Once you are eligible for Medicare, you have to make a few decisions on how you want to receive your healthcare coverage. The first question I get from my clients when they are eligible for Medicare and from people who have been on Medicare for years is always “Should you choose a Medigap plan or MA plan?
The answer is different for everyone because everyone has different needs and different ways they will use the health care system. In this article, I’m going to go over everything that you need to consider.
Let’s review the basics!
Most people become eligible for Medicare when they turn 65 years old. I always tell all my clients to start learning about Medicare and Social Security programs at least 1 year before they become eligible. You have to understand that you will be dealing with this for the rest of your life, you need to understand how Medicare and Social Security work.
If you don’t, you will always have someone who will try and sell you something you might not need. And you might lose out on a program which you don’t know about.
Medicare can be a blessing for those that know how it works and they select the appropriate plan structure. For those that don’t know how it works and they pick the wrong coverage it can cost them thousands. I am here to help you choose and I will answer any questions you might have.
President Lyndon Johnson signed the law that led to both Medicare and Medicaid (Medicaid is the federal health plan for the poor), on July 30, 1965. Before Medicare, nearly half of Americans age 65 or older had no insurance.
Older Americans who did have insurance sometimes found their coverage cut off if their companies considered them high risk. These days, seniors and any others don’t have to worry about their insurance being terminated for preexisting conditions. But to qualify for Medicare, you must meet certain requirements.
You qualify for full Medicare benefits at age 65 if:
You are a U.S. citizen or a permanent legal resident who has lived in the United States for at least five years, and
Your spouse or you have worked long enough to be eligible for Social Security or railroad retirement benefits; or
You or your spouse is a government employee or retiree who has not paid into Social Security but has paid Medicare payroll taxes.
You may qualify for benefits under age 65 if:
You have been entitled to Social Security disability benefits for at least 24 months that need not be consecutive, or
Disability pension from the Railroad Retirement Board and meet certain conditions, or
Lou Gehrig’s disease, also known as amyotrophic lateral sclerosis, which qualifies you immediately; or
You have permanent kidney failure requiring regular dialysis or a kidney transplant, and you or your spouse has paid Social Security taxes for a specified length of time depending on your age.
Other ways to get coverage
If you do not qualify on your own or your spouse’s work record. But you are a U.S. citizen or have been a legal resident for at least five years, you still can get full Medicare benefits at age 65 or older. You just have to buy into them by:
Paying premiums for Part A (hospital insurance). If you have fewer than 30 work credits, you pay will pay a monthly premium of $437 (in 2019). 30 to 39 credits, you will pay $240 a month. If you continue working until you gain 40 credits, you will no longer pay these premiums.
Now you have Medicare Part A & B
Most people when they turn 65 qualify for $0 premium Part A which is your hospital insurance. Everyone has to pay a premium for Part B, in 2020 it’s $144.60 per month which is your doctor’s insurance. This is the norm, but from here you have to make a few decisions. But why?
Why do I need anything else?
Medicare is a great program but it does not cover all the bills. When you go to the hospital and you are admitted as a patient, you will have to pay a $1408 deductible in 2020.
That deductible will cover all your medicare approved hospital expenses for the next 60 days. Even if you go back in those 60 days, you will NOT have to pay this again. But if you go back to the hospital as an in-patient after the 60 days since your last release, you will have to pay this deductible again. Worst case senior you can pay this deductible up to 6 times per year.
When you are in the hospital as an in-patient, Part A is your insurance. But if you go to the ER or you are just in the hospital for “observation” that is actually covered by Part B.
For Part B to start paying anything you have to first pay a yearly deductible of $198. After you have paid the deductible, Part B will pay 80% of all Medicare-approved bills. That means you are responsible for 20% of the bill no matter how much it is. If the bill is $100,00, you are responsible for $20,000. Medicare does NOT have a MAXIMUM OF POCKET.
As much as we love Medicare, Medicare can bankrupt even the most prepared if they don’t have anything to cover the gaps!
What are your options?
Option A: Most people (60%) keep Medicare Part A because it’s $0 anyways. Most people also start paying the $144.60 (2020) monthly premium for Part B. Then to cover the gaps that Medicare leaves behind, most people buy a Medicare Supplement Plan or also know as a Medigap policy.
You can choose between several different Medigap plans that offer different coverage percentages. But all Medigap plans have to follow Medicares standards of coverage.
Medicare nor Medigap plans cover Prescription Drugs. You have to join a Medicare-approved Prescription Drug Plan (Part D). It is very important to join a Part D plan because this is actually where most people spend most of there money.
Let’s Break down Option A
60% of people who have Medicare have it this way.
Medicare Part A – $0 per month
Part B – $144.60 per month
Part D – $13 to $56 month + Deductible & Co-payments
Medigap – $80 to $225 per month
It’s hard to write down dollar amounts because it all depends on the plan and the coverage you choose.
If you put it all together, the average person spends between $250 to $400 per month on have Original Medicare paired with Part D and a Medigap policy.
Of course, this is different for everyone and depends on if you take any expansive drugs. This is just an average and some people might qualify for extra help to lower these costs.
What to do If you can’t afford to pay that much?
The Medicare Advantage (MA) program, or Part C of Medicare, originated with the Tax Equity and Fiscal Responsibility Act (TEFRA), which authorized Medicare to contract with private insurance companies.
For beneficiaries that choose to enroll in an MA plan, it replaces not Original Medicare. The MA plans themselves receive a monthly payment directly from Medicare to cover each beneficiary’s care. It’s like the government is buying you a health plan and paying the premium.
How do Medicare Advantage Plans work?
If you join a Medicare Advantage Plan, the plan will provide all of your Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) coverage.
There are different types of Medicare Advantage Plans:
Health Maintenance Organization (HMO) (Most Common) – In most HMOs, you can only go to doctors, other health care providers, or hospitals in the plan’s network, except in an urgent or emergency situation. You may also need to get a referral from your primary care doctor for tests or to see other doctors or specialists.
Preferred Provider Organization (PPO) – In a PPO, you pay less if you use doctors, hospitals, and other health care providers that belong to the plan’s network but you have to options to use providers outside of the network for a higher co-payment.
Private Fee-for-Service (PFFS) – PFFS plans are similar to Original Medicare in that you can generally go to any doctor, other health care provider, or hospital as long as they accept the plan’s payment terms. The plan determines how much it will pay doctors, other health care providers, and hospitals, and how much you must pay when you get care.
Special Needs Plans (SNPs) – SNPs provide focused and specialized health care for specific groups of people, like those who have both Medicare and Medicaid, live in a nursing home, or have certain chronic medical conditions like Diabetes.
HMO Point-of-Service (HMO-POS) – These are HMO plans that may allow you to get some services out-of-network for a higher co-payment or coinsurance.
Medical Savings Account (MSA) – These plans combine a high-deductible health plan with a bank account. Medicare deposits money into the account (usually less than the deductible). You can use the money to pay for your health care services during the year. MSA plans don’t offer Medicare drug coverage. If you want drug coverage, you have to join a Medicare Prescription Drug Plan.
Who can join a Medicare Advantage Plan?
You must have Medicare Parts A and B and live in the plan’s service area to be eligible to join. People with End-Stage Renal Disease (permanent kidney failure) generally can’t join a Medicare Advantage Plan.
What do Medicare Advantage Plans cover?
Medicare Advantage Plans must cover all of the services that Original Medicare covers except hospice care. Original Medicare covers hospice care even if you’re in a Medicare Advantage Plan. In all types of Medicare Advantage Plans, you’re always covered for emergency and urgent care.
Medicare Advantage Plans must offer emergency coverage outside of the plan’s service area (but not outside the U.S.). Many Medicare Advantage Plans also offer extra benefits such as dental care, eyeglasses, or wellness programs.
Most Medicare Advantage Plans include Medicare prescription drug coverage (Part D). Plan benefits can change from year to year. Make sure you understand how a plan works before you join
How much do Medicare Advantage Plans cost?
You have to pay your Part B premium even if you are in an Advantage Plan. Medicare gives your Part B premium to the insurance company as part of your premium from the government. Some MA plans have a Part B giveback program. Just like it says, you get your Part B premium back.
You have to pay a monthly premium for an MA plan. Usually, these are low and some are even $0. But Medicare Advantage Plans by law are not allowed to cherry-pick its enrollees, they are required to accept anyone who applies. MA plans don’t want sick people because they only get one payment from the government per month. Someone who is sick is going to use services much more so they will cost the plan more money then they are bringing in.
Since the upfront money is very low to entice people to join, most MA plan makes up the difference at the end by charging larger copayment or co-insurance.
To give you an example of the types of co-pays you may find, here are some details of in-network services from a popular Medicare Advantage Plan in Florida:
- Ambulance – $300
- Hospital stay – $175 per day for first 6 days
- Diabetes supplies – up to 20% co-pay
- Diagnostic radiology – up to $125 co-pay
- Lab Services – up to $100 co-pay
- Outpatient x-rays – up to $100 co-pay
- Therapeutic radiology – $35 or up to 20% co-pay depending on the service
- Renal dialysis – 20% of the cost
- Chemotherapy – 20% of the cost
Most people only look at the monthly premium and upfront costs of the MA plans. And they are great for healthy people who don’t use medical services that often. But if you have a family history of cancer or diabetes and so on, ask yourself if you will be able to afford, for example, 20% of your care. Most people who join MA might want to consider “Hospital Indemnity” or “Cancer plans” to supplement the coverage gap.
Everyone is different, your care needs are different than your neighbors. It is important to sit down with someone who knows all the available programs in your area. Your health coverage is not something you buy from a TV commercial. I am here to answer any questions you might have.