For those turning 65, how do you know what the right Medicare coverage looks like? A look at Medigap, Medicare Advantage, Medicare Cost Plans and Medicare Medical Savings Accounts.
Individuals age 65 and older are eligible for Medicare insurance through the government. However, Original Medicare coverage can come with significant out-of-pocket expenses for beneficiaries. The good thing? Those covered by Medicare do have options to help limit the risk of potentially high costs of Medicare through supplemental Medigap policies and more broadly benefited programs, such as Medicare Advantage, Medicare Cost plans and Medicare Medical Savings Accounts.
How do I choose the right Medicare coverage?
Assessing your health, financial situation, and lifestyle will help you choose a Medicare coverage plan that works best for you. If you elect to purchase coverage beyond original Medicare, it’s important to understand how the plans you are interested in operate. For example, you cannot use Medigap and Medicare Advantage together.
If You Plan to Rely Heavily on Healthcare Coverage
If you are a high utilizer of healthcare, it might be beneficial to purchase a Medicare Advantage plan or a Medigap policy. Medicare Advantage plans can be more cost-effective and offer additional benefits. Medigap will help cover your out-of-pocket expenses from Original Medicare, but will not expand your benefits and you may still need to purchase a Part D plan.
If You Plan to Rely Very Little on Healthcare Coverage
If you are a low utilizer of healthcare, something like a Medical Savings Account can give you the option of using your own funds for care before catastrophic coverage (characterized by a high deductible amount). Depending on your lifestyle, you may want to explore Medicare Cost plans. If your state offers these plans, they can help cover costs for any out-of-network care you might need if you travel frequently for personal or professional reasons.
Calculate Your Predicted Medical Costs
Calculating a rough estimate of your medical costs can also help you determine which plan will work best for you. You can compare the monthly premiums outlined in Original Medicare to the monthly premiums set in other Medicare plans you may be interested in. Then, it will be helpful to make some assumptions based on previous care patterns. Taking your historical medical care and any current diagnosis and treatment status into account can help you approximate your annual coinsurance and copays within and beyond your deductible.
If You’re Generally Healthy
In looking at your previous year’s expenses, if you paid $500 in out-of-pocket fees and the plan you’re reviewing has a deductible of $1000, you may want to assume you will not reach your deductible (if you’re health status is stable). Therefore, your estimated annual total cost would be:
Estimated Annual Medical Cost = Monthly Premiums + Previous Year’s Coinsurance and Copayments
If Your Health Isn’t in Top Shape
If your health status has weakened, you may want to assume you’ll meet your deductible and use the total cost (what you paid plus what your plan paid) per episode of care to determine any incremental expenses. For example, if what you paid plus what your insurance paid for a visit totaled $100, and the plan you’re reviewing has a 20% coinsurance requirement after your deductible is met, you can assume you’ll pay $20 for the same covered visit. In that instance, your annual costs could be calculated as:
Estimated Annual Medical Cost = Monthly Premiums + Deductible + Incremental Expenses Beyond Deductible (ex: $20 for a covered visit)
What are my options for reducing the financial risk associated with Original Medicare?
Medigap is a supplemental policy purchased through an insurance company that can help you cover out-of-pocket expenses generated from your original Medicare coverage. No other benefits are received through a Medigap policy. States have standardized plans (Massachusetts, Minnesota, and Wisconsin are standardized differently) that vary in the following benefits:
- Part A coinsurance and hospital costs up to 365 days after Medicare benefits are used;
- Part B coinsurance or copay;
- Blood (first 3 pints);
- Part A hospice coinsurance or copay;
- SNF coinsurance;
- Part A deductible;
- Part B deductible;
- Part B excess charge (the difference between the Medicare approved amount and what the provider or supplier charges);
- Foreign travel exchange; and
- Out-of-pocket limit.
Medicare Advantage plans (Part C) are offered through insurance companies and must include Part A and Part B coverage. Most plans also include Part D coverage, making Medicare Advantage an attractive option for Medicare beneficiaries. Medicare Advantage plans can also offer other benefits, such as vision, hearing, and dental, which aren’t covered under original Medicare. Whereas individuals with original Medicare can go to any participating provider, Medicare Advantages plans are operated through health maintenance organizations (HMOs) or preferred provider organizations (PPOs), which limit the number of providers in a given network.
Medicare Cost Plans
Certain states offer Medicare Cost plans as an alternative to Medicare Advantage. These plans works well for individuals who want to be covered for out-of-network care. Outside of network, original Medicare kicks in and individuals pay the coinsurance and deductible for Part A and Part B care.
Medicare Medical Savings Account (MSA) Plans
Medicare MSA plans work like health savings accounts and are defined by a high yearly deductible for a Part C plan and a medical savings account. The high yearly deductible varies by plan, and individuals may use money from their medical savings account to pay for health care costs before their deductible is met. MSA plans may offer additional benefits, such as dental, vision, and long-term care, not covered by Medicare.
Are financial assistance programs available for Medicare expenses?
If you need financial assistance, you may find that you are dual-eligible for Medicare and Medicaid (the government insurance program for low-income individuals and families). Most health care expenses are likely covered under dual eligibility. Medicare Savings Programs, PACE (Program of All-inclusive Care for the Elderly), and extra help paying for Part D coverage are available under certain circumstances.