Medicare Series Part Two: Five Tips for Choosing Medicare Plans

Medicare could very well be a casserole (or “hot dish” for those of us with Minnesota roots) of alphabet letters A to N. The traditional ingredients are Original Medicare Parts A and B, with many adding Part D for prescription drugs and supplemental Medigap plans ranging from A to N. Alternatively, some substitute Parts B and D for Part C, better known as Medicare Advantage.

When choosing the ingredients – aka parts and plans – for your Medicare casserole, consider these tips we share with our clients.

Tip #1: Medicare and Medicare Advantage Plans Are Not Created Equal

Medicare Advantage (MA) Part C plans are designed to replace Medicare Parts B and D that cover doctors’ services, outpatient care, and prescription drugs. Many MA plans include dental, hearing, and vision that Medicare does not. 

MA premiums often cost less than those of Medicare Part B’s, with the savings derived in large part from the PPO and HMO nature of the plans. As such, they use networks of providers and facilities in limited geographic areas, any of whom can leave a plan’s network at any time. If you prefer certain doctors, or if you travel frequently, keep in mind you can take Part B with you anywhere in the U.S. 

While MA premiums may be lower than Parts B and D premiums, that may be for a limited time. The private insurance companies offering MA plans can raise prices at any time. Furthermore, companies can change MA benefits from year to year. 

Many people end up switching from MA to Part B plus Medigap. Those switchers undergo medical underwriting, which can significantly increase costs. In the reverse scenario, those who sign up for Medicare Part B first are not subject to underwriting. 

For these and other reasons, we advise clients to steer clear of MA and instead enroll in Part B with a supplemental Medigap plan and Part D.

Tip #2: Basic Benefits of Medigap Plans Are Created Equal

Medigap plans A to N are supplemental plans for Parts A, B, and D. They’re designed to reduce various out-of-pocket costs, from coinsurance and deductibles, to skilled nursing facility care and foreign travel.

While there are differences in benefits and costs between Medigap plans, the basic benefits of each are standardized, regardless of the private insurance companies offering them. In fact, all plans are approved by Medicare and your state to make sure the basic benefits in each are the same. This makes comparing and choosing plans much easier!

Tip #3: HSA Rules Change When Medicare Coverage Begins

If you have an HSA, you have to stop contributing to it once your Medicare coverage begins. You can, however, keep the account and continue to withdrawal funds tax-free to pay for most Medicare costs. One exception is that you can’t use HSA funds to pay your Medigap premiums.  

Tip #4: Late Enrollment Penalties Are Expensive and Sometimes Forever

Simply put, don’t miss your Medicare enrollment deadlines. Being late will cost you in multiple ways. 

For instance, if you miss your Initial Enrollment Period deadline for Parts B and D, you will likely:

  • Pay higher premiums for the rest of your life
  • Incur even higher premiums if you have preexisting conditions
  • Be ineligible for guarantees related to policy renewal 
  • Wait for several months before your coverage begins

(Exception: If you still have employer-provided coverage when you turn 65, you won’t pay a penalty if you enroll during your 8-month Special Enrollment period that begins when you lose group coverage.)
Avoid costly penalties — refer to the table below for your enrollment deadlines and mark them on your calendar! 

Medicare Enrollment Deadlines and Penalties

PartInitial Enrollment PeriodLate enrollment penalty(unless you qualify for a Special Enrollment Period)
A – Hospital room and board, hospice, and limited skilled nursing and home health care3 months before and after your 65th birthday

*We recommend enrolling during the 3 months before so coverage begins the first day of your 65th birthday month.
Most people get Part A free, and if you’re among those, you won’t pay a late enrollment penalty. If you do have to pay premiums, you’ll pay up to 10% increase in monthly premiums for twice the number of years you could’ve had Part A but didn’t sign up. You may also experience a delay in coverage.

Example: You need to pay Part A premiums and were eligible for Part A for 1 year but didn’t sign up. Your monthly premiums are 10% more for 2 years. 
B – Doctors’ services and outpatient careAutomatic enrollment when you join Part AUp to 10% increase in monthly premiums for each 12-month period you could’ve had Part B, but didn’t sign up. You’ll pay the penalty for as long as you have Part B (essentially for the rest of your life). You may also experience a delay in coverage.

Example: Your Initial Enrollment Period ended January 2017, but you waited to sign up until February 2019 during the General Enrollment Period. Your Part B premium penalty is 20% for as long as you have Part B, and your coverage won’t start until July 1, 2019. 
C – Medicare Advantage (alternative to Parts B and D, offered by private companies, plans not approved by Medicare)3 months before and after your 65th birthday

*You can switch from Parts B and D to an MA plan between Oct. 15 and Dec. 7 each year during Medicare Open Enrollment period.
No late enrollment penalties
D – Prescription drugs (offered by private companies but approved by Medicare)At the same time you enroll in Parts A and B

*You must enroll in Part D, it is NOT automatic.
If you don’t have Part D or creditable coverage for 63 or more days in a row, the penalty is 1% for each full month you didn’t have Part D or creditable coverage multiplied by the national base beneficiary premium. The penalty amount is rounded to the nearest $0.10 and paid for as long as you have Part D coverage. It will increase whenever the national base beneficiary premium increases.

Example: Your Initial Enrollment Period ended May 31, 2017 but you waited to enroll during the Open Enrollment Period that ended December 7, 2018. Your drug coverage was effective January 1, 2019. Your 2019 penalty is 19% (19 months without coverage) of $33.19 (national base beneficiary premium for 2019), rounded to the nearest $0.10, which is $6.30.  
Medigap plans A to N (offered by private companies but plans in most states must offer the same basic benefits and are approved by Medicare)Within 6 months of enrolling in Part BYou may be ineligible to buy a Medigap policy after your Medicare Open Enrollment period ends, especially if you don’t meet the medical underwriting requirements. (Everyone, regardless of good or bad health, can buy any Medigap policy during Medigap open enrollment.) If you’re able to buy a Medigap plan late, it will likely cost more.

Tip #5: More comprehensive coverage is worth the slightly higher costs. 

Most of our clients value having solid coverage over saving on MA premiums in the short term, which is why we almost always recommend Parts A and B with Medigap policies and Part D, a strategy that tends to be more effective in the long run.

If you need help navigating the impact of Medicare and medical expenses on your overall financial stability and retirement plan, the Arnold & Mote Wealth Management team can help. Contact us today!

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