Planning for Healthcare costs in retirement
While most people know that Medicare is health insurance for those ages 65+ or with certain disabilities, many are not aware of the different pieces that make up Medicare coverage. Medicare is not a one size fits all solution, nor does it function the same as the employer health insurance coverage many workers are familiar with. There are multiple options based on your individual health and financial situations and your geographic area by zip code. Let’s highlight the basic A, B, Cs (and D) of Medicare, which reflect the 2020 costs and coverages.
Original Medicare Part A
Original Medicare Part A is hospital insurance that pays for medical care received after being admitted to hospitals, skilled nursing facilities, hospices and some home health situations. Premium is free for most retirees, however there are deductibles ($1,408 per spell of illness admittance benefit period) and co-insurance ($0 up to day 60, $352 days 60-90, $704/day 91 per benefit period, up to full daily cost after lifetime reserve is exhausted).
Original Medicare Part B
Original Medicare Part B is medical insurance which provides direct payment to physicians, out-patient hospital care, labs and pays for medical devices. Part B has a premium ($144.60 a month per beneficiary or a higher monthly premium depending upon your income, using a 2-year delay – for example 2020 premium calculation uses 2018 reported income), annual deductible ($198) and co-insurance (20% of the approved Medicare cost of service).
Prescription Drug Part D
Prescription Drug Part D is coverage for approved prescriptions offered by companies under contract with Medicare either as a stand-alone policy in combination with Original Medicare or as part of a Medicare Advantage plan which will be covered in a later section. Part D requires a monthly premium which can vary (also subject to tiers depending upon income). Co-pays can vary for each prescription as well. Part D covered drugs and benefit standards are set by the federal government and require cost sharing by participants after an annual deductible.
Historically that cost sharing has included a coverage gap or donut hole which occurs when all costs paid for covered drugs reached a certain level. While in the donut hole coverage gap, Medicare beneficiaries were responsible for paying 45-58% of the drug cost until they reached an annual out-of-pocket maximum (catastrophic coverage), at which point the co-pay became very small for each drug. The Patient Protection and Affordable Care Act of 2012 scheduled the donut hole coverage gaps to be eliminated in 2020. That means that the most a beneficiary could pay for a drug is up to 25% of cost until the catastrophic coverage out-of-pocket is reached ($6,350 in 2020) and then up to a maximum of 5% of the costs for the rest of that calendar year.
Part A & B, along with Part D
Part A & B, along with Part D prescription drug coverage combined are “Original” Medicare and allow you to see any service provider that accepts Medicare. Please note that original Medicare does not cover costs for non rehabilitative long-term care, care outside of the U.S., dental, vision, hearing aids, cosmetic surgery, amounts over the Medicare approved amount, amounts not covered by the deductibles or the 20% co-insurance for Medicare approved services.
Original Medicare also does not have an annual out-of-pocket costs maximum limit that many retirees may have had with their employer-sponsored health insurance coverage. Because of that potential for unlimited out-of-pocket costs, Part C – Medicare Advantage plans and Medigap supplemental insurance are important options for consideration when choosing Medicare coverages.
Medicare Advantage – Part C
Medicare Advantage – Part C are alternative coverage plans offered by private insurers that replace traditional Medicare parts A & B, and supplemental and provide single plan coverage for services and can include prescription drug coverage. You continue to pay your Medicare Part B premium amount and there may be an additional premium for the Medicare Advantage plan which can vary between plans, as can deductibles, co-pays and co-insurance. Advantage plans are required to have an annual out-of-pocket cap on the amount participants pay for Part A & B covered services.
Medicare Advantage Plans
Medicare Advantage plans must offer at least the same coverages as traditional Medicare, but many also offer additional coverages not included in Medicare A & B such as vision, dental, hearing aids, medical transportation and gym memberships. You must be enrolled in Medicare Part A & B, live in the service area for the Advantage plan and not have End-Stage renal disease at time of enrollment.
There is a wide variety of Medicare Advantage plans that may be available in your area- including
- Managed Care plan (HMOs, you must stay in-network)
- Preferred Provider Organization Plans (PPOs-higher costs out-of-network)
- Fee for Service Plan (any Medicare approved doctor, but varied cost sharing for the beneficiary)
- Special Needs Plans (chronic illness, beneficiaries in facilities and those on Medicaid
- Medicare Savings Account Plans (High Deductible plans with a portion of premium paid into a medical savings account to pay health care costs).
Not all types of plans are available in all areas, so you could have one Medicare Advantage choice or multiple companies offering a variety of types in your zip code.
Medicare Supplemental Insurance- Medigap
As previously described, original Medicare has out-of-pocket costs that beneficiaries could incur in the form of deductibles, co-pays and 20% co-insurance. To mitigate these potential gaps, a beneficiary enrolled in Original Medicare (Parts A &, B) can purchase a supplemental or Medigap policy from a private insurer that will pay for various out-of-pocket cost gaps. It is like a menu where you can choose which potential out-of-pocket costs you are willing to self-insure and what you want the insurance company to be responsible for.
In most states there are 10 standardized Medigap types letters A-N and all policies with the same letter offer the same coverages, however 2 companies can charge different premiums for identical coverage. Premiums may be based on age, gender, health history and tobacco use and generally, the more potential out-of-pocket costs that the policy covers – the higher the premium. During the open enrollment period, your medical history or current health can not be considered in determining your premium, so your initial enrollment choice is important.
You can enroll in any of the Medicare options during one of three periods:
- Initial: 3 months before 65th birth month-birthday month and 3 months after the month you turn 65
- Special enrollment: delay from your initial enrollment period if you had eligible employer coverage, up to 8 months after that employer coverage ends (COBRA not considered employer coverage)
- General open enrollment: October to December each year, however delaying beyond your initial or special period may delay coverage, cause a late enrollment premium penalty and limit or eliminate private insurer/supplemental coverage options
You can enroll on-line or get additional information at www.medicare.gov or by calling 800-772-1213. Some situations may require a visit to your local Social Security office to provide additional documentation. Please note that representatives in those offices cannot direct you to the available policies in your area or the best fit for your situation, so starting your research in advance of your 65th birthday is always a good idea.
Advisory services offered through Sikich Financial, a Registered Investment Advisor. Sikich Financial does not offer or sell insurance products. Sikich Financial does not offer or sell Medicare products.