insurance on the insurance exchange.
- You may also be eligible for other health care plans: employer (current benefit, COBRA or retiree benefit), Union plan, VA (vets) or TRICARE (military). Typically these are supplements to Medicare adding benefits such as vision or dental or perhaps paying towards Medicare premiums or copays. If you work past age 65 and have group health coverage then it pays first and Medicare may (or may not) cover what is left over on your medical bills.
What medical services does Medicare cover? If you have employer-provided health coverage than you’ll find Medicare is very similar. Doctor visits are usually 80% covered by Medicare leaving 20% for you to pay. The first day in the hospital will cost you a $1288 deductible but then Medicare covers the cost for 60 days.
Medicare covers many other services – an ambulance to get you to the hospital, skilled nursing care as you recover from the hospital and hospice if you won’t be recovering. All these services fall under what are called Part A (Hospital) and Part B (Physician Services). Everyone with Medicare will have Part A as it premium free. Essentially everyone would also have Part B although it requires a monthly premium of $104.90 for most seniors (very high retirement incomes will roughly triple the premium).
So what isn’t covered by Medicare’s Part A and B? Let’s start with the easiest one and that’s prescription drug coverage. Fortunately Medicare Part D plans can be purchased for around $35 a month that will offset much of your prescription costs. You’ve probably heard of the infamous “doughnut hole” where coverage is very limited. Obamacare is reducing the self-expense in the hole but it still very much exists. See https://www.medicare.gov/Pubs/pdf/11493.pdf for all the delicious details.
A second set of items that Medicare doesn’t cover are the various deductibles, coinsurance and copays. You could reasonably pay these as they occur or you could purchase a Medigap (supplemental insurance) that covers the $1288 hospital deductible or 20% physician services or the odd charge for the first 3 pints of blood. There are 10 standardized plans known by their letters. Plans F and N are the most popular with consumers. Plan F is comprehensive covering essentially all out-of-pocket Medicare expenses while N covers the major ones and usually has a lower premium.
A third set of medical expenses lie outside of Medicare. The most foreboding is long-term care (nursing home). Other potential expenses include dental, vision, hearing, and cosmetic surgery. You have three choices here: pay out-of-pocket and pray to the Lord for a one-hoss shay demise, purchase private insurance or explore Medicare Advantage Plans that I’ll discuss in the next section.
The majority of seniors enroll in traditional Medicare (Parts A & B). Then you have the option to add Part D (Rx) &/or Medigap (supplemental insurance). You can also opt for the all-in-one package, Medicare Advantage plans (Part C). In a nutshell MA plans are Parts A, B, D and Medigap all rolled into one. You pay the Part B premium but generally pay less then if you bought separate Part D and Medigap plans. A further bonus is that MA plans throw in some health goodies – vision, dental, hearing, maybe even a gym membership!
Why doesn’t everyone go with these cheaper, better plans? Well they may be neither cheaper nor better. Unlike piecing together Parts A and B and then customizing Part D and Medigap to fit your expected needs, you have a one-size-fits-all plan that may have among other things rather skimpy Rx benefits. The other big downside of MA plans are that you are limited to a network of local doctors and hospitals much like an HMO.
Ok, so when and where do I sign-up? You have a seven-month window around your 65th birthday month to complete the original sign-up. You almost certainly want to sign up for Medicare including Part D during this period. If you don’t have a good excuse (like continuing employer coverage) you’ll be hit with a late penalty once you do apply and could be subject to medical exams and review. Medicare.gov is the first place to go to learn more and to enroll once you’ve chosen your plans. You can review Medicare Advantage, Part D and Medigap plans. For assistance you can contact Medicare, the AARP or the KY Cabinet for Health and Family Services.
For those who are already on Medicare and think they are on auto-pilot, think again.
Medicare Advantage plans, Part D and Medigap plans can have shifting premiums and revised coverage particularly in Part D formularies (what drugs are covered). Each year from October 15 until December 7 you can review and change plans to best fit your health needs at the lowest cost. An annual review could save you $100’s. It’s worth a look each year!
Dr. Paul Hamilton, CFP is currently offering a comprehensive planning session that will cover your specific situation in Social Security, Taxes, Retirement, and Estate Planning. The one-time fee of $500 is guaranteed to return savings, confidence and peace-of-mind. Contact him at Paul.Hamilton@USA-Economics.com or 502-405-8125 to discuss your situation.