Deciphering the Many Medicare Plan Options

Have you ever felt like you need a Ph.D. to figure out your Medicare options?

You’re an intelligent person. You have successfully managed to climb over or slide around a myriad of hurdles in your life. You’ve worked your way through the stock market’s tech bubble and the Great Recession and still managed to build a nice nest egg for retirement.

But as you approach retirement, it becomes time to evaluate the seemingly infinite options involved in setting up your Medicare coverage. It’s enough to make some PhDs feel inadequate! It’s not easy to decipher all the deadlines, options, and plans available to you. You will have to make choices that balance the type of coverage you desire with the plans’ costs.

This article is a must-read if you’re approaching the age of 65 or struggling to understand your current Medicare options.

The Beatles must have known something when they wrote “When I’m 64”:

       Give me your answer, fill in a form
       Mine for evermore
       Will you still need me, will you still feed me
       When I’m sixty-four 
(Okay, they were off by a year)

When to Enroll in Medicare

The first thing to understand is how and when to enroll in Medicare. The initial enrollment period lasts seven months: three months before the month of your 65th birthday until three months after your birthday. For example, if your birthday is in June, you can enroll as early as March 1 and as late as September 30.

However, and this is critical, if you miss that window, you can end up paying higher premiums for the rest of your life!  

If you are still working and have healthcare benefits, you may choose to sign up for Part A and delay signing up for Part B, but that’s a whole other article. There are many complex rules surrounding employee benefits, retiree benefits, and spousal benefits. If you have questions about this scenario, feel free to contact an EKS advisor to learn more.

Is Medicare Connected to Social Security?

We’re often asked if it’s necessary to collect Social Security benefits in order to enroll in Medicare. The answer is no. You do not need to retire or collect Social Security to sign up for Medicare. However, if you are collecting Social Security by the time you turn 65, you are automatically enrolled in Medicare Part A, which we discuss below.

It’s also worth pointing out that the Full Retirement Age (FRA) for Social Security is different than the age for Medicare enrollment. Your FRA for Social Security is based on when you were born (age 66 or later if born after 1943). The enrollment age for Medicare is age 65 for most individuals.

Defining the Parts of Medicare

Beginning in 1966, Medicare became our nation’s Federal health insurance program for people 65 years of age or older and younger individuals with long-term disabilities. It is often considered one of the best-run government programs.

Medicare includes four parts:

  • Part A is called “hospital insurance.”
  • Part B is referred to as “medical insurance.”
  • Part C is known as “Medicare Advantage.”
  • Part D offers prescription drug coverage.

While Medicare does pay the bulk of your costs, there can still be considerable out-of-pocket expenses, like most insurance plans. Let’s dive into what the parts of Medicare cover.

Part A: Hospital Insurance

Medicare Part A is easy to understand and free for most Americans over the age of 65. Commonly referred to as Original Medicare, Part A covers inpatient hospital stays (including room, board, and other inpatient services), limited stays in a skilled nursing facility, and helps cover hospice care and home health care.

Part B: Medical Insurance

Part B is also part of Original Medicare and helps pay for medical expenses. It covers 80% of your cost for doctors’ services, outpatient care, medical supplies, and preventative services. Unfortunately, it does not cover everything, and you may have to pay out-of-pocket for certain things that many seniors need, such as dental care, eye appointments, and hearing aids.   

There is a cost to Part B, which can get a bit tricky. The standard monthly premium this year is $148.50, up about $4 from last year. That might feel like a bargain if you’ve been paying for private insurance, which can run into the thousands per month, but if a generous company plan has covered you, it could be an eye-opening surprise. And the cost goes up significantly if you earn more than a certain income.

Payments are based on a two-year look-back, so 2021 surcharges are based on 2019 income taxes. For example, the surcharge for high earners begins at an Adjusted Gross Income (AGI) of $88,000 for single filers and $176,000 for those filing jointly.   

The look-back rule is true every year. Therefore, you can have a surcharge one year, but not the next. You can also apply for an exception if your income has dramatically declined from two years ago because of retirement, divorce, or other life-changing events.

See the chart below for the various breakpoints and the added cost.

Medicare costs

Medigap Plans

As mentioned above, Part B covers 80% of your medical expenses. The remaining 20% is your responsibility unless you have also enrolled in a Medigap policy.   

Medigap policies, often referred to as Medicare Supplemental Policies, are offered through private insurance companies. To help people compare plans offered by different companies, Medicare created 14 different types of Medigap plans and labeled them A through N. Each one provides a different set of standardized benefits. Therefore, no matter which insurance provider you choose, all plan A’s offer the same benefits, all the G’s are the same, etc. However, the cost can vary significantly. Some plans have lower deductibles but higher co-pays, or vice versa.

If you enroll in Medigap at the same time that you first enroll in Part B, Medigap providers cannot turn you away or charge you higher premiums based on pre-existing conditions. However, if you switch later on, you may be required to submit health information, which could affect your eligibility and cost.

Another advantage of Medigap is that you can ignore all the insurance company mailings you’ll receive about Advantage plans (discussed in detail below)!

Part C: Medicare Advantage

One of the main benefits of Parts A and B is using whatever doctor you wish to provide medical services to you. The downside is that, as shown above, the costs can quickly add up. In 1997, to help contain costs, the government added Part C. Originally called “Medicare+Choice,” it is now known as “Medicare Advantage.”

A Medicare Advantage Plan replaces Parts A and B with an all-in-one solution that can include coverage for dental care, vision, hearing aids, and prescription drugs.

While the monthly premiums may be lower, these plans often have higher deductibles and co-pays. Most important to know, Medicare Advantage Plans limit your choice of providers. Jim Long, a broker/manager at Young Insurance in Eagleville, Pa., says, “They often look great on paper, but the size of the network is often not apparent, which can limit your options. Some of these plans are like swiss cheese.”

Experts also advise that sicker people who require more medical care are probably better off with traditional Parts A and B combined with a Medigap Supplemental Policy. Once you are in the Medicare program, you can switch between these two options each year during the open enrollment period, from October 15 to December 7.

If you choose a Medicare Advantage plan, you may not need to worry about a Prescription Drug Plan (Part D), discussed below. Prescription drug coverage is usually folded into the overall coverage of Medicare Advantage, but not always. Be sure to check the details of your plan.

Part D: Prescription Drug Plan    

Part D covers the cost of prescription drugs. In addition to the monthly premium, you may be required to pay deductibles and co-pays.

Part D’s average cost is about $30 a month, but it can vary widely depending on what drugs you take and which provider you choose. As with Part B coverage, there’s also an income surcharge attached to Plan D policies. But unlike Medigap, you can and should review your coverage each year. Most states have 20 or more policies to choose from, and each uses a different formulary to determine which drugs they cover, how much they’ll cost, and which drug store chains are considered “in-network” – and those formularies change from year to year.

The coverage and costs can vary widely, so it’s important to do your research. The key is to enter all the data about your current drug regimen and then keep in mind it might change. As most seniors can attest, aging does things to your body that you would never have expected.

There is no penalty for switching during the open enrollment period. We recommend taking this opportunity to compare plans to determine if there is a better one that meets your needs. And don’t necessarily choose the plan with the cheapest premium. You want the one that covers the drugs, especially the expensive drugs, that you require.

If you’re covered by an employer’s health coverage, you may wish to skip Part D. But the coverage you are replacing Part D with must be credible. Here’s more to answer the question: “Can you opt-out of Medicare Part D?”

There is one last area known as the dreaded “doughnut hole.” That’s when you hit a “coverage gap,” when the total amount of drugs covered by your plan reaches $4,130. It is complex and something we will address in another article.

Important Medicare Dates to Remember

  • March 31 is when Medicare’s general enrollment period ends for people who missed signing up when they turned 65. Also, if you’re already in a Medicare Advantage Plan, it marks the beginning of the period when you can switch plans or convert to a traditional Medicare plan.
  • September 30 is when private plans are required to notify you about any changes in cost and coverage that will take effect on January 1, 2022.
  • October 15 is when Advantage and Part D plans begin accepting applications for the following year. This open enrollment period runs until December 7.

How an Advisor Can Help You Choose

With so many options and rules, trying to select the right plan to meet your needs can be overwhelming. This is where an independent insurance broker can make life a lot easier. According to Long, a broker can keep you from trying to reinvent the wheel. “You don’t have to do all of the work yourself,” Long says. “What will take you hours to do, we can do in minutes.”

By the way, you should not pay for the services of a broker. They are compensated by the insurance companies that you sign up with. Most brokers work with dozens of companies and their job is to find the best, most cost-efficient plan to meet your needs.

“I work with lots of intelligent people who could likely come to the right conclusion by themselves, but there would be a lot of wasted time,” according to Long, “and there is some element of inside baseball knowledge they might never find” by doing it themselves.

For do-it-yourself types, there are many online sites to help you through the minefields.  Start with the government’s site: https://www.medicare.gov/ or call Medicare at 800-633-4227.

Once again, the Beatles understood the challenges:

When I was younger, so much younger than today
I never needed anybody’s help in any way.
But now these days are gone, I’m not so self-assured
Now I find I’ve changed my mind and opened up the doors.

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