The Alphabet Soup of Medicare
If you are in your early or mid-60s, you’ve probably been thinking about Medicare, and if you’re like most people, you probably feel confused. Health insurance in general can be baffling. Medicare seems to take it to the next level.
With traditional insurance, you typically pick one plan, which covers you for medical and pharmaceutical services. No two plans are the same, but at least you only have to choose one.
With Medicare, you sometimes, but not always, have to select separate plans for your hospital, medical, and pharmaceutical coverage. Frequently, these will be with different insurance companies and have different features.
To make matters worse, it seems like whoever decided on the names went out of their way to make it more confusing. There are four different parts of Medicare: Part A, Part B, Part C, and Part D. So far, this isn’t too bad; however, on top of this, you can get Medicare Supplements (sometimes called Medigap plans) that are also described using letters (A, B, D, G, K, L, etc.). What were they thinking!
This leads to baffling conversations like this:
“My insurance broker says that I need to get part A now, but I should wait on part B and D until I retire. They also said that I don’t need part C at all and instead should get Medigap plan G.”
“Really? My best friend just mentioned how glad she is that she waited to get Part A so that she could still contribute to her HSA while she worked. Once she retired, she applied for Parts A, B, and C all at the same time. She didn’t need to buy a Part D plan at all.”
Overhearing recent retirees discuss health insurance can sound like they are simply rattling off letters and sticking the prefix “Medi” onto random words.
Let’s take a look at what all these letters mean.
When Medicare started, it only had two parts: Part A for hospitals bills and Part B to cover physicians’ services. While these provided much-needed care to seniors, they were structured in a way that left major gaps, deductibles, and limits. Eventually, Congress realized they needed to fill some of these gaps, so they introduced Part C to restructure using private insurers and Part D to help cover prescription drug costs.
- Part A covers hospital stays, hospice, some home care, and some nursing home care. It is free for all people who qualify for Medicare.
- Part B covers doctor visits, outpatient services, medical equipment, and some preventive care. This costs an extra premium (usually deducted from Social Security benefits) that depends on your income.
- Part D—(Yes, we know we skipped Part C, just give us a minute.) Part D covers prescription drugs. While you enroll in this through Medicare, you purchase a plan from an insurance company.
Those enrolled in Parts A, B, and D often buy a Medicare Supplement, which we’ll discuss in just a minute.
- Part C replaces the separate Parts A, B, and D, avoids the need for a Medicare Supplement, and may or may not have an additional cost on top of the Part B premium. Using Part C is one of two ways to use private insurance to help fix some issues with Part A and B. You purchase a plan with an insurance company that restructures your Medicare parts A, B, and D, and frequently offers fewer providers but a higher level of service than traditional Medicare.
So, what about the different Medicare Supplement plans? What do those letters mean?
There are eight different plans available to new enrollees in Medicare. (There were more in the past, but some are no longer available.) There is also a high-deductible version of the G-Plan. You may have seen a chart similar to the one below (which we’ve adapted from a publication of the Ohio Department of Insurance) showing what each plan covers. The great thing about the supplement plans is that they are standardized across insurance companies. A G-Plan covers exactly the same things, whether purchased through Cigna, Medical Mutual, or Aetna (except in a few states). There may be some differences in the customer service or additional offerings such as nursing benefits, but the plan itself is the same.
Here are some of our observations on Medigap plans.
- The normal G-Plan is some of the most comprehensive health insurance available in the US. It covers pretty much everything except for prescriptions (you still need a Part D plan) and a $203 deductible. After that deductible is met, you won’t pay anything else for doctor visits, outpatient procedures, surgery, or hospital stays for the rest of the year! Though great in theory, it is not always worth the additional monthly cost.
- The high-deductible G-Plan does not work like other high deductible plans you may have had. The deductible applies to the amount you pay out of pocket after traditional Medicare pays its share of costs. We encourage people to think of both Medicare deductibles ($1,484 for part A and $203 for part B) to be the actual deductible for the plan. After you meet these deductibles, Medicare will pick up the majority of the costs. The $2,370 G-Plan “deductible” is more like a maximum out-of-pocket cost. The premiums for this plan are significantly lower than the normal G-Plan, so this can be an excellent option for relatively healthy people.
- Unlike switching between Medicare Advantage plans, there are very limited opportunities to switch between Medicare Supplement plans. Even if you can do so, insurance companies may not be required to accept you. For this reason, we encourage people to select the plan they will want for their whole lives.
The years leading up to retirement are full of both anticipation and stress. Your holistic fee-only advisor can help you navigate Medicare and other stressors as you figure out how and when to retire.
For Ohioans interested in learning more about Medicare, we encourage you to read the Medicare 101 booklet Ohio Department of Insurance puts out each year. They do a great job explaining what you need to know in an easily understood format. (There are differences in some other states.)
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