Medicare – Complicated but Essential

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It’s the middle of summer and a great time to review our understanding of Medicare and maybe find a nugget of knowledge that might help us as we travel through this complicated world of healthcare. Okay, maybe it’s not the most fun thing you can think of doing, but it might help you save time and money. Staying healthy when you get old is a full-time job. I’ve often thought that it’s too bad we usually get sick when we’re old… if we could schedule getting sick when we were younger, we could really have a good time in our retirement years. Hence the saying, youth is wasted on the young. Unfortunately, that’s not the way it works, which is probably a good thing since our kids would have to raise themselves, given we wouldn’t have the time or the energy to do it ourselves. There is one thing I know; healthcare is complicated, and it’s often very difficult to understand what the impact will be on us when the lawmakers make changes to Medicare. Understanding what is happening as we interact with different healthcare providers might help us make better decisions and understand what the impact will be when lawmakers make those changes. So, let’s talk about the different parts of Medicare that we will encounter as we work through our health challenges.

When you are an inpatient in the hospital, the costs are paid under Medicare Part A, which has no premium.

When we go to the doctor for outpatient types of treatments, those costs come under Medicare Part B. There is a monthly premium for this coverage that ranges from $164.90 to $560.50 depending on your income. If you’re drawing Social Security, you may not even know you are paying this premium since it is automatically deducted from your monthly check. That premium can change each year. Some prescription drugs, mostly injectables, are paid for under Part B. These drugs are often expensive.

Medicare Part C encompasses Medicare Advantage. This is a program where the government pays a private insurance company to take care of Medicare eligible beneficiaries. Each Medicare eligible person has the choice to enroll in a Medicare Advantage plan. These programs may or may not have a monthly premium. Almost 50% of us have chosen to enroll in Medicare Advantage.

Medicare’s prescription drug benefit is Medicare Part D. There are many different plans to choose from. Often Part D is included in a Medicare Advantage plan. You can change plans once a year or more often under some circumstances. The best plan for any beneficiary depends on the medicines they take and what their out-of-pocket costs will be, which means we should reevaluate our Part D plans every year.

All of these parts have some or all of three different types of out-of-pocket costs — the healthcare costs that we open our purses and wallets and pay for out of our own money. Often, people choose different Medicare Advantage or prescription drug plans depending on what their estimated out-of-pocket costs will be. People buy Medicare supplemental insurance to cover some of these costs to reduce the risk of big costs from a serious illness. The amount we pay will differ depending on the situation and the plan we have chosen. Our out-of-pocket costs are mainly in three areas.

Deductible – You pay 100% of the cost for any service until the deductible is reached. Usually, high deductible Medicare Supplemental plans have lower premiums since you pay more of the initial cost.   

Co-pay – Medicare often requires co-pays for different services and prescriptions. This is a fix amount paid for a defined service or product no matter what the actual price was. Many prescription drugs have a co-pay, for example, $5 for any generic drug, $10 for any name brand drug.

Co-insurance – This is often misunderstood. This is usually a percentage, such as the patient is responsible for 25% of the hospital bill. This caused some people who were treated with extremely high-priced drugs to run into big financial difficulties. This often happened when people were in the catastrophic phase of Part D and were paying 5% of the cost. This doesn’t seem like a lot, but 5% of medicine that costs $15,000 a month is $750 a month. This was in addition to the deductible and donut hole money they had already paid. The good news is, starting in 2025, the Inflation Reduction Act capped the yearly Part D out-of-pocket cost at $2,000. This will benefit those who were burdened with the costs related to ultra-expensive drugs. Co-insurance costs can also be high when a patient has an extended hospital stay and/or surgery.

While it’s early, it’s not a bad idea to begin gathering the information you need to predict what your actual out-of-your-pocket costs will be for Medicare itself, Medicare Supplemental Insurance, or Medicare Advantage. It requires predicting how your health will be next year, what medicines you now take and what new medicines you might require. Medicare has well defined co-pays, co-insurance, and deductibles. You have more choices in setting the co-pay/co-insurance/deductibles as you research Medicare Supplemental, Medicare Advantage, and Part D prescription drug plans.

I’ll have more to say as we get closer to open enrollment time, emphasizing how important it is to choose the right plans for you. Sadly, a small percentage of eligible Medicare beneficiaries switch plans during the open period. During the 2020 open enrollment period, only 10% of seniors switched their Medicare Advantage plans and only 18% switched their prescription drug plans. Your prescription drug plan is one place where things can change during the year that could cause a big change in your out-of-pocket costs. It’s only through your due diligence that you can keep your costs as low as they can be. Have a great week!

Best, Thair

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