7 Questions to Ask Yourself When Deciding Which Medicare Plan Is Best for You
It is very important to understand exactly what Medicare benefits are, so you can be prepared to pay the deductible and any co-payments, plus the uncovered services.
Because Medicare rules are constantly changing, especially the drug benefits in Part D, it is important to review your Medicare choices each year during the ‘open enrolment period,’ which is between October 15 and December 7.
This should be done in conjunction with a review of your supplemental health converges, either from prior employer health plans or Medigap insurance plans.
There are a number of issues that can impact your decisions as to which Medicare Plan is best for you. Here are a few to think about:
Age and Work
Are you still working at 65?
Employer Health Plan
Will your employer health plan continue to provide coverage throughout your retirement? Is your employer health plan a ‘creditable’ health plan: does it pay at least as much as the Medicare Part D plan? If not, you may be in for a surprise when signing up for Part D and incur a penalty.
Do you plan to travel or live part of the year in another location such as spending winters in Florida? If this is the case, traditional Medicare may be better than enrolling in Medicare Advantage plans because you will have greater access to providers wherever you are located.
Health Savings Account
Did you participate in a Health Savings Account? Once you enrol in Medicare Part A, you can no longer contribute to a HSA.
Did you know that you could incur penalties for delaying enrolment into Part B or Part D? The penalties are based on how many months of delay and the penalty is applied to all future Medicare premiums, for life!
Review Medigap Policy
Have you reviewed your Medigap policy each year to determine what is covered and what amounts you may still be liable for paying?
Did you know that Medicare and Medicaid do not provide long term care benefits?
Medicare’s Multiple Personalities
Medicare has four parts: A, B, C and D. These are all considered a ‘fee for service’ system, and the participant can choose to go to any doctor or health facility that accepts Medicare payments.
Note that Medicare typically does not provide dental, vision or hearing benefits or has only minimal benefits at best, unless you choose the Medicare Advantage Plan. Thus after age 65, you may need to obtain individual dental and vision coverage.
Let’s look at each to see what amounts you may need to pay out of pocket. Note that the premiums shown are for 2018, and they will increase each year by a cost of living (COLA) amount determined by the government.
Medicare Part A
At age 65, you’re required to enrol into Medicare Part A, which is hospital insurance, even if you’re still working. There is no cost for Part A.
However, some employer group plans may require you to participate in Part B, which is medical insurance that carries a premium (please see next section).
Part A will cover the first 60 days of a hospital stay (all but $1,340 of co-payments and deductible), and from the 61st day to 90th day, you’ll pay $335 per day.
If you need post-hospital skilled nursing care in a care facility or rehab center, Medicare covers the first 20 days, but you are on the hook for $165 per day thereafter. The maximum Medicare coverage for hospital and skilled nursing facility is 100 days. After that the cost is on you.
Medicare Part B
Part B of Medicare covers all medical expenses for doctor’s services both in and outpatient. There is a deductible, which is currently $183.
From there on, Medicare pays 80 percent of the approved amount for most doctor services. You are responsible to pay the balance. Note that mental health services are only covered at 50 percent.
The cost for Part B starts at $134 per month but increases depending upon the actual income you report on your tax return. It can also be increased via the Adjusted Gross Income (AGI) shown at the bottom of the first page of your tax return.
The current maximum cost is $428.60 per month if your AGI is $160,000 for single tax filers and $320,000 for married filers.
If you have higher earnings or generate large capital gains from the sale of property or investments, this monthly amount can become a significant issue because the Medicare premiums will be affected for the following two years!
If you enrol in Part B before you start receiving Social Security retirement benefits, you will then receive a quarterly bill from Medicare to pay the premiums.
Once you start receiving Social Security, your premiums will automatically be deducted from your monthly Social Security payment.
Money Saving Tip
Keep in mind that when you first retire, your prior year income may be much higher than in your first year of retirement, which could cause the premium to be at a higher level.
You need to submit a request to the Social Security Administration once you have retired to obtain an exception so that the premiums will reflect your retirement income. Doing so can save you hundreds of dollars a month!
You should go to the Social Security office and file the form to make the adjustment once you have retired.
Medicare Part C
Part C basically combines the Medicare plans into one: Part C, Medicare Advantage.
Under Part C, you have several options: Health Maintenance Organizations (HMOs), Point of Service (POS), Preferred Provider Organizations (PPOs), Provider Sponsored Organizations (PSOs) and private fee for service plans. Some of the plans may offer dental and vision coverage as well.
Medicare C is priced based upon the alternative you choose, but note that having Part C means you do not get a Medigap insurance policy. In addition, choices will depend upon where you live. Premiums for this coverage vary by plan and location.
Medicare Part D
You may also need to enrol in Part D, which is prescription drug coverage. The cost for medications will be dependent upon the actual drug prescribed, and if it is a generic or brand name.
If you’re taking prescription medications, you can visit the government website and find out if the medication is covered or how much it will cost you if it’s not.
This may help in making the decision between choosing Medicare A, B or D or if you should enrol in Medicare Advantage plans. Note that you can also make this decision annually during the open enrolment period each fall.
Medicare Supplement Policies (Medigap)
These policies are sold by independent insurance companies and provide benefits to supplement the amounts payable under Medicare, including co-payments, deductibles and co-insurance.
The government has standardized the various plans to provide consumer protection and to reduce the misunderstandings about what coverage is available. As a result, the only difference between the plans from insurance companies is the cost and the company ratings.
In regard to ratings, I recommend you check your state insurance website for ratings of insurance companies licensed in your state. Medigap policies are guaranteed issue if acquired within six months of turning age 65.
Do you understand all the intricacies of the Medicare Program? Do you understand the difference between Medicare Plans A, B, C and D? What tips do you have for people just retiring? Please share your valuable knowledge below.
Stan Corey is a CFP, ChFC and CPWA providing financial life management for more than 36 years. Stan has published a novel, The Divorce Dance, which is a story about a divorcing couple whereby the wife, Natalie, guides the reader though the divorce process and how to have a respectful divorce. Please visit his website.