More than 10,000 people enroll in Medicare each day, according to the National Council on Aging. If you are getting ready to join these ranks, you may find yourself in the market for a plan to pay costs not covered by original Medicare. Here are five steps to help you find the right plan for your needs.
1. Decide If You Want Medigap or Medicare Advantage
First, know that Medicare alone will not cover all your health care costs. “Original Medicare pays about 80 percent,” says Jane Kassel, owner of insurance brokerage firm Kassel Benefits in Phoenix.
The remaining 20 percent includes Medicare Part A and Part B deductibles and coinsurance, such as copays for office visits. In some cases, Medicare beneficiaries may have to pay excess charges when a health care provider charges more than the amount approved by Medicare. Original Medicare also does not pay for certain services such as prescription drugs, dental and health care costs incurred abroad. While beneficiaries could pay these costs out-of-pocket, consumers can cover some expenses through the purchase of a Medigap or Medicare Advantage plan.
Medicare Advantage, also known as Part C, allows Medicare beneficiaries to purchase bundled coverage from a private health insurance company. These plans include all the coverage provided by original Medicare plus additional benefits such as prescription drug and dental coverage. Kassel says the biggest downside to Medicare Advantage plans is that they may have a limited network of providers and typically do not provide out-of-state coverage. They may also come with their own deductibles and coinsurance requirements.
Those who want to avoid provider restrictions may want to consider a Medigap policy, also known as a Medicare supplement. These policies cover expenses anywhere Medicare is accepted and may provide what Ross Blair, vice president of eHealthMedicare.com, calls “bumper to bumper coverage” that results in little to no money spent out-of-pocket for health care costs.
“The trade-off is higher premiums,” Blair says. “In some states, you could pay up to $300 to $350 per month.” In addition, Medigap policyholders need to purchase a separate Part D plan for prescription drug coverage, which is included in most Medicare Advantage plans. Medigap plans also do not include dental coverage.
2. Know Your Medigap Plan Choices
For those who decide they want a Medigap plan, the next step is to become familiar with the options. “The great thing about Medigap plans is that they are standard benefit design,” says Kris Schneider, vice president of insurance product and carrier management at Aon Hewitt.
Standard benefit design means Medigap policies offer a uniform set of benefits. The policies are lettered from A to N, with each letter representing a different set of benefits. Since Medigap plans are regulated at the state level, not every plan is available in all states. In addition, Massachusetts, Minnesota and Wisconsin have nonstandardized plans.
Of the standardized plans, Plan A offers the most basic coverage, paying Medicare Part A and Part B coinsurance costs as well as up to 3 pints of transfused blood. Plan F is considered the most comprehensive, covering coinsurance, blood, deductibles, skilled nursing in facility care, foreign travel and Part B excess charges. “Plan F is the only plan that covers everything,” Kassel says.
Other plans offer various combinations of the benefits covered by Plan F. Furthermore, all plans except Plan K and Plan L have no out-of-pocket limit. (The limit for Plan K is $4,940, and the limit for Plan L is $2,470.)
3. Narrow Your Options
“Medicare consumers have to be very thoughtful about their medical costs,” Schneider says. “[They need to consider] what are their costs now and what they will be in the future.” Schneider suggests Medicare-eligible individuals consider all the following when weighing their options.
- Personal preference.
- Risk tolerance.
- Ability to pay.
- Lifestyle and travel.
“It is also important to ask about rate stability,” Schneider says. Looking at historical rate changes is one way to gauge stability. Blair suggests consumers also find out which of the following rating mechanisms are used for the policy they are considering.
- Community rated. Plans that are community rated do not use age as a factor when calculating premiums. Everyone enrolled in the plan, regardless of age, pays the same amount.
- Issue-age rated. The premiums for these plans are based upon an individual’s age at the time he or she purchases the policy.
- Attained-age rated. These policies have premiums that will adjust every year based on an individual’s age.
According to Blair, community-rated plans may cost more upfront, but then rates tend to remain stable. Attained-age plans, which Blair likens to variable-rate mortgages, start out inexpensive, but rates increase rapidly as you age.
4. Sign Up Early and Keep Your Plan for the Long Run
While Medigap policies can be purchased at any time, Kassel says beneficiaries can save a significant amount of money by enrolling within their initial enrollment period for Medicare. Most people will become eligible for Medicare at age 65; people with disabilities may be able to enroll earlier. For those who become eligible at age 65, the initial enrollment period runs from three months before their birthday month until three months after it.
“If purchased within six months, [Medigap policies] are guaranteed issue with no underwriting,” Kassel says. “That six-month window is really critical.”
Missing the window could drive prices up by 30 percent or more, she adds. That sizable discount for enrolling without underwriting is another reason consumers should carefully consider their policy choices and pick one based on their current and future needs. “[Medigap policies] are guaranteed renewable so long as a consumer pays their premiums,” Schneider says.
However, once a Medigap policy lapses, Medicare beneficiaries have to go through underwriting to get a new one, a process that could significantly add to premium prices. Kassel likens Medigap to life insurance in that it’s best to buy it while you’re younger and healthier, so you can lock in lower rates for the long run.
5. Enlist Expert Help
Both Blair and Kassel say there is no reason for consumers to go at it alone when selecting a Medigap plan. They note there is no charge to use a broker, which means premiums will be the same whether a consumer purchases through a third party or direct from an insurance company.
Blair, whose company maintains a hotline to connect consumers with licensed agents, says individuals should be wary of captive agents who work for a specific company. “Find someone you trust,” he advises. “Agents should ask lots of questions and offer plenty of options.”
Kassel adds that, by law, Medigap policies cannot solicit business. That means that while Medicare Advantage brochures may fill your mailbox, you’ll likely never see one for a Medigap plan. As a result, if you want help, you need to reach out to a broker or insurance company, since they cannot initiate contact with you about the policies.