Medicare: De-mystifying Supplemental Plans

Football, pumpkins, crisp morning air and shorter days are all a sign of a new season.  Fall is my favorite time of year and, although it may feel a bit different because of our current world health crisis, I’m going to do my best to enjoy as much of this season as I can.  For me, a changing season is a good time to get re-organized and re-energized.

Speaking of new seasons, retirement is certainly a new season of life and almost every client that we talk with has a goal of making work “optional” at some point.  Oftentimes, the cost of healthcare is a top concern when making the decision on the timing for retirement.  For some, the magic number is age 65 when Medicare is available because Medicare is significantly less expensive than having to purchase a private insurance policy but, Medicare does not cover all of your costs, so purchasing a supplemental policy to cover the gap in coverage is advisable

Even if you are not yet eligible for Medicare, in the spirit of the season, getting organized and educated about the program and process will help you when it is your time.  Read on for more information…..

DEVISING A PLAN FOR HEALTHCARE COVERAGE IN RETIREMENT

First, the basics of Medicare:

Medicare will be the insurance plan that most of us will rely on at some point in life (most likely at age 65).  If you or your spouse continue to work beyond age 65 and you have a health plan available through work, please reference the flowchart below for thoughts around choosing the best option for healthcare.  Please reach out to our office to discuss your particular situation in more detail.

Medicare has several parts:

Part A covers your hospital services.  There is no cost for this part because you pay for Part A during your working years through your payroll taxes.  You qualify for Medicare if you or your spouse have paid Medicare payroll taxes for at least 10 years (or 40 calendar quarters).  

Part B covers the cost of doctor’s office visits and other outpatient services.  Participants pay a premium for Part B.  You pay at least $144.60 in 2020 and potentially more if you have high income. See our previous blog post on Medicare.

Part C provides coverage through private insurance companies.  Part C is also called Medicare Advantage and the plans are HMOs and some are PPOs.  The cost for Part C can be $0 or very little, however, the plans can have copays, percentages and deductibles that are due. 

Part D is for Rx (prescription drug) coverage.  There is a premium for Part D and these premiums also vary depending on where you live and which plan you choose which is usually based on the types of prescriptions you need to take. 

Medicare only covers 80% of your costs and the 20% that is not covered is open-ended, meaning it has no cap on it.  Therefore, you should purchase a plan to supplement these costs.                 

The two types of products you can use to supplement Medicare are:

  1.  Medicare Supplements (also known as Medigap Insurance) and
  2.  Advantage plans (also known as Medicare Part C)

2/3 of the American population have Medicare Supplements, and 1/3 have Advantage plans.

Supplemental Plans:

Medigap Insurance policies are identified by letters (A-N).  I reached out to industry expert Virginia Cangelosi of Cangelosi Insurance Agency to get insight into the best plans available for most people.  According to Virginia, as of January 1, 2020, the most advantageous plan Medicare Supplement enrollees can get is plan G. Plan G has no copays or percentages to pay.  It only has an annual deductible of $198.  You can also add an enhancement to plan G to cover things like vision and dental services and hearing aids. 

The premium for a competitive Medicare Supplement for San Diego County is currently a little over $100 a month at age 65. The rates are age rated, so they gradually increase. There can also be rate increases from the carrier independent of the age rated rates.

A big advantage of Medicare Supplements over Advantage Plans is that you can use any doctor or facility in the U.S. as long as they accept Medicare assignment, and most all of them do. This is important because sometimes, depending on a medical condition one has, you may wish to seek care in another state or in certain health situations like a hip replacement or strokes, etc., it can be extremely important that you are able to select the facility so you can be near your family or friends for support.

Each year annually within 30 days of your birthday, if you have a Supplement you can transfer to another Medicare supplement with another company that has the same or less benefits.

Medicare Advantage Plans:

The Advantage plans (also referred to as Medicare Part C) are HMO’s, and some are PPO’s. They can have copays, percentages, and deductibles that are due.  The disadvantages of an Advantage plan are that you have to use the doctors and facilities that are in the Network of your plan. Otherwise, the plan will not cover your medical services. The facility can also be an issue because you will be placed in a facility that the plan assigns you to and it can be in a location that is not convenient for your family.

One advantage of the Advantage plans is that you are charged $0 or a small premium.  Some of the Advantage plans include Dental and Vision coverage.

You can enroll in an Advantage plan once a year at an Open Enrollment period.  Open enrollment begins October 15th and ends December 7th, whereas with Supplements you can only enroll (without answering medical questions) within 6 months of turning age 65, or when you are leaving a Group Health plan.

Action Steps:

If you are approaching age 65, apply for Medicare 3 months ahead of turning age 65.  You can apply online, set up a phone appointment or go to our local social security office in person.  It is important to have your health insurance game plan in order and compare your options as you approach your 65th birthday to avoid a delay and the possibility of having to complete medical questionnaires which could affect your coverage costs.

Contact our office with any questions you have.  We can help you navigate the vast array of details around this very important topic. 

We appreciate the opportunity to partner with you on your life’s financial journey.  It is our pleasure and privilege to serve you.