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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 coverages 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 and hospice. 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. It 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, they choose to enroll in Part B when their employer health care coverage ceases. Enrollment
must occur according to strict timelines 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. Currently, 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 since 1990. In 2008, monthly premiums will be $96.40, though as recently as 2003 these premiums were $58.70 per month.
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 will be reduced for higher
income individuals. For the wealthiest individuals, the subsidy will decline from 75% to 20%. The change will be phased in over three years, with the premiums calculated on a sliding scale based
on annual gross income. Those with higher incomes will pay substantially higher premiums. For
example, in 2008 a single person with an Adjusted Gross Income (AGI) above $82,000/yr (or $164,000 for a married couple) had
premiums raised by $25.80/month, while individuals making more than $205,000/yr paid an extra $142/month. These "surcharges" for those with higher incomes will
increase substantially over the next couple of years.
Medicare Parts A and B coverages 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 (also 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 many different types of Medicare Supplements (Plans A – L) and these are purchased from private insurance companies. The specific benefit components for
each of these plans is legislated by the federal government. For a chart describing the benefits associated with each Plan (A-L), 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 vary by as
much as much as 50% from one company to another. This is one area that relatively healthy people can easily save money by contacting us to compare coverage and pricing for identical plans.
When you initially apply for Medigap coverage, you can automatically qualify if your application is submitted during the Guaranteed Issue period. The Guaranteed Issue
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. If the
Guaranteed Issue 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 insurance.
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 and even membership in health clubs (Silver Sneakers).
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! This subsidy enables extra benefits to be included and for premiums to be significantly less than
the more traditional Medicare Supplements. In mid-2007 Congressional hearings, many vocal critics of the Medicare Advantage plan discussed the elimination of this
subsidy. As of Sept 2007, it appears that this subsidy will continue through 2008. When considering these plans, it is prudent to take a "buyer beware" approach,
especially if one of these PFFS plans looks "too good to be true."
Prescription Drug Plans (Part D)
This new coverage is complicated, but worthwhile for most to begin participating in when 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 is saving seniors an average of $1200/yr on their prescription drug expenses. 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 is roughly $25/month. Note that these plans are sometimes combined with Medicare Advantage plans (called MA
-PD). It's important to be aware of the different enrollment dates (in blue and links below). The Open Enrollment period is from Nov 15 – Dec 31 and the effective date is January 1st regardless of the day you enroll.
Standard Coverage for Part D Plans
(the minimum coverage drug plans must provide)
Effective January 1, 2007, for covered drugs you will pay
- A monthly premium (varies depending on the plan you choose)
- The first $265 per year for your prescriptions. This is called your deductible.
- After you pay the $265 yearly deductible, here's how the costs work:
- You pay 25% of your yearly drug costs from $265 to $2,400, and your plan pays the other 75% of these costs, then
- You pay 100% of your next $3,051.25 in drug costs, then
- You pay a coinsurance amount (like 5% of the drug cost) or a copayment (like $2.15 or $5.35 for each prescription) for the rest of the calendar year after
you have spent $3,850 out-of-pocket. Your plan pays the rest.
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 Coordinated Election Period (AEP): The AEP occurs November 15th through December 31st of every year. There is one AEP enrollment/disenrollment choice
available for use during this period. Once the enrollment/disenrollment 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; Involuntary loss of Creditable Coverage; Non-renewals or termination of plan; Contract violations; Dual-eligible beneficiaries; and other exceptional conditions.
Premiums can usually be arranged to be paid by: automatic deduction from your Social Security check; by credit card; or by direct payments to the insurance company.
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