We’re in the midst of Medicare’s annual Open
Enrollment season, which runs from October 15 through December 7. The decisions
made during Open Enrollment are some of the key retirement financial decisions.
Surveys show that even the affluent worry that retirement medical expenses will
dissipate their wealth.
Making shrewd decisions about Medicare
coverage is the best way to limit your out-of-pocket retirement medical
expenses. Many people approach retirement believing Medicare will cover all or
most of their medical expenses. That’s not the case. There are significant gaps
in Medicare. The biggest gap is the 20% coinsurance on almost all covered
expenses. Even when Medicare covers a treatment, usually only 80% is covered.
You’re on the hook for the other 20% without a dollar limit.
To limit your out-of-pocket exposure, you need
to cover as many of the Medicare gaps as you can afford. You can choose from
two routes to cover those gaps.
One route is to enroll in original Medicare.
But to cover the gaps you’ll also need to enroll in a Part D Prescription Drug
plan and add a Medicare supplement (Medigap) insurance policy. This route still
won’t cover all your medical expenses. The most prominent gaps will be vision
and dental care and hearing aids.
The other route is to enroll in a Medicare
Advantage plan. These plans offer the equivalent of original Medicare, Part D,
and Medigap in one plan and have a cap on your annual out-of-pocket cost for
covered care. You’re also likely to receive some additional benefits, such as
some vision and dental coverage plus other benefits.
One of the most controversial aspects of
Medicare is the ability to choose between original Medicare and Medicare
Advantage.
Some of the controversy is ideological,
because some people are philosophically inclined to either favor or oppose
Advantage plans. But much of the controversy exists because the right choice
depends a lot on individual circumstances and preferences. The better option
for one person might not be good for another person.
In many areas multiple Medicare Advantage
plans are available. You first need to compare the different Advantage plans
and decide which might be the best for you. Then, compare that plan to original
Medicare (combined with Medicare Supplement and Part D Prescription Drug
policies).
Remember that you can change the decision each
year during Medicare Open Enrollment. Plans and costs change each year, so I recommend
you revisit the decision annually.
Advantage plans usually are less expensive to
you than similar coverage under original Medicare, but cost and coverage are
one only factor.
A major trade off is an Advantage plan only
covers care by providers in the plan’s network. While most people think this
limit applies only to doctors, it is much broader. Network providers include
hospitals, lab and testing facilities, rehabilitation facilities, and more.
In original Medicare, you select the doctor
you want. Your doctor, or you in tandem with the doctor, decide the hospital at
which surgery will be performed and the nursing home/rehabilitation center
you’ll enter after surgery. With an Advantage plan, however, you choose from
the plan network. It’s not unusual for an Advantage plan to have only one
hospital or rehabilitation facility in the network within a geographical area.
The provider restriction is most likely to
come into play when you have a serious condition and decide you want what you
believe are the best providers, or at least the best in your area, for that
condition. Care they provide isn’t covered if they’re not in the plan’s
network.
On the other hand, Advantage plan members are
more likely to receive preventive care and some studies show Advantage members
are healthier, live longer, spend less time in hospitals and have other
positive outcomes.
The bottom line is you need to carefully
review all the medical providers in an Advantage plan’s network. Imagine
yourself in need of different types of treatment and see what your options
would be under the plan.
Also, review the restrictions on care received
when you are out of town. Original Medicare covers you throughout the U.S. An
Advantage plan might only cover emergency treatment received outside your home
area, require advance approval for care or have other restrictions.
Original Medicare doesn’t cover care receive
outside the U.S. But Medicare Advantage plans and Medigap policies often do.
The ability to make future changes is also
important. During Open Enrollment you can switch from one Advantage plan to
another or from an Advantage plan to original Medicare. You also can switch
from original Medicare to an Advantage plan. There’s also a special enrollment
period during the first three months of the year when Advantage plan members
can switch to another Advantage plan or to original Medicare.
But if you want to change from an Advantage
plan to original Medicare, your Medicare supplement policy options might be
limited. When you first sign up for Medicare or within 12 months of first
signing up for an Advantage plan, you are guaranteed to be able to buy the
supplement policy of your choice. But after that, in most states the guaranteed
ability to buy a supplement policy might be more limited or nonexistent. You’ll
have to answer questions about your health history and might be denied a policy
or charged a higher premium based on your health history.
This restriction is especially problematic if
you might move sometime during the Medicare years because some areas have no or
few Advantage plans. An Advantage plan similar to the one you like might not be
available. You essentially might be forced into original Medicare.
The choice of Medicare coverage can be one of
the most consequential decisions of retirement. Consider all the factors and
the long-term as well as the short-term.
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