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.)

Medigap Policies
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 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.

Medicare Advantage
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.

Rising Costs
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?

Related Articles
  1. Term

    How Traditional IRAs Work

    A traditional IRA is a tax-advantaged retirement account that includes stocks, bonds, mutual funds and other investments.
  2. Personal Finance

    Zika Virus: Latest Advice on Staying Safe

    Zika has hit the U.S. Here’s the most recent update on what’s known about the virus, how it spreads, who’s at highest risk and how to avoid it.
  3. Retirement

    Shopping the New Retirement Products

    There are more options than ever for retirement portfolios these days. Choosing the right product comes down to your needs, time and management style.
  4. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
  5. Retirement

    Retiring in Thailand: The Pros & Cons

    It's a lovely land, but before relocating, get the skinny on this Southeast Asian kingdom.
  6. Investing

    How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement

    The best proactive plan of action for a stable retirement is to understand medical costs, plan ahead, invest properly, and consider supplemental insurance.
  7. Retirement

    Is Retiring in France Safe Today?

    After a series of deadly terrorist incidents, some may be asking themselves this question.
  8. Investing News

    Zika: Study Says This Device Could Protect You

    New research just uncovered an inexpensive, commercially available device that might help fight off the mosquito that carries the dreaded Zika virus.
  9. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  10. Investing

    What Investors Need to Know About Returns in 2016

    Last year wasn’t a great one for investors seeking solid returns, so here are three things we believe all investors need to know about returns in 2016.
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. What is the maximum I can receive from my Social Security retirement benefit?

    The maximum monthly Social Security benefit payment for a person retiring in 2016 at full retirement age is $2,639. However, ... Read Full Answer >>
  3. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  4. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  5. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  6. Does dental insurance cover implants?

    Dental implants have become a widely used procedure in dentistry. Despite their popularity, however, they tend to not be ... Read Full Answer >>
Trading Center