By Jim Merklinghaus
When turning 65, we’re faced with a health care choice, and it comes down to your desired “flavor” of Medicare. Making things harder, there are myths out there clouding the situation.
Medicare as it’s traditionally known includes Parts A and B. Part A is “brick and mortar” coverage, meaning visits to medical facilities, and is financed by taxpayer money via the government. Part B covers medical procedures and tests, and is also taxpayer-financed. There are other parts of Medicare, but these two form the foundation.
The big choice comes down to understanding the insurance policies supplementing your base Medicare coverage. You only need one supplement. In essence, do you want Medicare and a supplemental policy known as Medigap, or do you want one comprehensive Medicare Advantage plan? If you’re researching plan options, there are several helpful resources like Health.com’s review of Medicare Advantage plans that can help you better understand coverage choices so you pick an option that’s right for you.
These policies basically wrap around Medicare and mean you have either minimal or no costs related to medical care, other than your premium. There are many Medigap plans offering differing levels of coverage.
In general, Medigap has no claim forms to fill out when you go to a doctor or hospital. You also have your choice of facilities, don’t need referrals and are completely covered throughout the U.S. Some plans cover you internationally as well, up to a lifetime limit. There’s a monthly premium, but you won’t see big price swings between the plans, which simplifies the situation.
One of the biggest Medigap myths I see is that the AARP offers a “specialized plan.” It doesn’t! AARP made a deal with an insurer and offers the same plans as everyone else – the “special plan” is just branding meant to stand out in the market.
These plans offer more comprehensive coverage, including prescription drugs, vision and dental care. Insurance carriers contract with Medicare, so you deal with a private insurer rather than the government, but your costs and coverage are subject to the insurer’s limits and policies.
Sometimes there’s no monthly premium, but many plans do have premiums. Either way, you’ll pay copays and deductibles.
The biggest myths I see around Medicare Advantage plans involve costs and the breadth of coverage.
Cost-wise, many don’t understand that if you have a Medicare Advantage plan and have a short hospital stay, for instance, your copays could be higher than the premium on a Medigap plan. So it could cost you more for the same coverage.
Also, since coverage is largely state-specific, you’re locked in a closed network of providers chosen by the insurer – and that’s for in-state care. If you need care outside your state, you’re often only covered for true emergencies. Sadly, people usually don’t find out about these coverage limitations until it’s too late.
And while Part D prescription coverage is one of the highlights of these plans, the coverage can change, potentially affecting costs. Prescription drugs are classified into three different tiers based on their compounds. Pharmaceutical companies can change the compound, and hence the tier, which can affect your copay. On top of that, the “donut hole” is a huge concern, and you should consult an expert if you take a lot of prescription drugs because you could be on the hook for nearly all of a drug’s cost!
Protecting Your Health and Your Wallet
The fact is, Medicare and Medicaid are on a scary financial path. Changes are being made to address this, but many rely on getting more money from plan beneficiaries.
To protect yourself, start with two things. First, develop a healthy lifestyle, which helps avoid medical costs altogether. Second, formulate a budget centered on “money in” and “money out,” so you understand the key financial drivers of your lifestyle.
The truth is we don’t know what’s coming, so it’s vital to save the right way, especially for health care costs. Take advantage of tax-free options like Roth IRAs and create a personal pension plan with tools like fixed index annuities. If you don’t, you’ll have major problems and costs you never saw coming.
My best advice is to speak with a trustworthy planning professional to know your coverage options and health costs in retirement. Protect your health and your wallet to truly enjoy your golden years!
Jim Merklinghaus, Founder of JBM Financial Services, ranks among the most highly qualified individuals in the insurance and financial industry in the New Jersey/ New York metropolitan area. With almost 30 years of experience, Jim helps individuals and institutions meet their insurance needs and financial goals by providing solid answers and tailored advice.
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