First, here is what Medicare is:
Medicare is a federal government program that provides health insurance to people age 65 and over. Like most government programs, it is complicated. I speak with people every day who are confused, frustrated and do not understand how it really works. This is an effort to simplify the essentials and you should always check with Medicare.gov for any specific questions you may have.
Medicare Supplements versus Medicare Advantage Programs
If you are eligible for Medicare, your coverage includes:
Part A: Hospital Insurance—Part A covers inpatient hospital care, skilled nursing facilities and some home health care. Most people do not have to pay a monthly premium for Part A coverage. Part A does have an annual deductible and additional co-payments. The annual deductible for 2017 is $1,316.
Part B: Medical Insurance—Part B covers doctor visits, medically necessary supplies and equipment, physical and occupational therapy, outpatient mental health services and other outpatient hospital services. It also includes certain preventive benefits like mammograms and cardiovascular screenings. While Part B is optional, most people enroll when first eligible as there are higher premium costs for those enrolling later. The standard Part B premium amount is $134. There is an annual deductible, which in 2017 is $183.00. Co-payments also apply to most Part B services.
Part D: Prescription Drugs— While Part D is an optional program, if you do not enroll in Part D when you choose Parts A and B, you may be subject to an annual penalty. The average nationwide monthly premium for 2016 is $34.10. We will cover Part D in more detail at a later time.
Part A and Part B cover ~ 80% of your expected medical expenses. The remaining 20% can be covered either with a Medicare Advantage Plan or a Medicare Supplement.
1. Medicare Advantage is NOT Medicare.
Once enrolled in a Medicare Advantage (MA) plan, you turn your Original Medicare benefits over to a private insurance company, which in turn provides coverage, administers your plan and pays your claims. You no longer have “Medicare” but the equivalent of a private, commercial policy, subject to the guidelines and limitations chosen by the insurance company.
In an illuminating article by the non-profit Kaiser Family Foundation, the choice of a Medicare Advantage plan when a senior is turning 65 can prove disastrous for future healthcare choices for the rest of a senior’s life. See the article here: http://kff.org/medicare/perspective/traditional-medicare-disadvantaged/
Fewer doctors and hospitals accept Medicare Advantage patients, due to their experience of being unable to get timely or decent payments, and because of complicated paperwork and constraints.
Clients miss, or minimize the often $6,700 Maximum Out-of-Pocket PER YEAR exposure. Sadly, there are many situations that we have seen where a turning-65-senior has chosen one of these low cost Medicare Advantage plans only to have to experience the limitations and large hospital admission co-payments by having a serious illness that takes them into full usage of their chosen plan.
When they were first turning 65, they thought their great health would continue far into their senior years, only to discover that this is the time frame where most all medical claims are experienced in life. Sadly, when they signed up for a Medicare Advantage plan, particularly an HMO plan, they find that the restrictions now imposed on them, the tradeoff for little or no monthly premium, now can significantly and adversely not only affect their availability of specialty care (replaced with tight networks) but also expose them to more money spent for medical care than their non-“Advantage” plan senior counterparts.
It is critical to understand that with a Medicare Advantage Plan, the insurance company decides whether to pay a claim or not. Plans from different insurance companies are dramatically different.
With an Advantage Plan, in addition to a restrictive network of providers, there will always be a copay to these providers. Your primary care physician makes the decisions as to what tests and procedures will be approved for your treatment. Pre-certification is usually required for any services. When you travel, you are typically only covered for emergency services. Specialty care facilities such as MD Anderson Cancer Center and the Mayo Clinic will not be available to you.
Finally, Medicare Advantage Plans are not guaranteed renewable and can be cancelled by the carrier at the end of any calendar year. While you are guaranteed access to another MA Plan, the cancellation of your plan can leave you with difficulty ensuring that your preferred doctor is available in a new plan that you may choose during open enrollment.
2. Medicare Supplements – MediGap
On the contrary, the biggest proponents of Medigap (Medicare Supplement) plans are those who have had to use them with a serious illness. For example, those with a special kind of cancer who can now choose the best cancer treatment centers in America without consequence because their Medicare Supplement plan allows them to go anywhere. Those who would have otherwise been exposed to a $6,700 out-of-pocket cost with their Medicare Advantage plan for a series of hospital admissions who though, because on a SUPPLEMENT plan instead, pay $0 for their admissions and, more importantly, get to CHOOSE their hospital instead of only being able to go to the one that was the lowest bidder that joined the “Advantage” plan’s restrictive network.
- You must have Medicare Part A and Part B.
- Except during an Open Enrollment or Guaranteed Issue Period, you must be medically eligible to obtain a MediGap plan and each carrier has different eligibility requirements.
- You pay the private insurance company a monthly premium for your Medigap policy in addition to the monthly Part B premium that you pay to Medicare (usually deducted from Social Security).
- You can buy a Medigap policy from any insurance company or appointed agent that's licensed in your state to sell one AT ANY TIME.
- Any standardized Medigap policy is guaranteed renewable even if you have health problems. This means the insurance company can't cancel your Medigap policy as long as you pay the premium.
Medigap policies are standardized
Every Medigap policy must follow federal and state laws designed to protect you, and they must be clearly identified as “Medicare Supplement Insurance.” Insurance companies can sell you only a “standardized” policy as defined by Medicare and different levels of coverage are available with plans defined by the letters A through D, F through G, and K through N. All policies offer the same basic benefits, but additional benefits for additional costs are available based on the specific plan that you choose.
Medicare approves the claims
With a MediGap policy, Medicare Part A and Medicare Part B are your primary insurance. Your MediGap plan is supplemental. The claims procedure is that the provider submits the claim to Medicare, not your insurance company. Medicare reviews the claim to ensure that the procedure is a covered procedure. If the procedure is covered by Medicare, Medicare does not care what the provider may have charged, they have a set of amounts that they will approve for each procedure. That amount is approved and Medicare pays roughly 80% of the cost. The approved claim (called the Explanation of Benefits) is then sent to the client and the insurance company. When the insurance company receives the EOB, they are required to pay the claim promptly or they are in violation of their agreement with Medicare.
- All Medicare Supplement Plans of the same type are exactly the same regardless of carrier.
- The carrier is required to pay their share of all approved claims promptly.
- COST is the only difference between Medicare Supplements of the same plan type regardless of insurance company.
MEDICARE PART D – PRESCRIPTION DRUG COVERAGE – AN OVERVIEW
Individuals may purchase Medicare Part D prescription drug coverage if they are either eligible for Medicare Part A or enrolled in Medicare Part B. An individual’s initial enrollment period for Medicare Part D prescription drug coverage is usually the same as his or her initial enrollment period for Medicare.
Part D plan:
The Medicare Part D initial enrollment period for an individual without Medicare Part A who enrolls in Medicare Part B during the general enrollment period for Part B is April 1 to June 30.
For individuals who do not obtain Medicare Part D prescription drug coverage during their initial enrollment period, there is an open enrollment period each year from October 15 to December 7. There are also special enrollment periods that are triggered by certain types of events during which an eligible individual may obtain Medicare Part D prescription drug coverage.
Premiums for Medicare Part D prescription drug coverage vary from plan to plan, but higher-income individuals may be required to pay an extra premium charge in addition to their plan’s premium.
Individuals who are eligible for Medicare Part D prescription drug coverage but do not purchase it even though they have no other creditable prescription drug coverage may be required to pay a late enrollment penalty when they do enroll. The late enrollment penalty may have to be paid for as long as the individual keeps his or her Medicare Part D prescription drug coverage, and it may increase each year.
Medicare Part D Premiums
There is no single Medicare Part D prescription drug coverage plan. Plans must offer coverage that at least meets certain minimum requirements. But plans are free to provide additional coverage and services that exceed the minimum requirements, and they may charge a premium that appropriately reflects the value of the plan. Therefore, premiums for Medicare Part D prescription drug coverage vary from plan to plan.
Late Enrollment Penalty
A late penalty may be assessed when either of the following two types of individuals joins a Medicare
- Individuals who did not obtain Medicare Part D prescription drug coverage when they first became eligible for such coverage, and had no other creditable coverage at the time
- Individuals who go without Medicare Part D prescription drug coverage or any other type of creditable coverage for 63 or more consecutive days
Creditable Coverage Exception Plans that may qualify as creditable coverage include the following:
To understand the reason that having other creditable coverage precludes the imposition of the late enrollment penalty, one must first understand the definition of creditable coverage: it is prescription drug coverage that is deemed to be at least as good as Medicare Part D prescription drug coverage.
Adverse selection only occurs when individuals forego a certain type of insurance coverage altogether. Even if people don’t have Medicare Part D prescription drug coverage, they are still paying into the prescription drug coverage risk pool as long as they have creditable coverage—that is, other similar coverage. People aren’t penalized for not obtaining Medicare Part D prescription drug coverage if they already have good coverage for prescription drug costs.
Plans that offer prescription drug coverage are required to notify their beneficiaries whether the plan qualifies as creditable coverage.
- individually purchased coverage
- group coverage offered through employers, unions, or government entities
- TRICARE (the government health benefit program for active military personnel)
- Veteran’s Administration coverage
- Indian Health Service coverage
Extra Help Exception
Extra Help is a Medicare program that helps people pay for their prescription drug costs if their financial resources are very limited. For such individuals, affordability can be a true obstacle to obtaining Medicare Part D or other creditable coverage. These people aren’t trying to unfairly save money by not buying prescription drug coverage—they simply may not have the money to buy prescription drug coverage, period. These individuals are not penalized for late enrollment.
Amount of the Late Enrollment Penalty
The amount of the late enrollment penalty is determined for each particular individual and varies depending on how long that individual did not have creditable prescription drug coverage. The formula for calculating the amount of an individual’s penalty is as follows:
- Multiply the Medicare Part D base premium for the current year by 1 percent;
- Multiply the result by the number of full months that the individual was eligible for Medicare Part D Prescription drug coverage but did not have it or any other creditable coverage; and
- Round the result to the nearest $.10.
The amount of the late enrollment penalty is then added to the premium for the individual’s Medicare Part D prescription drug coverage.
The late enrollment penalty may continue to be charged for as long as the individual has Medicare Part D prescription drug coverage. Since the Medicare Part D base premium may increase each year, this means that the amount of an individual’s late enrollment penalty may also increase each year.