It’s the time of year again to make health insurance choices for 2016. Understanding group health insurance is confusing and comprehending Medicare throws off a different set of challenges.
There are nooks and crannies attached to Medicare that are a bit taxing and may lead to unexpected out-of-pocket costs.
Medicare is a health insurance program for people 65 or older, but also covers people under 65 with certain disabilities, and people with End-Stage Renal Disease.
What Medicare Covers
Medicare Part A (hospital insurance) covers inpatient care at a hospital, skilled nursing facility, and hospice. It also covers services like lab tests, surgery, doctor visits, and home health care. This coverage is mandated for everyone to carry and you are automatically enrolled at age 65.
Medicare Part B (medical insurance) covers doctor and other health care providers’ services, outpatient care, durable medical equipment, home health care, and some preventive services. Part B is elective with a choice of denying it at enrollment or dropping later at any time.
As a rule, everyone should carry medicare B coverage, even those who have Veterans or Indian Health care benefits.
Medicare also offers prescription drug coverage known as Part D. The government relies on private insurers to market prescription plans with different costs and coverage options. Since this is a competitive line of business, insurers tend to keep the premium and coverage’s in parity.
Even if Medicare covers a service or item, you generally have to pay a deductible, co-insurance, and co-payments.
Some of the items and services that Medicare doesn’t cover include:
� Long-term care (also called custodial care)
� Most dental care
� Eye examinations related to prescribing glasses
� Cosmetic surgery
� Hearing aids and exams for fitting them
� Routine foot care
In the event that you or your spouse paid Medicare taxes while working, you normally will not pay a monthly premium, referred to as (“premium-free” Part A) for Medicare Part A (hospital insurance).
It’s a bit of a misnomer since all health insurance carries premium costs, and for Medicare Part A the monthly premium is $407. If you did not pay Medicare taxes during your pre-Medicare years, you will pay the $407.
Part B requires premium payment from everyone on Medicare, because Part B is elective insurance. You can decide not to take it during regular Medicare enrollment. If you do choose it the Part B premium is $104.90 each month.
If you don’t sign up for Part B when you’re first eligible, you’ll have to pay a late enrollment penalty for electing Part B after first offered, and you’ll pay the penalty as long as you have Part B.
Your monthly premium for Part B may go up 10% for each full 12-month period that you could have elected to carry Part B. Also, you may have to wait until the General Enrollment Period (from January 1 to March 31) to enroll in Part B, and coverage will start July 1 of that year.
The deductible for Part B is $147 per year. After you meet the deductible with personal cash outlays, you typically pay 20% of the Medicare approved amount for doctor services (including most doctor services while you’re a hospital inpatient), outpatient therapy, and durable medical equipment.
Beyond Part A and B coverage most subscriber’s carry supplemental pharmacy coverage. Medicare Prescription Drug Plans usually charge a monthly fee that varies by plan, which is in addition to the Medicare Part B premium.
If you belong to a Medicare Advantage Plan (Part C) or a Medicare Cost Plan that includes Medicare prescription drug coverage, the monthly premium you pay to that insurer generally will include drug coverage.
Deductibles vary between Medicare drug plans. No Medicare drug plan can have a deductible more than $320 in 2015 ($360 in 2016). Some Medicare drug plans don’t have a deductible.
The Infamous Gap or Donut Hole
Medicare Part D plans have a coverage gap, sometimes called the Medicare donut hole.
The donut hole-gap starts after you and your Medicare drug plan have spent a certain amount of money for covered prescription drugs ($3,319 in 2016). At that point, you pay 45% of the plan’s cost for covered brand-name prescription drugs.
Although you only pay 45% of the price for the brand-name drug in 2015, 95% of the price – what you pay plus the 50% manufacturer discount payment – will count, and this helps you get out of the coverage gap. Medicare Part D beneficiaries stay in the donut hole until their true out-of-pocket (TrOOP) costs exceed $4850.
Some tips for making good decisions during enrollment are to attend community meetings and presentations. Each presenter has a varied approach to reviewing benefits, which is helpful for understanding new changes.
Also, take notes, remain after and speak to the presenter(s). I’m usually reluctant to do this, but I find that people who do always come away with better facts.
If considering supplemental insurance to cover medicare gaps, check with several carriers for benefit/rate comparisons. And, finally, if doubts persist check with friends who may recommend a good alternate insurer.
I have been an active investor for over 35 years. My investments have always been self directed. My preferred investment style would fall into the value with dividend growth and income method. I hold long positions in Dividend Aristocrats in several portfolio’s.
The Wise Acorns personal blog came out of a lifelong interest in personal finance. This interest has led to teaching community classes to a variety of groups. Retirement activities include travel and volunteer site coordinator with the VITA Tax Program.
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JG is not a registered investment representative. The opinions of the author are not recommendations to either buy or sell any security. Know your level of risk tolerance and remember to do your own research prior to making any investment decision.
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