Make Better Medicare Choices
By David J. Haas CFP® October 7, 2021
Besides leaf peeping and holiday shopping, autumn marks another annual tradition. It’s Medicare open enrollment from October 15th to December 7th, when current participants can switch health plans or drug plans and have those changes take effect on January 1st. Unlike many so-called financial advisors, as a financial planner, I give my Medicare-eligible clients advice on their choices. Financial wellness includes good health and I want my clients to make informed choices when they decide among their options.
Quick Medicare Review
Medicare is a government/private health insurance program for eligible Americans. Individuals become eligible either once they turn 65 years of age, when they are over 65 and leave a job with credible medical coverage, or two years after they become eligible for Social Security Disability benefits. Medicare has lettered parts and each one works slightly differently.
Medicare Part A – Part A covers hospitalization, temporary skilled nursing facility care, and hospice care. Part A is paid for by payroll deductions when you are working, so once you retire you no longer have to pay out-of-pocket premiums.
Medicare Part B – Part B pays for doctors, tests, physical therapy, durable medical equipment, and most outpatient care. Once you sign up for Part B, you have to pay premiums, which in 2021 start at $148.50 per month. Premiums increase if your income increases.
Medicare Part C – This is another name for Medicare Advantage or privatized Medicare. Part C plans replace Parts A, B, and D with a private plan that includes hospitalization, doctors, and drugs. Premiums vary and some plans do not have any premiums above Part B (which still have to be paid). Unlike Parts A and B, plans vary by state.
Medicare Part D – Part D plans cover drugs you get in the pharmacy as well as some vaccinations. Part D is also privatized and plan availability as well as costs vary by state. You typically choose a new drug plan every year because the insurance companies change the features each year.
Medicare Part E – Medicare Supplemental plans are sometimes called Part E. These plans, also known as Medigap are sold by private insurance companies to cover gaps in coverage provided by traditional Medicare (parts A and B). Although you can switch supplemental plans every year during open enrollment, most people don’t because the insurance is underwritten for health after your first year. These plans are highly regulated. They can have different features, but Medicare has standardized the feature set under a different letter name. The most popular plan is G because it covers the most. More on this later.
First choice: Traditional or an Advantage Plan
You can choose to get your healthcare with traditional Medicare, consisting of parts A, B, D, and E or Medicare Advantage. These two choices have important differences in both coverage and costs.
When you have Traditional Medicare, you don’t need to worry about any provider networks. You can go to any doctor in the US who accepts Medicare. Most of them do because such a large portion of the population is covered. Part B covers 80% of any doctor visit or service, but the amount Medicare allows the provider to bill is lower than for private insurance. You have a 20% copayment, but that copayment is usually much lower than the one you might have had with private insurance.
Traditional Medicare does not cover dental or vision. Dental is the big thing here because as we get older, our dental expenses tend to increase a lot. A single-tooth dental implant might cost $5,000 and it’s not covered.
Medicare Advantage plans vary a great deal, but one thing they have in common is that you cannot go to any doctor you want to. All Advantage plans have networks of doctors and the plan will only reimburse you fully when you go to an in-network doctor. There are a few PPO (Preferred Provider) Advantage plans which do cover out-of-network services, but these plans are more expensive. In general Advantage plan are cheaper than buying traditional parts A, B, D, and E. Some Advantage plans cover dental and vision expenses, although coverage is usually very limited, typically only for routine preventative and minor restorative care.
Ignore all the advertising by the insurance companies. Choice is the most important factor when it comes to medical insurance and Traditional Medicare beats Advantage hands-down. When you really get ill, you want the option to go to a specialist of your choice in another town. You don’t want the insurance company making that choice for you, because they are not motivated to make the best choice for you, only for themselves. The extra vision and dental benefits available with Advantage plans provide very minimal coverage. Another problem is that it’s very difficult to switch back to Traditional Medicare once you have chosen Advantage. Yes, theoretically you can switch back, but Medicare Supplemental providers can refuse to cover you or charge you much more for the same coverage based on your health. If you choose traditional Medicare from the beginning, they must charge everyone the same rate and cannot deny coverage based on health. Just “trying” an Advantage plan is a trap, so don’t get trapped.
Second Choice: Medicare Supplemental Plan
Medicare supplemental plan types are categorized by plan letter. New Jersey publishes an excellent one-page chart showing the plan types and their coverages here: https://www.state.nj.us/humanservices/doas/documents/SHIP_Medigap_Benefits.pdf. Note that the information here is the same for any state. Medicare Supplemental plans are optional, so why do you need one? The most important factor is the coverage for Part B coinsurance. Unfortunately, Part B does not cap your exposure when it comes to the 20% coinsurance for every doctor or service visit. Theoretically your liability here is unlimited, although in practice it might be very hard to spend more than $10,000. Still, it’s worth having the insurance and plans can also cover other charges Medicare does not pay or has deductibles for.
Plan F covers the most, but has not been available for new participants since 2019. Plan G is really just as good and is currently available to all. Plan G also comes in a high-deductible form where you have to incur over $2,370 (2021 figure) in expenses before the insurance starts paying, but premiums are much lower. Otherwise, the high-deductible version and the regular plan G are identical.
Which Supplemental Plan Should You Choose?
Once you decide which letter to choose, the only difference between providers is the price. Coverage with plan G will not differ between United Healthcare, Cigna, Aetna, or any other provider, only the price will. Pricing varies in every state and sometimes it varies from county to county within a state. AARP endorses the United Healthcare Plan G and it’s true that this plan is very comprehensive. But here is something important to know. The plan is discounted heavily early at age 65 and the discount goes away as you get older. The discount starts at 39% when you are age 65 and decreases each year after age 68. In New Jersey at age 65, the AARP United Healthcare Plan G costs $141.52/mo for females and $162.80/mo for males.
I happen to like the high deductible plan G. In NJ, Colonial Penn sells a high deductible G plan for $45.99/mo for females and $50.99/mo for males age 65. There are many other providers with similar prices.
Third Choice: Medicare Drug Plan
Medicare drug plans, also called Part D, cover drugs you get from a pharmacy as well as some vaccinations including the shingles vaccine. You should be choosing a new drug plan each year during open enrollment. The drug plans vary by which drugs they cover and how much they make you pay as a copay. They also vary with which pharmacies you can go to and how much they charge for a premium. The best way to choose a drug plan is to use the Medicare plan comparison website the government provides: https://www.medicare.gov/plan-compare. Enter your prescriptions on the website and then search for the plan with the lowest overall expense. Then just make sure there is a pharmacy near you which is part of the plan. You are likely to have to choose another plan next year because the drug plans change their policies each year.
Make Good Choices
Medicare is complex and even though I have shared a lot of information in this article you should learn as much as possible before making choices. https://medicare.gov has a lot of good information on it. Many state insurance departments also might have useful information. New Jersey has a guide to Medicare information for its residents here: https://www.nj.gov/humanservices/doas/services/ship/ . They will help seniors with choices and intercede with insurance companies to resolve problems. New York also has helpful information here: https://www.dfs.ny.gov/consumers/health_insurance/information_for_medicare_beneficiaries. I help my clients with their Medicare choices and if your financial advisor does not, maybe you need another financial advisor. A healthy body is just as important as a healthy portfolio. Maybe more important!