Medicare Simplified

The Costs and Benefits

by Bill Haynor

Part II in a three-part series

Last month, I discussed the history of Medicare in order to give life and health insurance brokers the needed background to help clients approaching retirement with answers to what is a growing number of questions about the federal health insurance program. In this piece, we’ll outline the parts of Original Medicare coverage and costs associated with them.

Medicare Coverage & Costs

Part A, Inpatient Hospital Insurance:

• Part A provides coverage for inpatient care in hospitals, skilled nursing facilities (SNFs), hospice and some home health care.
• Part A premiums are $0 in most cases, and the deductible is $1,216 for each benefit period.
• Key consideration: Be mindful that the Part A benefit period is defined as a timeframe that begins the day a person enters a hospital or skilled nursing facility (SNF) and ends when they have not received inpatient hospital or Medicare-covered skilled care in a SNF for 60 days in a row. Additionally, there will be out-of-pocket costs for patients hospitalized for more than 60 days, and no coverage for hospitalizations of more than 150 days or 100 days in a SNF.

Part B, Outpatient Medical Insurance, also part of Original Medicare:

• Part B covers doctor and other healthcare provider services, outpatient care, some medical equipment and some home healthcare. Some preventative services to maintain health and screen for early detection of disease are also provided.
• Part B premiums are $104.90 to $335.70 per month in 2014 and projected to be the same in 2015 based on income and tax filing status. The deductible is $147 per year.\
• Key consideration: It’s important to note that Medicare coverage (both Part A & B) applies to about 80 percent of Medicare-covered health services.

For many retirees who have been insured by employer-subsidized group healthcare, this may seem like acceptable coverage. However, as the likelihood of severe health issues increases with age, it’s wise to consider additional coverage to bridge the 20 percent “gap” so as to avoid the financial burden of managing a chronic condition or the risk of a catastrophic illness. Additionally, there is no cap on out-of-pocket costs, and the co-pays and deductibles can add up quickly, depending on the health of the beneficiary. The Medicare program makes provisions for “Medigap” coverage in the form of highly regulated, private health insurance plans for seniors, which we’ll discuss in our next article.

Part D, Prescription drug coverage; another key part of the Medicare program:

• Part D provides benefits for certain drugs that is determined by a set calculation that is defined by the insurance carrier for co-payments, coinsurance and deductibles for brand and generic prescription drugs
• Part D premiums range from less than $20 to $120+/month for 2015 based on income and tax filing status.
• Key consideration: The “donut hole,” another coverage gap, is found under Part D. In 2015, this will occur when an individual and their plan have spent $2,960 on covered drugs. In such instances, a person will wind up paying 45 percent of the plan’s drug costs for brand-name prescription drugs. For example, if an individual who is in the coverage gap goes to refill a $60 non-generic prescription, he or she will wind up paying $27 for it. There are more details about the coverage gap here.

Common questions about when and how to sign up:

One of the most confusing and stressful issues retirees face is the decision of when and how to file for Medicare. There’s a lot to know, but understanding the answers to a few of the most common questions will help you equip clients to tackle this process.

When should I apply?
Most advisors know that Medicare eligibility begins when a person turns 65 or has a qualifying disability. But not everyone understands when to begin the application process. Furthermore, some of your clients may apply for Part A and B at different times, so it is important to understand when clients should apply for each.

For most clients, think in terms of the seven-month enrollment period for Part A. It includes the three months prior to a client’s 65th birthday as well as that month and the three months after. One exception: Clients who are already receiving Social Security will be automatically enrolled.
Advise clients that if they miss their initial enrollment period, their application may have to wait until the general enrollment period, which occurs each year between January 1 and March 31. That delay could cause a gap in coverage, since they will have to wait until July 1 for coverage to start. Clients can sign up for Medicare on the Social Security website or call 800-772-1213, or visit a local office.

Do I need to sign up for Part B?
Part B is optional coverage and clients often ask if they should sign up for it at the same time as Part A. Naturally, they are concerned about paying premiums if they don’t need the coverage. The timing for enrolling in Part B, though, is a bit trickier and the stakes much higher, since late enrollment can cause a permanent premium increase of up to 10 percent for as long as they have Medicare coverage.

If they don’t have employer group coverage, then they should most certainly apply during their seven-month initial enrollment period. If your clients are covered under a group health plan based on current employment — whether it is their own employer or a spouse’s — they may qualify for a special enrollment period (SEP) and are able to delay enrolling in Part B without penalty until their group health coverage is terminated. The SEP is an eight-month window that starts the month after the end of either employment or the group health insurance coverage based on that employment, whichever happens first.

Do I have to sign up for Part D?
Because it’s optional coverage, similar considerations for signing up for Part D apply as they do with Part B. Even so, if a person does not sign up for Part D when they are first eligible for Medicare Part A and/or Part B and they didn’t have prescription drug coverage that met Medicare’s minimum standard, they may have to pay a late enrollment penalty if they eventually decide to join the plan.

Individuals will not incur a late penalty, though, if they opt out of getting Plan D because they already have creditable prescription coverage or if they participate in the government financial assistance program for limited income individuals called Extra Help. However, if your clients have creditable prescription coverage, there’s no need to double up on coverage by signing up for Plan D out of fear getting hit with the penalty.

Should creditable prescription coverage be lost, there’s a small window of opportunity to sign up. A break in creditable coverage shouldn’t last longer than 63 days.

A client may wish to forgo Part D coverage because they are not taking medication. Keep in mind that the healthier a person is today, the less expensive their coverage will be. So think about advising your clients to invest as much as they can now, so they will have the financial safety net they’ll want and need in the long run.

A final word: Mind the gap

It’s at this point that most seniors – and many non-Medicare insurance brokers – realize it’s a headache to deal with all the information presented, and may be tempted to throw in the towel once they’re enrolled in Part A and B. It’s understandable, but quite frankly, the best piece of advice I can give everyone is to take the next step in mitigating the risks of the gaps in coverage left by Original Medicare. Speaking from my own experience, it’s crucial to consider signing up for a Medicare Advantage or Medicare Supplemental Insurance plan. That’s where we’ll take our third and final article in next month’s issue.

Read Part I here