The do-it-yourself guide to Medicare shopping

Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.

Tom – Ohio: I am about to turn 65. An agent has me going on Medicare and said my cost will be $1,461 for Part B and an additional $1,745 for a Medigap Plan F. The agent says this is the total I will pay for all medical coverage and doctors, but that it does not cover prescriptions. He said the plan for this is a rate of $39 per month, plus $360 deductible and co-pays on drugs. He said the total cost — for my drugs, the copays, the deductible and the premiums will come to about $3,500 if I go all generic and drop one brand drug I am on, or it will be $4,830 if I stay on that one drug. Then he told me there are donut periods. What the heck is this all about? Is this the way it is for Medicare? Is there a better way? I want full coverage if this can be had.


Ask Phil Here

Phil Moeller: Tom’s question amounts to a request to take him on a Medicare shopping trip or at least to confirm that his agent has done a good job shopping for him. An average of 10,000 Americans have been turning 65 every day of every year and will continue doing so until about 2029 when the youngest Baby Boomers reach that age. So Tom has lots of company these days. I invite all of you to come along for a DIY (Do It Yourself) Medicare shopping trip.

For Tom’s benefit, let me start by saying that the numbers his agent gave him seem to be very much in the ballpark. But ballpark dimensions vary, of course, and so do Medicare plans.

Understanding Parts A, B, C and D

Tom didn’t mention Part A of Medicare, which covers stays in hospitals and skilled nursing facilities (Medicare doesn’t cover so-called custodial care, but only what’s considered medically necessary care). So I’m assuming he has free Part A, which is the case for anyone who has qualified for Social Security benefits or whose spouse has done so. This normally requires at least 40 quarters of work at jobs where a person has to pay Social Security payroll taxes.

Tom’s figure for Part B costs is the basic premium that newcomers to Medicare will pay this year — $121.80 a month. This means his modified adjusted gross income on his 2014 tax return was less than $85,000 ($170,000 if he is married and filing a joint tax return). People with higher incomes pay surcharges for their Part B and Part D drug-plan coverage. The Social Security Administration administers high-income surcharges on behalf of Medicare. There usually is a two-year lag time in this process, meaning that 2014 federal tax returns will be used to determine the Medicare surcharges that people will be asked to pay in 2016. There can be exceptions for this surcharge, which is called the income-related monthly adjustment amount, or IRMAA. There is an appeals process if you think you’ve been unfairly tagged with a surcharge.

As for Tom’s Medigap, there are 10 different types of Medigap plans, which are also called Medicare supplement policies. They are sold by private insurers and are regulated by state insurance departments, not Medicare. These plans pay for some things that Medicare does not cover or things it does cover but pays less than 100 cents on the dollar in insured expenses. Plan F is far and away the most popular Medigap plan and is generally considered the most complete as well. Check Medicare’s annual guide to Medigap plans for details, especially the grid on page 11 showing the 10 different Medigap “letter” plans. Tom (and you) can comparison shop these different plans by using Medicare’s Medigap Policy Search tool. By entering Tom’s ZIP code in this tool, I can see that there is a premium range of $116 to $247 for a Plan F policy where he lives. Despite this wide range, all Plan F policies must cover exactly the same thing. Insurers cannot compete on plan features so they compete on price. The price Tom’s agent gave him averages $145 a month, so it’s one of the lower-priced plans available to him. To be safe, Tom should check with his state insurance department to see if the company his agent recommends has had any consumer complaints or other red flags that argue against him buying its policy. Or he could make a beeline to the very cheapest policy, check out its consumer record and save himself more than $350 a year.

Tom’s information about the costs of his Part D prescription drug plan can also be checked out easily enough. Medicare’s Plan Finder provides pricing information on Part D plans. Because Tom is thinking of getting a Medigap plan, he would be shopping for what’s called a stand-alone Part D plan. I entered Tom’s ZIP into Plan Finder and found 22 stand-alone Part D plans where he lives. He can take this work a step further by entering the names and dosages of his prescription drugs into Plan Finder and seeing what his projected costs would look like for different plans. The tool permits users to generate side-by-side comparisons for up to three plans at a time. He also can substitute a generic for the branded drug he refers to, which is likely what his insurance agent did.

As for the donut hole, Tom will join millions of other Part D subscribers trapped in the illogical pricing system that passes for Medicare drug coverage. The donut hole, or coverage gap as it’s officially called, limits insurance after Tom and his drug plan have spent $3,310 on covered drugs in 2016 (excluding his premium). He will then be on the hook for larger percentages of the plan’s drug costs until he has spent $4,850, at which point he will be in the so-called catastrophic phase of Part D coverage. Here, he will pay no more than 5 percent of the cost of a drug. Although 5 percent of a really expensive drug can still cost a lot, the catastrophic phase protects most people from budget-busting drug spending.

Frankly, I think the whole thing is a catastrophe and am glad the Affordable Care Act included the phased elimination of the donut hole. It will be gone in 2020. Until then, welcome to donuts and catastrophic pricing.

Smart readers, and of course that includes you, will have noticed that Tom’s shopping trip includes Parts A, B and D of Medicare. There is, indeed, a Part C of Medicare. It’s called Medicare Advantage — private insurance plans that can do just about everything that’s covered under Parts A, B, D and even Medigap.

Medicare Advantage plans have been gaining market share and now comprise about a third of all Medicare plans. The other two-thirds are Original Medicare (Parts A and B), perhaps with a Medigap plan and usually with a Part D plan.

Medicare Advantage plans must cover what Parts A and B cover. They usually include a bundled-in Part D plan. And they have annual out-of-pocket limits, which means they can protect people from some things that Original Medicare does not cover or covers at less than 100 percent of the cost. This is the role provided by Medigap plans, and in fact, consumers are permitted to buy either a Medicare Advantage or Medigap policy, but not both.

Original Medicare is what’s called a fee-for-service insurance program. People with Parts A and B are insured to see any caregivers in the country who accept Medicare (and most do) and are accepting new patients. Medicare Advantage plans, by contrast, rely on proprietary networks of doctors, hospitals and other care providers that they control. This can save the plans a lot of money, but may limit your choices to providers in a plan’s network. Even if you can go outside the network for care, you might pay a lot more than you would for in-network care.

On the positive side, Medicare Advantage plans use some of these savings to cover things like dental, hearing and vision insurance. Original Medicare is expressly forbidden from covering these things, despite decades of harping from senior advocates that older Americans deserve and need such coverage. Well, Tom can get this coverage in some Medicare Advantage plans, as well as gym memberships and other features.

Now, Tom’s desire for the most complete protection may have caused his agent to steer him to a package of Original Medicare plus the most comprehensive Medigap plan. That’s fine, of course, but he may wind up paying more, and perhaps a lot more, for his insurance than if he got a Medicare Advantage plan. This is especially true if he has to go out and buy private dental, hearing and vision coverage. And nearly everyone nearing their 65th birthday should have such coverage.
So I’d urge Tom to include Medicare Advantage — Part C of Medicare — in his shopping trip. He can use Plan Finder again to check out plans where he lives. Most plans will include a Part D plan as well (known as Medicare Advantage-Part D plans or MA-PD plans for short). And if he’s already entered his drug information into Plan Finder, he can use the tool again to look at his drug expenses under various MA-PD plans.

I find it challenging to choose between Medicare Advantage and Original Medicare plus Medigap. I like being able to pick all my own doctors and not be limited to a Medicare Advantage plan’s network. I also really like the savings of Medicare Advantage plans and their coverage of things not covered by Original Medicare.


Which Medigap plan should you get?

The choice is further complicated by the fact the Medigap plans provide what are called “guaranteed issue rights.” They’re explained on page 21 of Medicare’s Medigap guide. These rights mean an insurer must sell you a Medigap policy and can’t either deny you coverage or raise your rates if you are already sick and have any pre-existing conditions. These rights are provided to people who buy Medigap policies in the first six months they are eligible to join Medicare. But after this, people may lose such rights, and insurers then may charge them more for coverage or not sell them a policy at all. Medigap rules where Tom lives (and where you live) may plan a major role in how easily and expensively you will be able to get Medigap coverage after you’ve had Medicare for a while and either want to buy a Medigap policy or perhaps drop one type of Medigap policy and buy another.

During Medicare’s annual open enrollment period, which runs from Oct. 15 to Dec. 7, you are always free to leave Original Medicare and Medigap in favor of a Medicare Advantage plan. You may or may not — and I want to stress “may” here — be able to drop Medicare Advantage and get a Medigap policy with prices and coverage terms you like. For this reason, I urge you to do your homework carefully on this important decision. If you opt for Medicare Advantage for all the right reasons, great. If you’re not totally sold or don’t have the time to fully research your options, consider getting Original Medicare and a Medigap plan now and leave yourself the option to move to Medicare Advantage at a later time.

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