Let me share with you the three things I learned about Medicare planning and choices. Whether you’re helping your parents with their Medicare, or you’re doing this yourself, you will find what I learned to be helpful.
1. Evaluate if your parents even need to switch to Medicare.
If your parents are working past age 65, and they have health insurance through their employer, then they don’t have to switch to Medicare if they don’t want to. You may have heard about a Part B Late Enrollment Penalty (LEP) for people who don’t move to Medicare when they turn 65. If your parent’s employer coverage is creditable coverage, then they will not incur the LEP when they finally decide to retire and switch to Medicare.
When you’re working for an employer, you don’t really have a need to research where to buy health insurance. you get what your employer offers. But keep in mind that sometimes it is less expensive to move to Medicare than it is to stay on your employer group health plan. It’s important that you understand how Medicare works and what it costs so you can effectively compare it to your parent’s employer plan. The next section will give you the baseline understanding of how Medicare works.
2. Understand how Medicare works, and what it will cost.
If this section starts to get confusing to you, I encourage you to jump to section 3 and get some help from a licensed Medicare broker. I met with a few different Medicare brokers, and it finally started to make sense to me.
I will start with the very basics of how Medicare works. Keep in mind, that Medicare (unlike a regular employer or group plan) is always an individual health plan. So, if the employed spouse is the first one to turn 65 and wants to move to Medicare, then the younger spouse would need to either buy health insurance through another means or jump on their own employer health plan if they are working.
Part A & Part B:
Here’s the most basic understanding of how Original Medicare works
Here’s the most basic understanding of how Original Medicare works – To keep it very simple, one might simply state that Medicare covers 80% of your parent’s hospital (Part A) and medical (Part B) expenses, and it will cost $144.60 per month (in 2020). But there’s a lot more to it than that:
- Monthly Premium
Typically, everyone will pay a monthly Part B premium ($144.60 in 2020). Part A doesn’t have a monthly premium if at least one spouse has worked and paid FICA taxes for at least ten years in the US.
- Cost of Part A (Hospital):
“If your parent ends up in the hospital while on Original Medicare, then they will pay a benefit-period deductible of $1,408 (in 2020). A benefit period is a 60-day period that starts on the day they are admitted as an inpatient. If they are in the hospital for more than 60 days, then they will be responsible for a coinsurance amount of $352 per day for days 61-90. Then they start paying $704 per day. If they are released from the hospital, and then end up back in the hospital again (after the 60-day benefit period), then this process starts over.
- Cost of Part B (Medical):
Part B consists of doctor visits, outpatient procedures, etc. Part B has an annual deductible (unlike a benefit-period deductible for Part A). The Part B annual deductible is $198 (in 2020). Once the annual deductible is met, then your parent will pay 20% of all Part B expenses. And there is no cap/limit on this. I like to give the example that if your Mom needed to have an outpatient surgery done, and the total Medicare approved bill came to $40,000, then your Mom’s out-of-pocket cost would be $8,000.
In addition to Original Medicare, your parents need to consider how they will pay for their prescription drugs. If they plan to stay on Original Medicare, then they would want to consider enrolling in a stand-alone Part D (Prescription Drug) Plan (PDP). Even if they are not currently taking any medications, enrolling in a PDP as soon as their Medicare starts will save them from paying a Late Enrollment Penalty (LEP) later.
PDP’s typically have a monthly premium. The national average for a PDP plan is $34 per month, and are offered through companies like UnitedHealthcare, Humana, WellCare, Aetna, Cigna, and many more.
My advice: Don’t just pick the least expensive plan. It’s important to evaluate the medications your parents are taking and determine what they would cost on the various plans. In addition, most plans have annual deductibles.
See section 3 below…a real good Medicare Broker will ask you about the medications currently being taken and will help with a complete analysis as to which plan would be the most cost effective.
Medicare Supplements & Medicare Advantage Plans:
Remember the costs I outlined above for Part A and Part B? That can be scary for someone, especially if they are on a fixed income. Luckily, there are ways to reduce those costs, or at least plan for the unexpected and have something in place that would pay the 20% that one might not be able to afford. That’s where Medicare Supplements (also called Medi-gap plans) and Medicare Advantage (also called Part C plans) come into play.
More advice: Don’t let anyone tell you that Supplements are better than Advantage plans, or vice-versa, that Advantage plans are better than Supplements. The fact is, that every person has a different and unique health situation, budget, and level of comfort for how they will pay for their Medicare expenses. So once again, I always encourage that you talk to a Licensed Medicare Broker that is certified to sell both supplements and Medicare Advantage plans.
Medicare Supplements have a monthly premium, and generally cover the 20% that Original Medicare doesn’t cover. Supplements are sold by several insurance companies, like UnitedHealthcare, Aetna, Humana, Mutual of Omaha and hundreds of others. You will hear about Plans F, G, N, D, K and more. In my research, I found that Plan G seems to be the most popular. Plan F was the go-to plan before, but anyone who is new to Medicare after January 1, 2020 will not be able to purchase a Plan F. Don’t worry, if you were on Medicare before January 1, 2020, you are grandfathered in, and can keep your Plan F.
Again, this is where a good licensed Medicare Broker can explain the details of how a Medicare Supplement plan works, but I want to list some of the pros and cons of a Medicare Supplement:
Pros of a Supplement
You get to see any doctor and go to any hospital that accepts Medicare. I’m not an expert, but it seems to me that most doctors and hospitals in America accept Medicare. If your parent wants to see the world-renowned specialist across the country for a certain condition they may have, they can if they’re on a Medicare supplement (if the doctor accepts Medicare).
No Referrals needed
when you’re on Original Medicare with a Supplement, you don’t have to worry about “networks” and “referrals”. If you wake up and want to go see a dermatologist because you found something on your skin, then you just go. You don’t have to go see your primary care physician first, and then ask him or her for a referral.
Limited or no out-of-pocket costs
A Plan F Supplement plan literally pays everything that Medicare doesn’t pay. So, if your parent is on a Plan F, they will literally pay nothing out-of-pocket when they go to the doctor or hospital. A Plan G covers everything except the Part B Annual Deductible ($198 in 2020). After that, there is nothing out-of-pocket. That’s peace of mind in my opinion. If your parents pay their monthly premium, they can rest at night knowing that if something catastrophic happens and they end up with huge medical costs, they have fantastic coverage!
Cons of a Supplement
for some, this might be viewed as a pro, because if you were to buy health insurance for someone under 65, you will find that it’s far more expensive than a Medicare Supplement plan. But for our parents that have a very fixed income, they might find the cost of a Medicare Supplement to be too much for their budget. Especially as they age. Medicare Supplement monthly premiums increase as your parents age. A 76-year-old neighbor of mine pays over $400 per month for their Supplement.
No extra benefits
Most Medicare Supplement policies don’t include extra benefits that Medicare Advantage plans offer. Some examples include things like gym memberships, vision, dental and hearing benefits.
No drug plan
Medicare Supplements do not include prescription drug coverage. You will need to purchase a stand-alone Part D plan if you decide to go with a Supplement. It’s not much ($34 per month is the national average), but for some, $34 per month might pinch a budget.
Medicare Advantage plans work differently than Medicare Supplement plans
If your parents enroll in a Medicare Advantage plan, you are replacing Original Medicare and agreeing to the benefits outlined in the Medicare Advantage plan Summary of Benefits. The most common types of Advantage plans are either HMO or PPO plans. HMO plans have a defined network of doctors and hospitals, and if you try to see a doctor outside the network, you don’t have coverage. PPO’s will have a preferred network of doctors/hospitals but give you the flexibility to go outside the network, and just pay higher co-pays.
Medicare Advantage plans in most largely populated areas have $0 (or very low) monthly premiums. In return, you will pay co-pays when you have medical services done. So, if your parents are super healthy, and only need to see a doctor for wellness check-ups and an occasional illness, then they will save quite a bit of money by choosing an Advantage Plan. Medicare Advantage plans also are required to include an annual out-of-pocket maximum (the most someone would pay in any given year). So, if something very catastrophic happened, there is a limit they would have to pay out of pocket before the plan would start paying 100% of the medical costs.
Here are some pros and cons of Medicare Advantage plans:
Pros of an Advantage Plan
Low monthly premium as mentioned, in large populated regions, Advantage plans often have $0 monthly premiums.
Extra benefits most Medicare Advantage plans offer extra benefits that Original Medicare doesn’t cover, like free gym memberships, vision coverage, dental coverage, hearing coverage and over-the-counter catalogs.
Most Advantage plans include the prescription drug coverage in the plan
Cons of an Advantage Plan
HMO/PPO Networks some people just don’t like having a restriction of an HMO or PPO type of plan.
Referrals some Advantage plans require referrals from your primary care doctor before you can see a specialist.
3. Use a licensed Medicare Broker that is credentialed
to sell both Supplement and Advantage plans
I’ve learned that there are two types of Medicare brokers:
- Brokers that only sell Medicare Supplement policies
- Brokers that sell both Supplement and Advantage plans
Why does this matter? A broker that only sells Medicare Supplement policies will always make a Supplement look superior to a Medicare Advantage plan. And in some cases, this is true. But Supplements aren’t the way to go for every parent. A good Medicare Broker will take the time to understand your parent’s health needs, who their doctors are, what medications they take, and what their tolerance level is for paying out-of-pocket costs vs. monthly premiums.
A good broker licensed with all the options will take the time to really explain to you, in-person, the difference between Advantage plans and Supplements, and will allow you to make the choice…not them. As mentioned before, I met with several brokers, and I really appreciated the brokers that took the time to show me the whole picture instead of just pushing that a supplement is the only way to go.
It’s that simple – choose a local broker, that knows the market, understand the networks of doctors and hospitals, and will take the time to explain the difference between supplements and advantage plans.
We love our aging parents. And they sometimes need our help when they make big decisions. So taking the time to understanding how Medicare works will allow you the opportunity to help your parents make the choice that’s right for them.