In this weeks blog, Financial Planner Amy Irvine, CFP®, EA, MPAS®, CCFC explains (at a high level) the alphabet soup of Medicare A, B, C, D and the Supplemental Plans. There is real confusion (understandably) around all the options available.
The ABCD’s of Medicare
This time of year you can’t turn on the TV without hearing an ad for a Medicare Advantage Plan that is “perfect” for you. I noticed when I was flipping through the Directv guide that there are even infomercials on this topic!
For those of you that are clients, each year we always ask you about your coverage for both medical and prescription needs and we use the online Medicare “find a plan” tool to make sure no major changes are happening in the coverage and formulary’s from one year to the next. In Steuben County alone there are over 20 Medicare Advantage Plans, some with prescription coverage, some without. There are over 20 Part D plans too. Then there is traditional Medicare with potential supplement plans! To further the confusion, some clients have supplemental plans through their employer, or as a retired military member, they have tricare.
All this reminds me of that Susan Powers commercial from the 80’s - STOP THE INSANITY! Although many of our clients are under Medicare age, your parents or grandparents may be struggling to understand the various parts, so feel free to forward them this article.
What is Medicare?
Often I will have people ask if they (or their parents and grandparents) are eligible for Medicaid, when what they really mean is Medicare. The two are very different systems. Today I’m writing solely about Medicare, as each State administers the Medicaid programs and is an income based program.
Medicare is a health insurance system for individuals over the age of 65 and for those under 65 that have been deemed disabled.
When should I sign up?
If you are already receiving Social Security benefits and become eligible for Medicare, you are automatically enrolled in both Part A and B, but NOT D or any supplemental plans.
If you are not yet signed up for Social Security benefits, then you will need to sign up. We recommend that you sign up 3 months in advance for the age 65 effective date; this gives time for you Medicare cards to be delivered and some wiggle room to sign up for a supplemental plan. However, according to Medicare.Gov, your window “starts 3 months before you turn 65 and ends 3 months after you turn 65.”
IMPORTANT NOTE: If you don’t sign up during the enrollment period, the may be subject to a late enrollment penalty of 10% for every 12-months that you should have been enrolled. There are exceptions that apply to this rule, such as if you are still employed and you have coverage through your employer that has 20 or more employees. However, you might still need to sign up for Part A - make sure to ask your employer.
Traditional Medicare - The “Parts”
Part A - Hospital Insurance
There is usually no premium for Part A.
There is a deductible for each benefit period ( this is not an annual deductible, you could have several benefit periods throughout the year) of $1,420 for 2020. This covers the first 60 days of inpatient care.
Days 61 - 90 have a co-insurance of $355 per day (for 2020)
Then it moves into what is called lifetime reserves and the co-insurance is $710 per day (for 2020)
Skilled nursing facility services are covered at a different rate and is only for the short-term, this is not to be used for the long-term
There are more moving parts to Part A, so be sure to look at the 120 page guide they send out each year for specific details.
Part B - Medical Insurance
Premium - this is not cut and dry. The premium depends on your income.
The base premium is increasing from $135.50 to $144.30, so if you are having the premium taken from your Social Security, you will see the deposit go down in January.
If your modified adjusted gross income is over $85,000 for single or $170,000 for married, your premium is subject to both a Part B and Part D “income Related Monthly Adjustment Amount” aka IRMAA. Read more here if you are in that situation: Medicare Premiums: Rules for Higher-Income Beneficiaries
The deductible is increasing from $185 in 2019 to $197 in 2020.
You pay 20% of the approved services and Medicare covers 80%
This part is for doctor visits, lab work, ambulance services, durable medical equipment, mental health services, you get the jist of it.
Note, some preventative services are covered fully, while others still have the 20% co-insurance.
Part D - Prescription Drug Coverage
These plans are offered by private insurance companies such as BlueCross, United Healthcare, Humana, etc. The premium varies widely, as do the copays and coinsurance amounts.
The plan you elect should be reviewed EVERY year, as the formulary’s can change.
If you don’t sign up for Part D when you are first eligible, there is a penalty that will be added on to any premium. As of 2020, the monthly penalty is 1% per month for EACH monthly you should have had it, multiplied by the national premium average (for 2020 that is 32.74).
As stated below, there is no supplemental plan that can help with these co-pay / co-insurance amounts, but different States do offer programs to assist with the cost, usually there are income limits on these plans.
Part C - Bundle of A, B and D (sometimes D is still separate)
These plans are through a private insurer (like Part D). They can be an HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private fee for service plans), or SNP’s (special needs).
You will often find them described as “bundled” plans because they combine the hospitalization services of Part A, medical services of Part B, prescription services of Part D, and sometimes add in vision, hearing, and dental services.
The private insurers get paid a fixed amount by Medicare for your enrollment.
Premiums will include the above Part B premium cost, plus there may be an additional premium charged by the private insurer. Each plan has its own design for the out-of -pocket expenses and may have an in and out-of-network variance.
Supplemental Plans (AKA Medigap Plans)
These plans are offered by a private insurance company as a supplement to traditional Medicare parts A and B. They have nothing to do with Part D and if you selected a Medicare Advantage Plan, you cannot select a supplemental plan. As you can see by the chart below, the supplemental coverage varies based on the plan you select.
To add to the confusion, the supplemental plans also use letters of the alphabet - A, B, C, F, G, K, L, N. As you can see by the chart below, each plan has slightly different coverage:
Photo Credit: AARP.org