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Navigating the Medicare Maze

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If you are turning 65 in the next year, chances are you’ve received a number of birthday greetings from “friends” you didn’t know you had: private insurers. They want your Medicare business and, in their efforts to secure it, often toss around terms like “supplemental plans,” “advantage plans,” “Medigap,” “Part C,” etc. I’ve found it’s often confusing enough to make my head spin! However, having spent the last five months personally preparing for Medicare, I’ve learned a few things that will hopefully save you some time, expense, and angst.

Who is eligible for Medicare?

You are eligible for Medicare if you are 65 or older, under 65 and receiving Social Security Disability Insurance (SSDI), or under 65 with end-stage renal disease.

What are these “parts” and “plans” I’m hearing about?

There are four parts to Medicare: Parts, A, B, C, and D. There are also ten Medicare Supplement plans (also referred to as Medigap), lettered A-N. (Yes, that is more than 10 letters, but some lettered plans have been eliminated and new ones added.)

“Original Medicare” is comprised of Part A and Part B. Part A, frequently referred to as “Hospital Insurance,” covers inpatient hospital care, skilled nursing facilities, home health agencies, and hospice. Part B, often called “Medical Insurance,” covers doctor visits, outpatient expenses, and durable medical equipment.

Part A is mandatory if you are collecting Social Security. You may hear that is it free for anyone eligible for Social Security benefits, since you most likely paid for the premium through FICA payroll taxes. However, it only covers the premium; you are still responsible for deductibles. Part B, however, is not free. In 2019, the Part B premium is $135.50/month and the deductible is $185. Part B covers 80% of your medical expenses once you’ve met the deductible. You are responsible for the remaining 20% and there is no cap for out-of-pocket expenses.[1] Original Medicare does not cover drugs, vision, dental, or long-term care—among other things—creating a coverage gap.

The remainder of Medicare choices were introduced to help address said gap:

  • Part D is the Medicare prescription drug benefit.
  • Medigap plans cover the Part B deductible and 20% co-insurance, but do not cover drugs, vision, or dental.
  • Part C, also known as Medicare Advantage, is standalone plans. These are managed care plans and typically PPOs and HMOs—many cover prescription drugs along with basic dental and vision.

Simple, right?

You might be asking yourself why you wouldn’t just choose an Advantage Plan since the services are typically bundled under one umbrella. However, there a number of important considerations, which brings us to the next section.

How do I decide on a plan?

Here are the steps you should take prior to choosing a plan:

  1. Confirm whether your physicians participate in the plans available to you. You may pay out-of-network charges if your physicians do not participate in the plan you choose. Original Medicare coupled with a Medigap plan provides access to any physician that accepts Medicare.
  2. Confirm whether the plans cover the services and drugs you need. Make sure the plan you choose covers the drugs you take and pay attention to the drug formulary. Prescription drug plans must include at least two drugs in the most commonly prescribed categories, but the specific drug and tier may differ from plan to plan and from one year to the next within a plan.
  3. Compare the costs for each plan. Typically, premiums for Medigap plans are more expensive than Advantage Plans. While all lettered Medigap plans must cover the same services, the prices can vary depending on provider, state, county, and even gender. If you are comfortable paying for higher insurance premiums up front and knowing your subsequent out-of-pocket costs will be minimal, then a Medigap plan may be the best choice for you. You will most likely still want a drug plan and maybe a vision and dental plan. If you prefer a lower premium and do not mind co-pays, then a Medicare Advantage plan may better suit you. Ultimately, your medical needs and service availability will guide your decision.
  4. Consider how your preferred lifestyle impacts your medical needs. Do you travel frequently? Most Medicare Advantage Plans are limited geographically. If you travel frequently within or outside the U.S., check to make sure you have coverage in the event of an illness or accident.

To summarize, you essentially have two choices: a Medicare Advantage Plan or Original Medicare with a Part D drug plan, a Medigap plan and, if necessary, a vision and dental plan. In all cases, you must subscribe to Parts A and B to be eligible.

What can I do to prepare?

  • Check with your doctors. Be specific when asking whether or not your physician takes Medicare. A physician who takes Medicare does not necessarily accept Medicare Advantage Plans.
  • Do you have a Health Savings Account (HSA)? Once you are on Medicare, you can no longer contribute to an HSA. As such, consider maximizing your contribution prior to filing for Medicare. You can pay for your Medicare premiums and deductibles with your HSA.
  • Consider using a licensed agent or health consultant to help navigate the multitude of choices. Friends who have recently gone through this process may be a good source of referrals.
  • Be cognizant of penalties. There are a variety of windows that allow you to enroll and/or change plans. Missing a deadline can result in higher costs over the lifetime of your coverage.
    • There is a seven-month initial enrollment period beginning three months before your 65th birthday and running three months after your 65th birthday.
    • Although not mandatory, if you do not enroll in Part B or Part D during the initial enrollment period, and you do not qualify for an exemption (i.e., you’re already covered under your employer’s insurance), higher premiums and an enrollment penalty may apply.
    • There is a six-month grace period after your initial enrollment, during which you can change plans with no financial penalty or fear of being denied due to past or present health problems. The rules for Medigap plans and Medicare Advantage plans differ, so make sure to check beforehand.
    • There is an annual Open Enrollment period from October 15 to December 7, during which you can change plans. Again, the rules differ depending on the type of plan you select and whether or not you are in your six-month grace period.

Helpful Resources

There are innumerable websites available to answer your Medicare questions. In addition to the specific carrier websites, I found the sites below helpful. Both sites contain information on additional income-based premiums.

  • Medicare.gov (helpfully, there is a Medicare Advantage Plan finder which compares options based on your specific information)
  • CMS.gov

[1] Please note that Parts B and D are based on income; as such, you may face additional charges beyond the initial premium. If your modified adjusted gross income exceeds $85,000 for individuals (or $170,000 for married couples) you must pay a premium surcharge called the “Income-Related Monthly Adjustment Amount” (IRMAA), which can increase the portion individuals pay for their insurance from 25% of the total cost to up to 80% at the highest income bracket (greater than $160,000 for individuals and $320,000 for couples).

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