This is one of the most important issues for retirees as health care may be one of the biggest expenses in your so-called golden years. Being a complex issue lets break this down into a few segments. First, we will look at Medicare which is the government portion of senior health care. Next, we will look at two different routes that an individual may take to mitigate the high cost of health care.
Medicare is regulated and administered by the Center for Medicare and Medicaid Services (CMS). Medicare is divided into Part A (hospitalization, blood, and hospice coverage) and Part B (outpatient services). You become eligible for this coverage once you have worked and paid into the social security system for forty quarters (ten years) and have reached aged sixty-five or have been on social security disability for 24 months. This coverage is only for Medicare approved services. Most prescription drugs are not covered by Medicare, so you will need to obtain credible coverage through a Part D Drug plan or a Medicare Advantage plan which may include prescription drug coverage. If you do not have credible drug coverage once you are eligible for Medicare, CMS could impose a penalty later.
Part A hospitalization coverage normally has no premium. If you have not worked and paid into the system for the forty quarters requirement you may be able to obtain Part A by paying a premium. There is a resetting deductible of $1,340 if you are admitted to a hospital. This deductible resets 60 days after being discharged.
Part B outpatient services will typically have a premium which is based on your level of income. This will normally be deducted from your social security income. Services will include doctor visits, lab work, ambulance ride, etc. For 2018 there is an annual deductible of $183, then Medicare picks up 80% (of the contracted rate) and you the member will be responsible for the remaining 20% (of the contracted rate) of costs. Provider can choose to charge up to 15% above the contracted rate, this amount then becomes the members’ financial responsibility in addition to the 20%. There is no maximum out of pocket for Original Medicare Parts A and B, so if you only had Part A and Part B, the financial risk and exposure could be quite high. That being said, let’s look at two different routes to mitigate those expenses.
First route will be adding a Medicare Supplement policy and a Part D Drug plan. These plans are offered by numerous private insurance carriers and used in addition to your Medicare coverage. A Medicare Supplement or Gap policy will give you coverage for the deductibles, co-pays and co-insurance costs not covered by Parts A & B. How much coverage will vary depending on the plan you choose. More coverage equals higher premiums. Premiums will also vary based on your zip code and age. These Gap policies have specific benefits depending on which plan level you choose. And the policy coverage on a given plan is the same from one insurance carrier to another. Example given, if you choose a G plan, the benefits are the same no matter which insurance carrier you enroll with. Although the premium may vary from carrier to carrier. One benefit to consider with Gap plans is that you have the flexibility to go to any doctor which contracts with Medicare and will accept you as a patient. Keep in mind this may be limited to doctors who are accepting new patients.
Now you will need to add a Part D Drug plan. For the 2019 year there are 30 plans to choose from in California all offered by private insurance carriers. These plans all vary in premium, co-payments, deductibles, etc. The prescriptions you are using will help determine which plan may be the best fit for you individually. CMS requires that all plans cover medications for certain categories. These categories are designed to make sure that any necessary medications are available to Medicare members. Remember you may have a penalty imposed if you do not have prescription drug coverage which is equal to or greater than what Medicare deems necessary. This is the definition of credible coverage. That is a lifetime penalty added to your monthly premium! All the plans referred to above meet those requirements.
The other route you may take is to get a Medicare Advantage plan. Medicare Advantage plans typically combine all your coverages (Part A, Part B and Part D) into one plan sometimes referred to as Part C. These plans are offered through private insurance carriers. Medicare Advantage plans may vary greatly in premiums with some starting at zero and going up well over $100 a month. Plans and plan designs such as deductibles, co-payments, co-insurance and maximum out of pocket costs will also vary greatly from carrier to carrier, county to county and state to state. These plans are typically network focused specifically in the form of an HMO (Health Maintenance Organization) and in limited areas PPO’s (Preferred Physician Options). For those of you in San Joaquin County for 2018, all the Advantage plans available have a prescription drug plan built into the plan. Confused yet?
A brief recap. The government part of your Medicare health care is Medicare Part A (hospitalization) and Part B (outpatient services). Route one is to add a Medicare Supplement (Gap) policy and a Part D Drug plan (optional). A different route you may take is to enroll in a Medicare Advantage plan.
There is an Annual Enrollment Period which, is between October 15th and December 7th every year for Medicare-eligible beneficiaries. Individuals who are aging in will have an Initial Enrollment Period which begins three months prior to their Part B effective date, the month of their effective date and ends three months later giving them a seven-month window to enroll. An individual may also be entitled to a Special Enrollment Period which, may occur when they lose current coverage, moved to a new county or state, and several other potential changes may also apply.
When researching your health care plan options consider costs, choice, and change. Your health care needs will help determine which type of plan and which insurance carrier will be right for you in terms of overall costs. If the flexibility of providers is important, you may have more providers to choose from using a Medicare Supplement plan. Consider changes that occur annually; Medicare Advantage plans send out an Annual Notice of Changes every year prior to the annual enrollment period; and know that Medicare Supplement plan benefits do not change but the premiums may.
You can talk with a licensed agent to walk you through all the details and options available to you. Here are some other resources for help: Health Insurance Counseling & Advocacy Program (HICAP) 1-800-434-0222 which can help you apply for extra help on Part D plans and for low income subsidy assistance. You may also get help from: medicare.gov, 1-800-633-4227 or 711 or TTY.
There are many considerations in determining which plan is the right fit and this varies from person to person. Until we talk again, be well.
Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Dedicated Financial & Insurance Services and IFG are unaffiliated entities