Medicare and Medigap
A Primer
Despite all the public discussion about health care, very few people under the age of 65 understand the basics of Medicare, the federal health program for seniors and certain disabled individuals, or Medigap, the supplemental private insurance many buy to cover the expenses not (or only partially) covered by Medicare.
If you are not planning to use Medicare for several years, why focus on Medicare and Medigap now? Because as big changes happen in our health care system, those who understand the programs and products ahead of time will not only be better equipped to plan for their post-retirement healthcare options, but they’ll have a better understanding of these critical federal programs as they change over time.
A visit with a CERTIFIED FINANCIAL PLANNER™ or elder health care professional can provide a broader view of what the federal government will and won’t pay and how you should plan your coverage going forward. Here’s a summary:
Who is eligible for Medicare? More people than you might think. Medicare is available to anyone over the age of 65 who is a U.S. citizen or who has been a permanent legal resident for five continuous years. People under the age of 65 qualify under certain circumstances, including: Those who are permanently disabled and have received Social Security disability payments for the last two years and those in need of a kidney transplant, under dialysis for permanent kidney failure or diagnosed with Amyotrophic Lateral Sclerosis (also known as Lou Gehrig’s disease).
How does Medicare cover expenses? Medicare coverage is divided into four primary parts: Part A, Part B, Part D and Part C. Here’s what each part covers:
Part A is the segment of the program most associated with hospital care. It covers hospital inpatient care, a limited amount of care at some skilled nursing facilities, some specific home health care alternatives and hospice care. Most people are enrolled automatically in Part A when they reach 65 and they receive this coverage for free. Medicare doesn’t cover long-term nursing home expenses, so seniors need to consider long-term care planning.
Part B covers outpatient services. It covers doctors’ visits, outpatient care and some other medical services that Part A doesn’t cover, such as the services of physical and occupational therapists, and other aspects of home health care. Participants pay a monthly premium for Part B coverage with a deductible – in 2009, the basic premium is $96.40 per month though it is higher for those with income above certain thresholds. You’ll sometimes hear people refer to Part A and Part B coverage as “Original Medicare.”
Part D is Medicare’s prescription drug coverage which went into effect on January 1, 2006. The plan covers both brand-name and generic prescription drugs. Participants pay a premium for coverage that includes a deductible and coinsurance. Those with limited income and resources may not have to pay a premium or deductible. To obtain coverage participants can join a Medicare prescription drug plan or a Medicare Advantage Plan or other Medicare Health Plan that offers drug coverage. The plans are administered by private insurance companies that operate in each of the 50 states. Consumers are encouraged to study the plans carefully as there are many options.
Part C is the Medicare Advantage Plan. This is an optional plan individuals may choose so they receive their Medicare benefits through private health plans. You’ll also hear this plan referred to as Medicare+Choice. These private plans include conventional HMOs and PPOs and are required by law to offer benefits that cover everything that Medicare covers, but they don’t have to cover everything exactly as Medicare Part A and B do. There might be some customized options that allow for lower co-payments or lower total out-of-pocket expenses. In simplest language, Medicare Advantage plans blend the benefits of Original Medicare and Medigap plans (more on this below). By law, you can’t buy Medigap supplemental insurance if you’ve chosen Medicare Advantage. However, it’s very important to get some professional advice on the choice between Original Medicare and Medicare Advantage plans based on your anticipated health care needs to make sure the coverage you buy covers your needs.
What about Medigap? This is supplemental coverage that’s available for people who opt to be covered under Original Medicare – Part A and B coverage. When you buy Medigap insurance from a private insurer, your goal is to obtain coverage that actually pays for the things you know you’ll need which are not covered by Medicare. You pay a monthly premium for this coverage. Again, if you choose Medicare Advantage (Part C) coverage, you’re not allowed to buy Medigap coverage.
Will Medicare cover expenses if I end up in a care facility? No. Medicare does not cover Custodial care, assisted living, adult daycare, or reimbursement for family members. If you are concerned about one day requiring such health care, you should visit with a professional advisor to review your options and plan appropriately. Some people transfer this risk to an insurance company by purchasing long term care insurance. Others plan to self-insure and hope that they do not have to use their assets to pay for their care. Still others plan to manage their assets in a manner that will allow them to qualify for government assistance.
When do I enroll for Medicare? You have a six-month window to enroll for Medicare that starts three months before your 65th birthday and ends three months after. As mentioned above, if you’re already receiving Social Security at age 65, you’ll automatically be enrolled in Part A. But if not and you enroll more than three months after your 65th, you may be subject to a late enrollment penalty.
To compare Medicare and Medigap coverage, visit the Medicare Personal Plan Finder on the Medicare.gov website. The State of Oregon provides a Guide to Medigap, Medicare Advantage & Prescription Drug Plans athttp://www.oregon.gov/DCBS/SHIBA/docs/2009_guide.pdf. For more information you can call the Oregon Senior Health Insurance Benefits Assistance program at 800-722-4134.
What’s Medicaid? This is the name for the federal program – and corresponding state programs – that pick up healthcare costs for indigent children and adults. Unless you’re below the poverty line or you spend down your assets in your senior years, this program will not be available to you.
Isn’t Medicare in trouble financially? Yes. Treasury Secretary Timothy Geitner reported this spring that Medicare will run out of money in 2017. This is just 8 years from now. While Congress is expected to address the solvency of Medicare in the context of broad health care reform, Americans would be well advised to plan to pay more for health care in their senior years. As we are finding during the current health care debate, Medicare is a very popular program among America’s senior citizens. When combined with supplemental Medigap coverage it provides quality health care for retirees. Let us hope that this important social program will be preserved for future generations.
Terry Donahe is a CERTIFIED FINANCIAL PLANNER™ who works with affluent individuals and families. His firm, Cascade Wealth Management, is a fee only Registered Investment Advisor located in Lake Oswego, Oregon. You may learn more about Terry and his firm at www.cascadewealth.com. Terry can be reached at (503) 675-4381 or by email at terry@cascadewealth.com.
This information is not intended nor should it be construed as legal or tax advice. You may wish to consult with other professional advisors regarding how this information relates to your personal circumstances. Commercial distribution of this information without specific written consent from Cascade Wealth Management, LLC is prohibited.