This article was originally published on Nov. 11, 2015 and updated on May 5, 2016
Medicare is a government program that is vital to the financial security of millions of retired and disabled Americans. There are several plans to choose from and selecting the right one can save you money and offer you peace of mind. So let's go over the basics every American should know before choosing a Medicare Plan.
Medicare is a government program that is vital to the financial security of millions of retired and disabled Americans. There are several plans to choose from and selecting the right one can save you money and offer you peace of mind. So, let's go over the basics every American should know before choosing a Medicare Plan.
Medicare provides health insurance to Americans aged 65 and above, as well as people with certain disabilities (who may be younger than 65). There are three basic requirements you must meet in order to be eligible for Medicare:
- You must be at least 65 years of age
- You must hold U.S. citizenship status for at least five years
- You must have a qualified disability if you are under the age of 65
You must actively sign up for Medicare, as it does not automatically kick in when you qualify. If you, like most folks, plan to sign up when you reach age 65, then it's best to begin the enrollment process three months before your 65th birthday.
There are many choices to make when it comes to Medicare. Medicare.gov provides guidelines to help individuals choose their coverage without having to pay a professional advisor.
The first, and perhaps most important, choice is whether to opt for traditional Medicare or an alternative plan, referred to as a Medicare Advantage Plan.
The Medicare Advantage Plan is a private insurance plan that is administered by private companies that are Medicare-approved. This type of plan can be administered by a number of organizations, such as Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), or Point of Service plans (POSs).
The Medicare Advantage Plan can often provide the same coverage as Original Medicare at a lower cost. Most plan administrators of the Medicare Advantage Plan will offer prescription drug coverage that would otherwise be provided under traditional Medicare Part D, but not all do, so you have to do your homework. Note that if you are enrolled in a Medicare Advantage Plan that does not offer prescription drug coverage, you will not be able to enroll in an original Medicare Part D prescription drug plan at the same time. It is also vitally important to understand the limitations of the Medicare Advantage Plan, such as some referral and in-network restrictions -- just like those found in traditional HMOs, PPOs and POSs. These caveats make it all the more important to do your homework before making a choice.
The good news it that you can change plans each and every year during the open enrollment period, which runs from Oct. 15 to Dec. 7 of each year.
Choosing the right plan matters
My mom serves as a great example of how the Medicare Advantage Plan can grant you access to great healthcare for less money and hassle than traditional Medicare. She opted for an Advantage Plan because her internist participated in it and the internist's office recommended it. (As a side note, if you don't have a relationship with an internist or primary care doctor, then you should develop one. They can be vital in helping you make these decisions, as they deal with these organizations on a daily basis and know which ones take good care of their enrollees.)
At age 80, my mom was diagnosed with stage four colon cancer. During the next five years, she visited doctors regularly and went through many different treatments -- and nearly all of her bills were paid by her Medicare Advantage Plan. Clearly the plan was the right choice for her.
Meanwhile, many people in similar situations find themselves neck-deep in medical bills and paperwork. What if a Medicare recipient is unable to muddle through the paperwork because they are sick, have some cognitive issues, or are simply not good at handling such a burden? And what if there are no kids around to help with the paperwork? There is something to be said for simplicity and keeping your bills and accounts consolidated and easy to keep track of, especially as we get older (and don't get me started on the safety deposit box at the bank that no one except for you knows about)!
Traditional Medicare is broken into different parts
Medicare Part A is often referred to as hospital insurance. This portion is free for most individuals. Medicare Part B, often referred to as medical insurance, is supplementary coverage that covers most medical services deemed necessary, such as doctor visits, physical therapy, and durable medical equipment. Premiums for Part B are set according to what your income level was two years prior to the current year. As of 2016, most people will pay a premium of $104.90 a month, assuming they signed up for Part B coverage when they were first eligible. If you did not sign up for Part B when you were first eligible, you will most likely have to pay a late enrollment fee for as long as you are enrolled in Medicare Part B. The late enrollment fee may amount to a 10% increase in monthly premiums for each 12-month period in which you were eligible for Part B but did not sign up for it.
Medicare Part D is known as prescription drug coverage. Anyone who is eligible for Part A or is currently enrolled in Part B is also entitled to Part D benefits. Part D has the same enrollment period as other Medicare plans. For this type of coverage, deductibles and co-payments count toward out-of-pocket costs.
There is a limit to what Part D will cover for drugs. Many enrollees complain of the "donut hole," which is the gap between the initial coverage limit and the catastrophic coverage threshold. For 2016, the initial coverage limit is $3,310, and the catastrophic coverage threshold is $7,062.50. Enrollees must pay a greater amount of costs that fall between those figures. Before the coverage reaches the initial coverage limit, you will usually be responsible for 25% of your costs in addition to any premiums or applicable deductibles. According to Medicare.gov, for 2016 you will reach this coverage gap once you and your plan have spent $3,310 on covered drugs. Beyond that, you will be responsible for paying 45% of the plan's cost for covered brand-name prescription drugs.
Know the best option for you
Once again, there are two main choices available for Medicare coverage: original Medicare (Part A and Part B) and the Medicare Advantage Plan. In most cases you will have to proactively make a choice and sign up about three months before your 65th birthday. Even if you don't think you need to enroll yourself because you fall in one of the automatically enrolling categories, you should check to be sure.
Make your choice early and review it occasionally so that when the time comes, you'll be ready to choose the best plan for you. You'll enjoy your golden years much more if you know you'll have access to quality healthcare that you can afford.