Medicare Madness: Options for Paying Your Share of Costs

Clients can choose a Medigap Supplemental Plan or Medicare Advantage

by Marcia Mantell, RMA^®

It’s always a surprise when clients learn Medicare’s not free. And shocked when they find out Medicare doesn’t cover 100% of costs. “When did this happen?” and “This is an outrage!” are frequent responses when learning they have a share of costs to pick up out of their own pockets.

As to when this cost-sharing happened? It’s been in place since 1965 when the Medicare law was enacted. So, for the last 57 years.

Is it an outrage? No, not really. After all, Medicare Part B pays 80% of covered costs. And Part A picks up the million-dollar life-saving procedure at the hospital after clients chip in a mere $1,556 for a deductible.

Clients Are Blind-Sided By The Cost-Sharing Design Of Medicare

To be fair, clients are generally blind-sided by the costs associated with health insurance in retirement. Health care expenses will be among the top three highest budget items for many clients throughout retirement.

Clients’ Medicare out-of-pocket costs can come from several places:

• A deductible when admitted to a hospital
• Daily room rates for hospital stays (Part A covers the first 60 days)
• Costs per day in a skilled nursing facility (starting at day 21)
• 20% cost-sharing for most Part B services

These costs aren’t easy to plan for. After all, how many clients know when they will suffer a health issue that requires hospitalization in 2027? Or how many days will they spend in a skilled nursing facility after a hip replacement in 2035?

So, it’s important for clients to understand they have additional insurance options that will cover their share of costs.

• Advisor tip: When clients approach age 60 (not 65) have a heart-to-heart conversation with them about Medicare. Explain the basics of Medicare as a cost-sharing system. Encourage them to explore options for covering their out-of-pocket obligations.

Clients Grapple With Too Many Choices

Most clients have a ridiculous number of insurance choices available to supplement Medicare. Each individual client is on the hook for figuring out how they’ll get the best, most complete health insurance coverage that works for their budget.

All options for additional health insurance are available—or not—based on zip code and county. Clients can only buy from the insurance companies playing in their neighborhood sandbox.

On average in 2022 clients will sort through these options:

10 to 25 Medigap plans (Medicare Supplemental plans) to consider

• In 47 states, clients must decide which of the 9 Medigap Plans (identified with capital letters A thru N with several retired plans) works for them.
• In Massachusetts, Minnesota, and Wisconsin, clients have a different structure to Medigap plan options.

39 Medicare Advantage plans to choose from

• 25% of people live in a county where they can choose from 50 or more Medicare Advantage plans.
• Further, they must choose an HMO, PPO, or PFFS option.

You can see how easy it will be for clients to get tied up in knots over their transition into Medicare.

Comparison shopping is the best way for clients to figure out their options and preferences. Clients will need to consider how much flexibility and control is important to them versus cost.

Medigap Plans Offer The Most Flexibility

With Medigap plans, clients get the most flexibility and control. Their share of costs incurred for Part A and Part B services will be covered anytime they see a doctor or use a facility that accepts Medicare. This is important and convenient when a client has two residences in different areas or spends a lot of time out of state.

That flexibility comes with a cost—a monthly premium. It is a known amount that stays flat each month, then typically increases each year. This makes budgeting for retirement health insurance easy. Not inexpensive, but predictable and easy.

For example, a Medigap Plan A in zip code 95054 (San Jose, CA) starts at $91 per month in 2022. But Plan A only covers a few of the costs a client could incur. For maximum coverage, clients need Medigap Plan G. Monthly premiums start at $120 per person. And the high-deductible version starts at $35 per month.

• Advisor tip: Encourage clients to start exploring their Medigap options using Medicare.gov’s Find Plans tool. They can run scenarios without a private account.

Medicare Advantage Plans Offer Low Or $0 Premiums

Great confusion arises with Medicare Advantage plans. People hear “zero-dollar premiums” and interpret that as no out-of-pocket costs. That is simply not the case. While many Medicare Advantage plans don’t require a monthly premium, clients will pay all kinds of nickel and dime charges for every health care need and visit to the doctor or hospital. And their share of costs can reach up to $7,550 in 2022.

These plans are interpreted as free health insurance, and they are nothing of the sort. Furthermore, clients must be enrolled in Medicare Part B and paying the premium, including any IRMAA, before they can buy a Medicare Advantage plan.

In addition, to get a $0 premium plan, clients generally must use all health care services in the approved local network. This is the HMO or Health Maintenance Organization option. They’ll need a primary care physician who acts as a gatekeeper for all referrals and prescription drug orders. If they go out-of-network for any non-emergency reason, the client generally pays 100% of the cost for service.

There are also PPO options, Preferred Provider Organizations. Commonly, this type of Medicare Advantage plan charges a premium. Usually less than $100 per month. Clients still pay copays for each service up to a maximum amount each year ($7,550 in 2022), but they can choose to use the network doctors and hospitals or go out-of-network. In-network copays are less, but it gives individuals a wider range of doctors and hospitals for more flexibility.

Continuing the example in zip code 95054, clients have 40 Medicare Advantage plans to consider. 21 are offered with $0 monthly premium. All but one is an HMO requiring care be provided in-network.

• Advisor tip: Clients can start their research with Medicare.gov’s Find Plans tool to see which Medicare Advantage plans are available. But inform them they must go to the individual insurance company’s website to find costs and coverage details for each different plan.

It’s The OEP!

Each year between October 15th and December 7th clients already in Medicare get a chance for a do-over. This is the Open Enrollment Period, or OEP. You’ve already seen a barrage of ads featuring formerly popular celebrities and athletes pitching various Medicare Advantage products enticing seniors to change their plans.

The situation is that clients sometimes want to change plans from:

• One Medicare Advantage to another;
• One Medigap plan to another;
• Medigap to Medicare Advantage; or
• Medicare Advantage to Medigap.

And, indeed, clients already in Medicare can make changes during this period every year. For any reason.

But there’s a catch. It can be a challenge to get into a Medigap plan if they’ve been in Medicare for a long time. Medical underwriting is generally required for those who want to switch out of a Medicare Advantage plan and pick up a Medigap plan. In most states, they can be denied coverage or charged more than the prevailing premium for new-to-Medicare folks.

• Advisor tip: Encourage clients to think about choosing Medicare supplemental insurance as a long-term decision. Switching from one type of insurance to another gets less likely as they age. Use caution!

Keep In mind

There are many more layers of complexity to deciding between Medigap and Medicare Advantage. And often, there is no clear winner. Client must decide for themselves what works best for them, and which plans their doctors accept.

In addition, most clients need to decide about coverage for dental, vision, hearing, or podiatry. Some Medigap plans offer an add-on for dental. Most Medicare Advantage plans offer some additional savings, such as up to $150 toward dental or $300 toward eyeglasses.

And clients need prescription drug insurance. That’s a whopper of a topic. It’s the next topic coming up in this series. Come back soon!