As Bruce Woods prepares to turn 65 in February, he and his wife have been thinking about how to approach his eligibility for Medicare.
“We’re going through all these different iterations of what do we need to do to get ready for Medicare?” said Woods, a self-employed executive recruiter in Dallas. “What supplemental policies are available out there?”
As baby boomers turn 65, most know they’ll be qualifying for Medicare, but many aren’t clear on their options.
Woods and his wife, Haroldy, 63, have been on her retiree health policy from American Airlines, but they are uncertain about the future in light of American’s bankruptcy.
For Woods and others 65 and older without employee-sponsored health insurance, there are essentially two choices:
• Traditional Medicare, which is the fee-for-service program run by the federal government;
• A Medicare Advantage health plan sold by private insurance companies.
But beyond that are an array of supplemental insurance policies, called Medigap, to cover things that Medicare doesn’t.
Woods has decided to sign up for traditional Medicare and buy a Medigap policy to cover such items as co-insurance and hospital costs for up to an additional 365 days. It also covers hospice care co-insurance or co-payment and skilled nursing facility co-insurance.
Here’s what you need to know about Medicare, Medicare Advantage and Medigap.
Medicare has four parts:
• Part A helps cover inpatient care at hospitals, care at skilled nursing facilities, hospice care and home health care. You usually don’t pay a monthly premium for Part A if you or your spouse paid Medicare taxes while working.
• Part B helps cover services from doctors and other health care providers, outpatient care, home health care, durable medical equipment and some preventive services. Most people will pay the standard monthly premium of $104.90 in 2013, though you may have to pay more depending on your income.
Together, Part A and Part B make up traditional Medicare.
• Part C is the Medicare Advantage Plan and includes all benefits and services covered under Part A and Part B. But this plan often has more benefits than traditional Medicare, including dental and vision coverage, and usually includes prescription drug coverage. Costs vary.
• Part D is prescription drug coverage. The coverage is run by Medicare-approved private insurance companies and helps cover the cost of prescription drugs. Part D premiums averaged $30 per month this year; they’re expected to average $31 in 2014.
“Though original Medicare’s Parts A and B cover most of your hospital and doctor bills, you’ll also want to think about adding the Medicare drug benefit by enrolling in a Part D plan from a private insurer,” said Bob Moos, spokesman for the Centers for Medicare & Medicaid Services in Dallas.
With Medicare Advantage, insurance companies contract with the government to provide care. The private insurers set their own premiums, deductibles and co-payments.
“The health plans may offer cost advantages over original Medicare and some added benefits, but, depending on the particular plan, they may also restrict your choice of hospitals and doctors,” Moos said.
Many Medicare Advantage plans cost more than traditional Medicare’s Part B because they include other benefits, such as dental, vision and prescription drug coverage, Moos said. But, as a result, “there’s no need for you to buy supplemental Medigap insurance.”
The Woodses decided against buying a Medicare Advantage plan.
“At least what we’ve researched so far, the premiums are less (than Medicare Part B plus a Medigap policy) but you pay more later on,” Woods said. “It can progress on you in a hurry and get out of hand. Sometimes the premiums are less, but you end up spending a lot more money on the procedures or they don’t cover a lot of the things that regular Medicare would.”
That’s true, said Tamela Southan, a Dallas independent health insurance agent.
Depending on the Medicare Advantage Plan, “the premiums may be cheaper but the co-pays/co-insurance that lead to the out-of-pocket can really have an impact on one’s fixed-income budget,” she said.
Southan also said it’s true some procedures may not be covered by a Medicare Advantage plan, but “this could also be true of traditional Medicare.”
Many traditional Medicare beneficiaries buy supplemental coverage from private insurers to fill the gaps that deductibles, co-payments and co-insurance leave.
You pay the insurance company a monthly premium for your Medigap policy in addition to the monthly Part B premium that you pay to Medicare.
If you prefer “to keep life simple with no or little medical out-of-pocket expenses with fixed monthly premiums,” a Medigap policy may be your best option, Southan said.
However, “not everyone should consider buying a Medigap policy,” Moos said.
“You don’t need to supplement your Medicare coverage if you’re on Medicaid or signed up for a private Medicare Advantage plan or enrolled in a group health plan through an employer or former employer,” he said.
The best time to purchase a Medigap policy is within six months of turning 65 and enrolling in Medicare Part B, he said.
“During that time, insurers can’t refuse to sell you a policy, or charge you more than other people because of a health problem,” Moos said. “If you try to buy after those six months, there’s no guarantee an insurer will cover you.”
There are 10 kinds of Medigap plans, allowing you to choose which gaps to fill. Each plan is labeled with a letter, from A to N (some lettered plans are no longer offered). All insurers selling a particular kind must offer the same package of benefits.
All 10 Medigap plans cover these basic benefits: co-insurance for extended hospital stays, co-insurance for doctor visits and outpatient services, co-insurance for hospice care, and the cost of the first three pints of any blood you might need.
“Beyond those fundamental benefits, different Medigap plans pay for other out-of-pocket expenses, like the coinsurance for skilled nursing care, the hospital deductible, the outpatient deductible, and the cost of medical emergencies while traveling outside the country,” Moos said.
Be sure to shop around and compare prices. “Although insurers must offer the same benefits within a certain kind of plan, there can be big differences in their premiums,” Moos said.
But understand that Medigap insurance doesn’t plug all the holes.
“It’s not a way to pay for long-term custodial care, dental care, eyeglasses or hearing aids, and new Medigap policyholders need to buy separate drug coverage under Medicare’s Part D if they want it,” Moos said.
In any case, review your medical needs each year with an independent health insurance agent who represents several health plans. Look at your individual health situation, including your medication needs.
“The choices are very specific to each person, as health care is complicated,” Southan said. “What providers you utilize and what medications are key elements wrapped around premium cost and utilization cost.”