What You Need to Know About Medicare – Part 6 of 8

Josh Mungavin, CFP® Principal, Wealth Manager

Josh Mungavin, CFP®
Principal, Wealth Manager

Unforeseen healthcare costs can be one of the most destructive forces to an individual’s financial and retirement plan.  With appropriate forethought, one may reduce the risk of the financial devastation that a large health care bill can cause.  This article discusses the steps one should take to compare Medicare plans and some of the basic plan details with which one will need to be familiar in order to make an informed decision.

Please send this article out to friends and family so that they can forward it to the people in their lives that need this information.  The following will be useful to anyone who is over 60, disabled, has kidney failure, or Lou Gehrig’s disease.

Medicare Advantage

Medicare Advantage is a private health insurance plan that replaces Medicare and can be setup as a HMO, PPO, Private Fee for Service Plan, or Special Needs Plan and usually combines some of the benefits of Medicare Part A, B, and D.  If you have a Medicare Advantage plan, also known as Medicare Choice or Medicare Part C, you can’t be sold a Medigap policy, and if you move from a Medigap plan to an Advantage plan you may lose the Medigap plan permanently.  Because this type of plan replaces Medicare, Medicare has agreed to pay a part of the premiums every month for any member who elects this type of plan.  You can join anytime during your initial enrollment period at age 65.  After your initial enrollment period you can change your coverage twice per year.  Between October 15 and December 7 each year you can make any changes you would like.  Between January 1st and February 14 you can make some changes but your flexibility in changing plans is restricted as you can’t:

  • Switch from Original Medicare to Medicare Advantage.
  • Switch to a different Medicare Advantage plan.
  • Switch Medicare Prescription Drug Plans.
  • Join, switch, or drop a Medicare Medical Savings Account plan.

You may be able to make changes at times after the enrollment periods if one of the following applies:

  • You move out of your plan’s service area.
  • You qualify for Extra Help.
  • You live in a nursing home.

Keep in mind that these plans are heavily sold and have a high internal overhead cost, so it is important to very closely scrutinize any Medicare Advantage plan before electing to go that route.  A high percentage of Medicare Advantage enrollees are underprivileged seniors who enrolled in lower rated plans to save on up front costs without accounting for coverage levels, restrictions on the network of care providers, and out-of-pocket costs.  Attrition rates for Medicare Advantage plans range from 4% to 59% per year with an average of 9% yearly attrition and a 25% increase in yearly attrition for those 85 and older.  This is not to say that Medicare Advantage plans are to be avoided, just carefully scrutinized.  Remember, a doctor can choose to stop accepting Medicare Advantage at any time and Medigap does not have to accept an applicant after the initial enrollment period.

Types of Plans

Health Maintenance Organization (HMO) Plans generally require you to get non-emergency health care and services from doctors or hospitals in the plan’s network.  If you are enrolled in an HMO plan you will usually have to go to your primary care physician to get a referral so you can see a specialist.  You may also have to get plan approval before receiving certain services or treatments.  If your doctor leaves the plan, you will have to choose another plan doctor or pay full cost for all services performed by your out- of-network doctor.

Preferred Provider Organization (PPO) Plans have a network of providers but will generally allow you  to receive care from out-of-network doctors and hospitals at a higher cost.  You do not have to choose a primary care physician and you do not have to have a referral to see a specialist (although some specialists will require a referral to treat you).   Depending on where you live you may be able to purchase a regional plan based on one of Medicare’s 26 regions or you may be able to purchase a local PPO plan focused on serving your local area.

Private Fee-for-Service (PFFS) Plans allow you to visit any doctor or hospital that accepts the plan’s payment terms and agrees to treat you.  A doctor or hospital can decide not to accept the plan’s payment terms at any time and refuse to treat you even if they have treated you in the past.  This means that you have to present a current enrollment card before each visit or service to make sure that the doctor or hospital will accept your PFFS plan for that visit.  Because a doctor may not charge you more that the payment terms, which can be lower than the Medicare rate for the same service, some doctors choose not to accept PFFS plans.

Special Needs Plans (SNP) generally require you to get non-emergency health care and services from doctors or hospitals in the plan’s network.  Enrollees generally have to go to their primary care physician to get a referral to see a specialist.  Special Needs Plans are generally limited to people who live in nursing homes or who require nursing care at home, people who are eligible for both Medicare and Medicaid, or people who have specific chronic, severe, or disabling conditions. They are specifically designed to improve coordination and continuity of care for vulnerable groups with special needs that are challenging and costly to treat.

Benefits

Medicare Advantage plan coverage can vary widely, as they do not have to cover every benefit in the same way.  This means that some plans may pay more than or less than Medicare would normally pay.  Plans can offer dental coverage, vision coverage, out-of-pocket spending limits, and other services not normally covered by Medicare.  Be sure to fully consider any Medicare Advantage election because you may be limited to using a specific network of providers and may be required to get extra permissions or pay additional fees for services provided out-of-network.

Medicare Medical Savings Account Plan

The Medicare Medical Savings Account Plan is a type of Medicare Advantage plan available in certain areas that pairs a high deductible Medicare Advantage plan with a medical savings plan.  The general details about Medicare Medical Savings Account Plans are as follows:

  • The medical savings account is tax-free if used for qualified medical expenses (there are taxes and penalties on funds used for non-qualified expenses) and is solely funded by a yearly contribution from the Medicare Advantage plan.
  • Any funds left in the medical savings account at the end of the year can be carried over to the next year.
  • The deductible and yearly account contribution vary by plan but the contribution will always be much lower than the deductible and you cannot contribute any money to the medical savings account.
  • This type of plan differs from the standard Medicare Advantage plan in that you have to continue paying for Medicare Part B and you may keep a preexisting Medigap policy if you choose (Medigap policies are not permitted to cover any of the deductible).
  • If you choose a plan with benefits not normally covered by Medicare you will pay extra for the coverage beyond what is normally covered by Medicare.

You are not eligible for a Medicare Medical Savings Account if any of the following apply:

  • You have outside health coverage that would cover the Medicare Advantage deductible.
  • You get benefits through the Department of Defense (TRICARE) or the Department of Veterans Affairs.
  • You are a retired Federal government employee and part of the Federal Employee Health Benefits Program (FEHBP).
  • You are eligible for Medicaid.
  • You have end stage renal disease, unless you are a former Medicare Advantage enrollee that left the Medicare program and you haven’t yet joined another Medicare Advantage Plan.
  • You are currently receiving hospice care.
  • You live outside the United States more than 183 days a year.

Where to Go For Extra Information

The Medicare Handbook http://medicare.gov/publications/pubs/pdf/10050.pdf

New Enrollee Checklist http://www.medicare.gov/welcometomedicare/checklist.html

The State Health Insurance Assistance Program (SHIP) is funded through grants to help provide information, counseling, and assistance to Medicare beneficiaries and their families with questions related to Medicare, Medigap, Medicare Advantage, Medicare Savings programs, Medicaid, Long Term Care Insurance, and other health insurance issues.

Your State Department of Insurance can be a good source of information with regard to Medicare policies available in your area.

Medicare provides informational resources online at www.Medicare.gov or over the phone at (800) 633-4227.

National PACE Association www.npaonline.org.

The Social Security Administration provides information on Extra Helpwww.socialsecurity.gov/extrahelp or by phone at (800) 772-1213.

Check out our next blog post for more on Medicare. As always feel free to contact Josh Mungavin with any questions by phone 305.448.8882 or email: JMungavin@ek-ff.com