Date published: Monday, January 30, 2012
By Gregory Taggart
If you’re approaching retirement, now is a good time to learn as much as you can about Medicare. Your options are conveniently labeled with the letters of the alphabet, and we’ve outlined the basics of those options for you.
The basics are, well, pretty basic. Once you turn 65,
“Basically, the government subsidizes all of Part A and two-thirds of Part B,” explains Bil Jeppson, CFP with Salt Lake City-based Financial Strategies Institute, LLC. “Part D is 100% the individual’s responsibility.”
Nope, That’s Not Covered
According to Marian Solomon, Senior Program Specialist with NEA Member Benefits, Medicare Parts A and B will cover about 80% of your medical expenses. The 20% it doesn’t cover includes a benefit-period† deductible of $1,156 for hospital visits and a calendar-year deductible of $140 for doctor’s visits. Beyond that, you’ll encounter a hodgepodge of holes in Medicare coverage, holes seemingly dug just for your particular situation. For example,
And the list goes on. “Consequently, people generally look at Medicare Advantage or a Medigap/Medicare supplement policy to cover as much of the remainder as possible,” Solomon says.
The ABCs of Covering Holes
Medigap or supplement policies come in 10 varieties, labeled Plan Options A-D, F, G, K, and L-N. It might help to think of Medicare Advantage as a Cadillac and the various Plan Options as VW Bugs (Plan A), Chevy Novas (Plan B), and so on up to another Cadillac model (Plan F), each covering a different variety of the holes in Parts A and B.
According to Jeppson, “If you want your eyes, your ears and your teeth covered—glasses, hearing, dental—Medicare Advantage plans generally cover that.” The federal government’s official Medicare site states that most Advantage plans even cover Part D prescription drugs.
As a possible alternative to Medicare Advantage, most NEA members consider one of the 10 alphabet plans. Plans C, F, L, and N are the most popular. “Plan F is our most popular plan,” Solomon says. Unlike Medicare Advantage, all 4 of these plans offer only discounts on drugs, dental, hearing, chiropractic and vision.
The benefits under Plan Option F and Medicare Advantage‡ are comparable but not mirror images. For example, Plan F pays the Part A ($1,156) and Part B ($140) deductibles and covers virtually all hospital expenses for the first 90 days of each benefit period§. Though you pay no deductible under Medicare Advantage, you do have a co-pay of around $150 per day for just the first 5 days of hospitalization—for a total of $750—and a co-pay of about $15 for primary care doctor visits.
Medicare Advantage foots the bill for virtually everything else. In other words, both approaches will cover most, if not all, of your medical expenses. That said, with Medicare Advantage you know what your out-of-pocket maximum will be (as little as $2,500). With Plan F, as with Medicare, there is no limit, especially if you stay too long in a hospital, spend too many days in a skilled nursing facility, or get sick or injured outside the U.S.
Pay as You Go?
There is another way. If you’re healthy, have sufficient resources, and are willing to take a risk, you can self-insure. Jeppson, the financial advisor, wouldn’t recommend it, but even he has some clients who don’t have Medicare Advantage or one of the alphabet policies. “But you have to have enough liquidity so that $10 to $20,000 bill won’t rip apart your nest egg,” he says.
But with premiums for Medicare Advantage running in the range of $50 to $200 per month and premiums for Plan Option F as low as $120 per month, why take the risk?
*Higher income individuals (single taxpayers earning $85,000+) pay a higher premium.