The Medicare Maze

Kathy Wilhelm

I GREW UP IN ENGLAND, with health-care coverage provided by the National Health Service, so I’m extremely sympathetic to people calling for “Medicare for All.” Still, I do wonder whether they realize that Medicare is neither cheap nor simple. My medical costs in 2021 were more than $10,000, with half of that for a single drug. And it would have been even more without the $3,000 a year kicked in by my former employer.

Since I turned age 65, I’ve experienced three varieties of Medicare coverage, and I need to make another coverage decision soon. I thought HumbleDollar’s readers might have opinions about my choices—although it’s a gamble either way. To begin, here’s a brief outline of the parts and plans that comprise Medicare.

Medicare Part A is hospital coverage. It covers in-patient room, board and nursing care in a hospital, nursing home, skilled nursing facility, hospice and sometimes at home. One could argue that Part A is free since, if you’re eligible for Social Security, you don’t pay premiums for Part A. This is the only time where having a spouse affects your coverage: You can qualify based on your spouse’s earnings. But Part A really isn’t free. There’s a $1,600 deductible this year for each “hospital benefit period,” plus there are copays after 60 days in the hospital and after 20 days in a skilled nursing facility.

Medicare Part B covers outpatient services, such as doctor visits, preventive care, mental health care and certain prescription drugs. Most recipients pay a monthly premium of $164.90 for Part B in 2023. If your modified adjusted gross income, as of two years ago, was above $97,000 for a single filer or $194,000 for joint filers, you’ll pay more. These premium surcharges are known as IRMAA, short for income-related monthly adjustment amount, and they also apply to Part D.

On top of all this, there’s the $226 annual Part B deductible. The real wildcard, though, is the copays. Patients are responsible for at least 20% of the Medicare-approved cost of their care, with no annual maximum. Note that Part B does not cover dental, hearing aids or glasses.

Medicare supplement insurance, or Medigap plans, are policies sold by private insurance companies that are intended to cover the gaps—such as copays and deductibles—within regular Medicare. These policies come in bundled packages labeled A to N, although some bundles are no longer offered. Federal law specifies the minimum coverage for each plan, with some insurers or states adding extras.

Medicare Part D is Medicare’s prescription drug program, available since 2006. It has a maximum deductible of $505 this year, variable copays and no annual maximum. One of Medicare’s quirks is that you can only change your drug plan once a year, but the insurance company can change its formulary—its list of covered drugs—whenever it likes. Good luck figuring out in November what drugs you’ll need next August.

Medicare Part C is also known as Medicare Advantage. These private insurance plans bundle services to take the place of Medicare A and B, Medigap and usually Part D. The government pays more per person for those enrolled in these plans than it does for traditional Medicare, so these plans can offer additional benefits, such as some dental care or gym membership. Every plan is different and can change each year. You should compare plans during each year’s open enrollment period and then pick one for the year ahead.

My Medicare choices? When I took early retirement at age 53, an important consideration was the group retiree medical coverage offered by my soon-to-be ex-employer. At 65, when I had to sign up for Medicare A and B, I was able to keep my former employer’s plan as secondary coverage.

This happy state of affairs ended a few years later, when the company once again downgraded its support for former employees. It replaced its group coverage with a $3,000-a-year stipend. My employer’s prior health-care coverage was deemed “creditable,” which meant Medicare treated me as if I were age 65. Insurance companies had to accept me if I wanted a Medigap plan, and I wasn’t penalized for signing up for a drug plan after 65. Typically, if you delay, you pay a penalty in the form of higher lifetime premiums.

I used my employer’s $3,000 stipend to sign up for Medigap Plan F, plus a dental plan, a vision plan and a Part D drug plan. I was pleased with Plan F, which allowed me to see any doctor who accepted Medicare and required no deductibles or copays.

Congress eventually closed Plan F to new enrollees, thinking it too generous. Worried that the Plan F coverage pool was becoming smaller, older and sicker, I tried to switch to Plan G. That would have covered everything except my Part B deductible.

Unfortunately, I failed the medical underwriting, which meant I’d have to pay a significantly higher premium for Plan G. In some states, I wouldn’t have had a medical screening, but it’s the rule in mine. Later, I was able to switch from UnitedHealth Plan F to Humana Plan G when Humana temporarily suspended underwriting.

But then last year, my employer stopped paying the $3,000-a-year stipend and switched us to a group Medicare Advantage preferred provider organization. It’s a good plan. I pay zero additional premiums and my annual out-of-pocket maximum is capped at $750. I can see any doctor that accepts both Medicare and the plan, it has a generous drug plan and covers unlimited skilled nursing days.

Of course, there’s no guarantee the plan will stay so generous. If I opt to switch back to traditional Medicare before the end of the year, I can get a Medigap policy without medical underwriting. If I try to switch after this year, I’ll once again be subject to underwriting, which I would once again fail.

If I switch, my premiums next year will likely be at least $2,500—the cost of a Medigap policy, a Part D drug plan, and vision and dental coverage. It’s possible that my rheumatoid arthritis has gone into remission, so the money I’ve been spending on medication would cover the premiums. It’s also possible it hasn’t gone into remission, in which case my drug costs would be an additional $3,000 a year if I switch to traditional Medicare.

Right now, my Medicare Advantage plan charges $10.35 per prescription once I’ve spent enough on prescriptions for the year to reach the “catastrophic coverage” level. Meanwhile, the Part D plans available to me would charge 5% of the retail cost once I’m in catastrophic coverage. Rheumatoid arthritis drugs can easily retail for more than $6,000 a month. But if the $2,000 cap on Medicare drug costs included in last year’s Inflation Reduction Act actually goes into effect in 2025, that would sharply reduce my potential out-of-pocket cost.

For someone who grew up with the National Health Service, the cost and complexity of Medicare is confounding. I’ve left out a lot of details, and you’ll find plenty of potential pitfalls in the fine print. Also, some states have different and more generous rules.

I urge anyone who is turning 64 to read the latest edition of Medicare for Dummies and to arrange a consultation with a State Health Insurance Assistance Program counselor when deciding on Medicare coverage.

Which is better, traditional Medicare or Medicare Advantage? Offer your thoughts in HumbleDollar’s Voices section.

Kathy Wilhelm, who comments on HumbleDollar as mytimetotravel, is a former software engineer. She took early retirement so she could travel extensively. Born and educated in England, Kathy has lived in North Carolina since 1975. Her previous articles were Planning My Exit and Continuing Care.

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