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Bridging the Gap Between Medicare and Uncovered Medical Expenses

By Nancy B. Crowley, CPA

When many Americans reach age 65, they are usually thinking about how they are going to spend their time during retirement. Some are looking to play more golf, while others are looking to spend more time with the grandchildren or expand their horizons with trips here or abroad. One area that many retirees spend less time thinking about is their health care. Many of them expect Medicare to cover all their health care costs, which is a false assumption that could put their retirement assets at risk. Since the open enrollment period for Medicare Advantage plans and Medicare Prescription Drug coverage is currently underway and runs through December 7th, now may be a good time for you to review your options for covering the health care expenses that are not covered by Medicare.

Before solving for any gaps, it may be helpful for you to review the available Medicare components. Briefly, Medicare consists of four parts:

  • Part A: Covers inpatient hospital services, skilled nursing homes, home health services and hospice.
  • Part B: Covers everything done to you – doctor’s services, medical equipment, outpatient care, and home healthcare. Once you meet the deductible amount, you pay out of pocket 20% of the Medicare-approved cost of the service.
  • Part C: Medicare Advantage – this is optional. Medicare Advantage is an alternative to traditional Medicare and is administered by private insurance companies. It offers additional benefits, such as vision, dental, and hearing and may also include prescription drug coverage.
  • Part D: Prescription Drugs – is required unless you have a prescription drug plan from another source. This plan is also administered by private insurance companies.

Once you have a better understanding of what is covered by Medicare, you can plan for solving any coverage gaps with a Medicare Advantage plan or Medicare Supplemental insurance.

What is a Medicare Advantage Plan?

Medicare Advantage plans, also known as Medicare Part C, are an alternative to original Medicare although technically you are still in the Medicare program. You will get your Medicare benefits through your Medicare Advantage plan (a private insurance company approved by Medicare) rather than through the federal program. The Medicare Advantage plan collects your Medicare payment from the federal government. Medicare Advantage plans usually provide additional benefits not provided by original Medicare.

To enroll in a Medicare Advantage plan, you need to have enrolled in original Medicare, Parts A and B and live in the service area of the plan that you are considering. Each plan will provide all your Medicare Part A and Medicare Part B coverage (except for hospice care which is still covered by Part A). Most Medicare Advantage plans include Medicare Prescription Drug coverage or Part D. Since each plan has different premiums and costs for services, it’s important to compare plans in your area and understand a plan’s costs and benefits. 

Medicare Advantage Plans come in different types for you to choose from based on your needs:

  • HMO Plans – Health Maintenance Organization Plans
  • PPO Plans – Preferred Provider Organization Plans
  • PFFS Plans – Private Fee-for-Service Plans
  • SNPs – Special Needs Plans
  • HMOPOS – HMO Point of Service Plans

During the Open Enrollment Period for Medicare Advantage plans and Medicare Prescription Drug coverage, you can also make a variety of changes including:

  • Change from traditional Medicare to a Medicare Advantage plan
  • Change from a Medicare Advantage plan back to Original Medicare
  • Switch from one Medicare Advantage plan to another Medicare Advantage plan
  • Switch from a Medicare Advantage plan that doesn’t offer drug coverage to a Medicare Advantage plan that offers drug coverage
  • Join a Medicare Prescription Drug plan
  • Switch from one Medicare Prescription Drug plan to another Medicare Prescription Drug plan
  • Drop your Medicare Prescription Drug coverage completely

What is Medicare Supplement Insurance (“Medigap Plan”)?

A Medigap plan supplements your original Medicare benefits (Parts A and B).  Medigap plans are not stand-alone products and you remain enrolled in Parts A and B. Medigap plans are offered by private insurance companies. The plan will cover some or most of your out-of-pocket expenses not covered by traditional Medicare, such as copayments, coinsurance, and deductibles. Any doctor who accepts Medicare will accept Medigap. Medigap plans do not include prescription drug benefits, so you will need to buy a separate Medicare Part D prescription plan. 

It is very important to note that you must enroll within six months of signing up for Medicare Part B to get guaranteed access to Medigap.  After that initial enrollment period, you may be turned down for Medigap coverage due to pre-existing conditions. During the Medigap open enrollment period, anyone may buy any policy the company sells for the same price as people in good health and there is no medical underwriting (in New York and Connecticut medical underwriting is not used for Medigap, regardless of when the applicant enrolls). This is known as the “guaranteed issue period”.  Once obtained, Medigap is guaranteed renewable provided the premiums have been paid. 

What Plan is Best for Me?

With all the different Medicare Advantage plans and Medicare Supplement Insurance products available, you may be asking, “What plan is best for me?”  To help answer that question, you may want to consider the following factors:

Premiums

  • Premiums for Medicare Advantage plans are typically lower than those of Medigap Plans.
  • Medigap plan premiums may be more expensive, but typically out-of pocket expenses are less. In addition, there is less paperwork as the Medigap program sends payments directly to the doctor or facility.

Prescription Drug Coverage

  • Medicare Advantage plans may include prescription drug coverage options.
  • With a Medigap plan, you will need to purchase a Medicare Prescription Drug plan.

Enrollment Period

  • Medicare Advantage plans have yearly open-enrollment periods during which you can freely change plans.
  • Medigap plan enrollment period must be done within the six-month window of applying for Medicare Part B to guarantee coverage, otherwise you may be turned down. (Note: there are exceptions to the six month “guaranteed issue right” period, one of them being when you continue to work after age 65; have employer group health plan coverage; and have not signed up for Medicare Part B. Please consult with an expert to ensure you do not miss the window).

Health Care Providers

  • Medicare Advantage plans are similar to private health insurance plans provided by employers. The plans generally limit you to the doctors and facilities within the HMO or PPO and may not cover out-of-network care.
  • A Medigap plan allows you to choose from any physician who accepts Medicare.  You don’t need a referral to see a specialist.  A Medigap plan may be appropriate if you have significant and expensive health problems.

Coverage Regions

  • Medicare Advantage plans most often operate within a certain region, so you need to research how the coverage applies if you are traveling or residing in a different locale during the year.
  • Medigap plans provide coverage within the United States and may provide medical insurance coverage while traveling outside the United States.

It’s easy to concentrate on all the fun things to do in retirement such as focusing on hobbies, spending more time with loved ones, and traveling, but it is also important to make sure that your current and future medical needs are covered.  Turing 65 is certainly a major milestone, but it’s also the time to sign up for Medicare Parts A and B and to consider your supplementary health insurance options. To assist you in this process, a good starting point is to visit the official Medicare website.  A second resource is the State Health Insurance Assistance Program (SHIP). SHIP is a free health benefits counseling service for Medicare beneficiaries and their families or caregivers. SHIP is an independent program funded by Federal agencies and is not affiliated with the insurance industry. The program provides Medicare beneficiaries with information, counseling and enrollment assistance and they provide free, in-depth, one-on-one insurance counseling and assistance. Through this website, you can gain access to the website for your state. Finally, you may want to seek the expertise of individuals or companies that specialize in advising on health insurance.

If you have any questions regarding your health care expenses in retirement or the health insurance options available for your specific situation, please contact your RINET Advisor.