Millions of taxpayers age 65 and over depend heavily on Medicare to pay for healthcare costs once they retire or become otherwise ineligible for private group or individual health coverage. However, Medicare does not provide comprehensive coverage for all types of medical expenses; most Medicare recipients must also purchase supplemental insurance to cover the costs of drugs and medical procedures that are not reimbursed by Medicare. The costs of Medicare supplemental plans of all types have risen dramatically over the past few years, and it does not appear that this trend will end anytime soon. Most Medicare recipients will have to choose between purchasing a medigap policy plus Part D coverage, or receiving all of their benefits through a Medicare Advantage Plan. This article explores the various supplemental options and choices available to Medicare recipients.
Medicare Part D
Many Medicare recipients opt for Part D coverage to pay for their prescription drug costs. This plan is available to anyone who carries Part A and/or Part B. Like Part B, Part D coverage is not free, and the insured must pay premiums out-of-pocket for this benefit. Many Part D plans also have an additional deductible (usually $310) that the insured must pay before benefits kick in.
Co-payments are also common, and the level of co-payments varies, according to the type of drug being used. Participants should therefore do their homework when selecting a Part D insurer; the plans that offer the best coverage for prescription drugs may not provide competitive coverage in the generic drug arena. Shoppers can log on to the Medicare website to compare the premiums and co-payments with various medications and their dosages. Low-income Medicare recipients may be eligible for aid from their state health insurance assistance programs. (If you're having trouble sorting through drug coverage options, check out Getting Through The Medicare Part D Maze.)
As their name implies, Medigap policies provide supplemental coverage to pay for expenses that Medicare Parts A and B do not cover. There are 12 medigap policies that provide standardized coverage, but while each plan offered for a given letter provides identical coverage, the premiums vary from one carrier to another. Plan F is currently the most popular plan, but Medicare recipients can compare plans at www.medicare.gov/mppf. State insurance departments also often post a list of medigap providers and their prices on their websites. Medigap policies are usually paired with Part D coverage to provide complete coverage to recipients.
These plans provide for coverage that is roughly equivalent to the combination of Medicare Parts A, B, D and a medigap policy. However, this coverage is contained within a single program that is provided by a private health insurance carrier. Medicare Advantage Plans are offered through HMOs, Regional PPOs and private fee-for-service providers. HMO plans are usually the cheapest, but also the most restrictive. PPO plans are more expensive but provide a much more extensive network of providers that generally encompass several states. Private plans cost the most but will pay any care provider that is willing to adhere to the terms of the plan.
Which Plan is Best?
There are many issues to consider when choosing the appropriate Medicare plan, but the insured's health will usually determine the best form of coverage. The Part D and medigap combination generally costs more than a Medicare Advantage plan, but participants don't have to pay as much out of pocket, and they have greater freedom when choosing a care provider. However, they must contend with paying the premiums on three different types of coverage: Parts B and D as well as the medigap policy. Medicare Advantage plans are the other way around. They also have more limits on care providers (except for private plans). The amount and type of care that a given participant either requires or anticipates is therefore a key issue in the decision making process. Participants that may require constant low-level care that must be paid for out of pocket may be better off with a combination of Part D and medigap coverage, while healthy participants seeking lower premiums may prefer an advantage plan.
Regardless of the type of coverage that is chosen, the cost of Medicare coverage continues to climb at a rate much faster than inflation. Rates will increase across the board in 2010; Part D plan premiums are increasing 7%, to $30 per month, while Medicare advantage plans are increasing a whopping 22%, to $39 per month. Unfortunately, Social Security will not provide a cost of living adjustment (COLA) increase to offset these price hikes. Furthermore, 60% of Part D carriers now require a $310 annual deductible in 2010-a huge increase from the 45% that required this the previous year. Co-payments are also rising, and several carriers have rearranged their pricing structure by reclassifying various drugs from preferred tiers with lower co-payments to lower tiers with higher co-pays.
The future of Medicaid is somewhat uncertain, and federal legislation may substantially overhaul the current system at some point in the future. But prices will likely continue to rise for the foreseeable future, and participants must carefully assess their current and future health to determine which type of plan will provide the necessary coverage at the lowest cost. For more information on supplemental Medicare plans, consult your financial advisor or Medicaid counselor.
For related information, also read What Does Medicare Cover?