Medicare Plans

Medicare is a federal program overseen by the Center For Medicare and Medicaid Services (CMS). It is available to people at age 65, and those younger than 65 with either a qualifying disability and /or end stage renal disease.

There are two parts to "traditional Medicare" ( Part A and Part B) which are administered by CMS. In addition, private insurance companies offer Medicare Supplements (also called Medigap) and Medicare Advantage Plans that cover deductibles, co-pays and other specific needs not covered by traditional Medicare. In 2003, legislation was passed to create a Prescription Drug Plan. Minimal benefits were defined and hundreds of plans are now available from private insurance companies.

It is prudent to evaluate all of these coverage's in the months prior to turning 65, even if you work past your 65th birthday and have health coverage through your employer.  If you do not enroll before specific target dates, you are likely be penalized with surcharges added to your premiums for the rest of your life.  It is also prudent to annually evaluate all private insurance plans because the marketplace for these products changes substantially every year.  Your plan and its pricing is likely to change every year. Even if your health remains the same, you may benefit by changing plans.  If your health and prescriptions change, it is especially important to reevaluate.

Medicare PART A covers hospitalizations, skilled nursing care, home health care, hospice and preventive care.  There is no charge for Medicare Part A benefits if you have had 40 or more quarters of Social Security coverage.  If you have had 39 or fewer quarters you can purchase Medicare Part A.

Medicare PART B covers doctor and medical services, equipment, therapies, lab tests and x-rays. Medicare pays 80% of most of these charges. Medicare added many preventive procedures starting in 2011 that are mostly paid 100% by Medicare.

To access "Guide to Medicare Preventive Services", click here.  

Part B is an optional coverage that requires that you enroll and pay premiums. Most people choose this program when they turn 65 or, if they continue working past age 65, most choose to enroll in Part B when their employer health care coverage ceases.  Enrollment must occur according to strict time lines or you will be penalized in the form of a surcharge on premiums.

Part B premiums are a set percent of actual health care costs and have risen rapidly. For most people, premiums are set at a level equal to 25% of the estimated Part B spending in any given year, with the other 75% paid by the government. 

The chart to the right shows the rise in premiums from 1990 to 2009.  In 2011, monthly premiums range from $96.40 to $115.40 for most.  Premiums during the 1990's increased by about 72% while, from 2000-2010, they increased by about 120%.  For calculating future health care costs, it seems prudent to assume approximately a 100% increase per decade (~7%/yr).

As part of the 2003 Medicare drug legislation, 2007 was the first year of Part B "means tested" premiums. This is a significant social policy change as, for the first time, premiums are not the same for everyone. 

Under the means-tested provision, the government subsidy for Medicare Part B premiums was reduced from 75% to 20% for higher income individuals for those with the highest incomes. Those with higher incomes pay substantially higher premiums.

Note that your Adjusted Gross Income from a prior tax return is used to determine your premium. Under certain circumstances, this can be appealed to lower your premium.

Chart for 2011 "Means Tested" Part B Premiums

Medicare Parts A and B coverage's are not "all-inclusive" and have various deductibles and co-pays leading to significant out of pocket expenses.  To avoid these expenses, most people get a Medicare Supplement policy (called Medigap) or a Medicare Advantage Plan.

Medicare Supplements (also called Medigap)

Medicare Supplements are designed to reduce the risk of significant out-of-pocket expenses resulting from deductibles, co-pays or areas of coverage not included in traditional Medicare Parts A and B.  To be eligible for a Medicare Supplement, you must be enrolled in Medicare Parts A and B.

There are different types of Medicare Supplements (Plans A – N) and these are purchased from private insurance companies.  The benefits provided by each Plan are defined in law so the benefits of one carrier's Plan F is exactly the same as another carrier's. Note that premiums and underwriting may differ though.  The Medicare Modernization Act redefines all Medicare Supplements sold after 6/1/2010.  This Act eliminates Plans E, H, I and J while adding two new plans (Plan M and Plan N). 

For a chart describing benefits associated with Plans (A-N), click here. 

Note that each insurance company determines the premiums charged to policyholders and premiums may vary according to your county or zip code.  It's not unusual to see premiums for new policies vary by as much as much as 50% from one company to another. Additionally, premiums generally increase annually by varying amounts.  The resulting variance in pricing by different companies provides an opportunity for relatively healthy people to easily save money by contacting us to compare coverage and pricing for identical plans.

When initially applying for Medigap coverage, you can automatically qualify if your application is submitted during your Open Enrollment period.  The Open Enrollment Period is based on your date of enrollment in Part B or, if you continue working past age 65, the date your coverage from an employer health plan ceased.  Other exceptions providing Guaranteed Issue status exist but are not applicable for most people. If the Open Enrollment Period has passed, then the insurance company is likely to require that you answer health-related questions on your application for coverage.  Higher risk applicants may be placed in more expensive, higher risk groups or the insurance company may refuse to offer coverage.  The criteria to determine the risk class is determined uniquely by each company.

Medicare Advantage Plans (also called Medicare Part C)

Like Medicare Supplements, Medicare Advantage Plans are private insurance contracts. While Medicare Supplements work within the traditional Medicare Part A and Part B programs, Medicare Advantage Plans must include the coverage provided by Medicare Part A and Part B, but can offer other benefits beyond that.  Typically, these plans offer a mix of benefits to cover deductibles and copays to a lesser extent that the better Medicare Supplement plans.  Beyond that, these plans can, and do, offer additional benefits.  Because benefits vary widely, it is difficult to compare different plans.  Some of the additional benefits may include dental, vision, preventative care, membership in health clubs (Silver Sneakers) and even out of pocket maximums (~$4000-7000/year). 

Medicare Part C plans have existed for many years.  They were popular in the 1990s as Medicare HMOs.  Initially, these plans received subsidies from the government and were quite popular for those trying to save money by avoiding the more expensive Medicare Supplements. However, as the subsidies were eliminated, insurance companies found this line of business to be unprofitable and discontinued these plans.  These new Medicare Advantage Plans are also receiving subsidies.  It is estimated that, in sum, the Medicare Advantage Plans received a 12% subsidy while the most prevalent type of Medicare Advantage Plan, Private Fee for Service (PFFS) plans, enjoyed a 19% subsidy over regular Medicare in 2007! The Health Reform bill signed into law by President Obama eliminates these subsidies over the next few years.

Prescription Drug Plans (Part D)

This relatively new coverage is complicated, but worthwhile for most to apply as they become eligible for Medicare. If you're eligible for Medicare, you qualify for the Medicare Part D Prescription Drug Benefit. It's that simple. For most people this means that if you're 65 or older - or are on Medicare and Medicaid because of qualifying disabilities - you're eligible for this benefit. Whether or not you choose to take advantage of this benefit is up to you. To enroll, you just sign up for one of these plans.

For those enrolled in the program, this benefit saved seniors an average of $1200 /yr on their prescription drug expenses in 2009. These savings will increase substantially in 2011 as drug companies reduce the cost of drugs for those in the Donut Hole.   Also, if you don't sign up shortly after you are first eligible, there is a 1% penalty for each month after your Initial Enrollment Period has expired that you wait to enroll.  For these reasons, we usually recommend that retired clients enroll when they reach age 65 if they do not have "creditable" drug coverage from an employer health plan. Creditable coverage is at least as good as the Part D minimum stated below. Your employer should be able to tell you if your plan is "creditable" or not.

The national average premium for a stand-alone Part D rose from $36.90 /month in 2010 to $38.22 in 2011, to $39.62 in 2012.  In Georgia, the average weighted premium remained exactly the same from 2011 to 2012.  Of those in Georgia who are already on plans, 69% will see an increase for 2012 with the average increase of $2.44 /month. 

Starting 2011, Part D premiums were "means tested" just like the Medicare Part B premiums.  Note that the income thresholds are the same.  Each threshold has an additional monthly premium amount that is added to drug plan premium.  In prior years, participation in Part D was worthwhile even for those who take few prescription medications.  I expect that some of the more healthy individuals with higher incomes (especially those who do not take prescriptions) will now choose to avoid participation in this program. Here is the chart showing the premium "adjustment" for those with higher incomes.

Note that these plans are sometimes combined with Medicare Advantage plans (called MA -PD). It's important to be aware of the designated enrollment dates. In the past, the Annual Election Period has been from Nov 15 – Dec 31 with an effective date of January 1st regardless of the day you enroll. Beginning with the 2012 enrollment period, the Annual Election Period changes to Oct 15 – Dec 7 while continuing to have Jan 1st as the effective date.

Standard Coverage for Part D Plans:

(The minimum coverage drug plans must provide. Plans vary but must be at least this good. For example, there are many plans with $0 deductibles.  These minimum standards of these plans are changed annually by CMS)

For a Graphic Representation of Part D coverage, click here.

Effective January 1, 2012, for covered drugs you will pay:

• A monthly premium (varies depending on the plan you choose)
• The first $320 per year for your prescriptions. This is called your deductible.
• After you pay the $320 yearly deductible, here's how the costs work:
• You pay 25% of your yearly drug costs from $320 to $2,930, and your plan pays the other 75% of these costs, then
• Donut Hole: You pay 100% of drug costs until you have paid $4700 out of pocket (including the 25% of drug costs paid before retail costs exceeded $2930). Note that drug companies reduce the cost of brand-name drugs by 50% in the Donut Hole and that these discounts are included as out of pocket expenses for calculating the $4700 limit of the Donut Hole.  Starting in 2013, the federal government will gradually add to the discount so that by 2020, beneficiaries will be paying no more than 25% of the cost of brand-name and biologic prescription drugs while in the Donut Hole.  By 2020, the federal government will cover 75% of the cost of these brand-name drugs.  Beneficiaries purchasing generic prescription drugs will also get a 7% price-cut starting in 2011. By 2020, the coverage in the Donut Hole to be the same as coverage before you reach the Donut Hole limits.
• After you reach the end of the Donut Hole limit, then
• For remaining drug expenses through the end of the calendar year, you pay a small coinsurance of 5% or a small co-payment (few dollars only for each prescription). Your Part D Plan pays the drug costs exceeding the coinsurance or co-payment for you.

Thus, by 2020, the Donut Hole will disappear for all drugs, both generic and brand name. It is important to note that the discounts do not affect a beneficiary's ability to qualify for Part D catastrophic coverage if the actual costs of the individuals drugs are high enough to reach that level.

Enrollment Dates:

Initial Enrollment Period (IEP): All individuals have an IEP that is the 7 month period that begins 3 months before the month an individual meets the Medicare Part B eligibility requirements and ends 3 months after the month of eligibility (generally the individual's month of birth).

Annual Election Period (AEP): In prior years, the AEP occurred November 15th through December 31st.  Starting Oct 2011, the AEP will be October 15th – December 7th. There is one AEP enrollment / dis-enrollment choice available for use during this period. Once the enrollment / dis-enrollment is effective, the individual has exhausted this choice.

Special Enrollment Periods (SEP): During an SEP, an individual may discontinue enrollment in a Part D Plan or change to a different Part D Plan. Examples of SEPs are: Change in residence outside of a plan coverage area; Involuntary loss of Creditable Coverage; Non-renewals or termination of plan; Contract violations; Dual-eligible beneficiaries; and other exceptional conditions.

For Part D, premiums can usually be paid by: automatic deduction from your Social Security check; by credit card; or by direct payments to the insurance company.