For most Americans age 65 and over, Medicare is at the center of health care. Understanding and making Medicare choices is a complex and fraught proposition. The decisions you make as a relatively healthy 65-year-old can limit your choices as a frail 90-year-old. Options abound, and they’re hard to compare or evaluate. But since Medicare will only be more important to us as we age, we’d better pay attention.
Learning about Medicare
As you approach your “initial enrollment period,” you’re likely to be barraged with information from insurance companies and from Medicare itself. IMHO, your best bet for Medicare assistance is a county-based government program called SHIP (State Health Insurance Assistance Program). SHIP services are free, comprehensive and unbiased. Our SHIP in Pima County offers one-on-one assistance as well as monthly “New to Medicare” presentations.
There are sales agents who’ll happily provide “free” advice but remember: someone is paying for it. Agents may sincerely want to help but they won’t necessarily give you the best advice. For example, an agent recommended a particular Part D policy to me, saying it was the best I’d find. When I found a better one (thanks to my local SHIP), she airily said, “Oh, well, that company is new in this county. I don’t have a contract with them yet.”
A third source of information is Medicare for Dummies, a 343 page guide to choosing and using Medicare. A companion volume, Medicare Prescription Drug Coverage for Dummies, is equally lengthy. These books tell all but because they address every exception and contingency, even smart people may find them hard to use.
Medicare is complex. It offers dozens of options which are hard to compare. In no way does one size fit all. In fact, a choice perfect for one person may be a terrible choice for another person.
Before starting Medicare, I went to a SHIP presentation that motivated me to become a volunteer Medicare Counselor. On the first day of training, we received a three-page list of acronyms! Every rule had exceptions. Words had different meanings in different contexts. Our portfolio of handouts was too heavy to carry. Yet the will to learn and to help were extraordinary. I wholehearted recommend SHIP to anyone with questions.
Note: As a SHIP Counselor, i’m charged with explaining options without offering opinions, which sometimes has me biting my tongue. Where opinions emerge on this website they are mine alone.
A Brief History of Medicare
To understand Medicare, it helps to understand its history. Medicare’s numerous options fall under two headings, option 1 and option 2:
Medicare was signed into law by Lyndon Johnson in 1965. It covered inpatient services (Part A) and outpatient services (Part B), but kept them separate, with different deductibles, premiums and regulations. This “Original Medicare” did not cover everything and insurance companies were authorized to sell a special kind of policy to cover what Medicare did not. These policies are called Medicare Supplements or Medigap policies, because they fill in the “gaps” not covered by Medicare.
In the 1970s, a Part C was added to Medicare but it had little traction until 2003, when it was renamed “Medicare Advantage.” Medicare Advantage (MA) offered an alternative possibility. If you opted for MA, it replaced Original Medicare. Since it had no “gaps,” Medigap policies couldn’t be sold to MA policyholders.
Medicare Advantage policies are required to offer, minimally, the same benefit offered by Original Medicare but they were allowed to package and price services differently. In addition, they were encouraged to offer additional services, like routine dental care and gym memberships.
In 2006, a prescription drug benefit (Part D) was added. For those with Original Medicare and Medigap, it comes in the form of a “standalone” prescription drug plan (PDP) offered by insurance companies. In the case of MA, it is included as part of the package.
From the beginning, it was agreed that Medicare coverage would be strictly medical. Dental care, routine eye care, hearing aids, and long-term care are not included.
Starting Medicare
For most Americans, Medicare becomes their primary provider of health insurance at age 65.
If you receive Social Security, your Medicare Card will be mailed to you three months before your 65th birthday. If you don’t, you’ll need to contact Social Security to get your Medicare Card. (You can easily do this online.) If you’re still working and have employer-provided insurance, you’ll have options for deferring Part B and Part D until you retire and lose other coverage.
Medicare Options
Those beginning Medicare are generally told they must choose between two options: Medicare Advantage (MA) or Original Medicare (OM). But it’s often unclear whether MA is being compared to OM alone, or to OM plus Medigap and Part D.
When MA is compared to Original Medicare alone, it seems far the better choice. But compared to OM plus Medigap and Part D, it becomes a much closer choice. is added as an option, it far surpasses the other two (though at greater initial cost).
Original Medicare (Parts A and B)
Original Medicare covers hospital-related costs (Part A) and outpatient services (Part B). Part B includes doctor visits, preventive care, lab work, etc.
Part A has no monthly premium, but it has a deductible – $1,216 per “benefit period” in 2014.
Part B has a monthly premium – $104.90 in 2014 – and a small annual deductible ($147 in 2014). However, it covers only 80% of most Part B services, leaving you responsible for the remaining 20%.
The Part B premium is generally taken directly from your Social Security check. If you’re not receiving Social Security, you’ll need to make arrangements to pay it. The Medicare website will guide you through this process.
Original Medicare plus Medigap
Since the various outlays associated with Parts A and B can add up, there are insurance policies that offset them, called Medigap or Medicare Supplement policies. These generally cost $120-$180 per month, in addition to the Part B premium. Most Medigap policies cover the Part A and Part B deductibles and the 20% co-insurance for Part B services, as well as other expenses.
With Original Medicare plus Medigap, there are no copays, no restrictions on what practitioners you can see, and no paperwork to deal with. More about Medigap
Medicare Advantage (Part C)
Medicare Advantage (MA) policies must cover the same services as Original Medicare, though they package and price them differently. While you’ll still have to pay the Part B premium, many MA policies have no additional monthly premium at all.
In addition, many MA policies include a prescription drug benefit and other benefits not covered under Original Medicare. These may include access to low-cost dental insurance, routine eye care, Silver Sneakers (free access to many gyms), and paid transportation for doctor visits.
Too good to be true? What’s the catch?
Most MA plans are HMOs with limited networks, and services typically involve copays and co-insurance. More About Medicare Advantage
Prescription Drug Coverage (Part D)
In addition to Parts A and B, an optional prescription drug plan, Part D, came into existence under the George Bush administration. Part D policies are sold by private insurers. They all have a premium, usually between $30 and $70 monthly, along with co-pays and an annual deductible.
In addition, after a threshold is reached, you must pay all drug costs until another threshold is reached, after which most costs are picked up by the insurer. These thresholds mark the infamous “donut hole” – between $2850 and $4550 in 2014. (The donut hole is shrinking and will be gone by 2020.)
Part D plans aren’t required. It’s safe to say that their many intricacies, like the donut hole, were not developed with the best interests of seniors as a top priority. Yet, many people will need costly non-generic drugs at some point of their lives, and these plans will prove their value. More about Part D Prescription Drug Plans
Comparing the Options
In a way, it’s a choice between pay now or pay later. MA is great as long as you don’t need it, but costs rise steeply and unpredictably when you do. On the other hand, with Original Medicare plus Medigap, you may pay premiums for years without using any services.
The combined costs of Original Medicare + Medigap + Part D (Prescription Drug Coverage) will be over $3000 yearly. Still, IF you can afford the whole package, it’s what I recommend. Here’s why:
- You can see any practitioner anywhere in the country who accepts Medicare (the vast majority of practitioners)
- You’ll never lose your doctor because your plan decides not to renew his/her contract
- You won’t have co-pays, co-insurance fees, or other costs to worry about (This may change, as busy minds are eager to undermine Medicare by adding co-pays and fees at every turn.)
- You won’t have to worry about billing. It will all be done for you
- You won’t have unpredictable costs depending on how sick you get and what services you need
The choice you make at age 65 may turn into a lifetime commitment. Though medical underwriting aimed at denying coverage for pre-existing conditions has been eliminated for younger Americans, it remains entrenched in Medicare. The only time you can buy a Medigap policy without medical screening is during your “initial enrollment period.” (Otherwise, everyone would opt for MA and switch to Medigap when their health deteriorated.)
What If You Can’t Afford Medigap and Part D?
If you can’t afford the Medigap premium, you won’t be able to afford the care you need with Original Medicare, especially as you get older and iller. This is because 20% of all outpatient services can add up to quite a bit, and multiple hospitalizations can cause the Part A deductible ($1000+) to be levied more than once annually (Benefit Periods). Millions of seniors were in this situation before MA became available and many still are.
That leaves Medicare Advantage. Sadly, if you can’t afford the Medigap premiums, you probably can’t afford the care you’ll need with MA either. MA plans are a great deal for the healthy, but the more services you need, the higher your costs.
Still, if you don’t travel much and can find practitioners you like within a local network, MA may well be your best option. This is especially true if you’re part of a “special needs” population and a specially tailored MA plan is available in your area. Most often, special need MA policies are for people with diabetes or heart disease, people in nursing homes, and people receiving financial assistance. If an appropriate special needs plan is available to you, it will often provide additional benefits as well as specialized practitioners and services.
What if You Can’t Afford the Costs Associated With Medicare Advantage?
MA policies are required to have out-of-pocket maximums, generally between $3000 and $7000 per year. The older you get and the more services you need, the more likely the deductible will turn into a recurring annual expense.
Costs for drugs, dental care, hearing aids, etc. don’t contribute to satisfying the out-of-pocket maximum, even though the services are provided under the plan. This is because only services covered under Original Medicare count toward the deductible. Dental care and prescription drug coverage are considered extra benefits optionally offered by the insurance companies, though bundled with Medicare benefits.
What happens if you can’t afford the care you need but have too much income and/or assets to qualify for government assistance programs (discussed below)? Your doctors will struggle to find “sub-optimal treatment plans” for you, as a doctor recently explained to me.
(The full repercussions of MA’s price structure won’t be seen until baby boomers reach their 70s and 80s. Is there a crisis looming? Nobody’s discussing it.)
Other Factors (Paperwork and Hassles)
An additional reason for choosing Original Medicare plus Medigap is that you’re generally spared the paperwork associated with medical treatment. With an MA policy, a stay in the hospital will unleash a shower of bills since the hospital, the emergency room doctor, the ambulance, the anesthesiologist, and the X-ray lab will each bill you separately for their co-pay or piece of the co-insurance. (Of course, if you had Original Medicare without Medigap, the same thing would happen as the separate service providers sought their 20%.)
Assistance for Low-Income Seniors
Help is available for low-income seniors. Medicare’s website provides a link to the information you need (Get Help with Costs). Programs range from assistance with pharmaceuticals to comprehensive coverage. Medicaid, whose rules, benefits, and eligibility requirements vary from state to state, will cover some benefits not covered by Medicare, such as dental care and nursing home costs.
If you’re eligible for both Medicare and Medicaid, you’re considered “dually eligible,” and most of your health care costs will be covered, including the Plan B Premium.
States have other programs that cover premiums and in some cases deductibles and co-pays; collectively, these are called Medicare Savings Programs. There are also programs to help cover the cost of prescription drugs. If you receive Medicaid or are enrolled in any of the Medicare Savings Programs, you will automatically qualify for prescription drug assistance; if not, you may apply for it.
Your local SHIP can provide information and assistance.