As the debate heats up regarding “Medicare for All,” it is important for baby boomers in the retired market to understand their Medicare options. As an owner of a healthcare insurance agency with over 10 years of experience, I have provided expert support to thousands of Medicare-eligible individuals. I have also trained hundreds of agents to help simplify Medicare, ensuring that the right coverage is provided to each client. What I have learned is that most retirees are extremely confused about their Medicare options, and for good reason.
Traditional Medicare is what retirees have paid into their entire lives through their payroll taxes known as FICA. FICA is comprised of the following taxes: 6.2% Social Security tax; 1.45% Medicare tax. The Medicare tax the baby boomer generation paid into was designed so that Medicare would be their last insurance plan. More retirees today are selecting an alternative plan to traditional Medicare, called Medicare Advantage, thinking they are supplementing their Medicare card. This is in large part due to not fully understanding the Medicare process and its options.
Medicare-eligible retirees typically only have two options: They can either keep Medicare as their insurance and enjoy nationwide coverage with no networks and no doctor referrals needed, or they can choose an alternative plan called Medicare Advantage. For those who choose this option, they will no longer receive their healthcare coverage from Medicare, but rather a private insurance company. Medicare pays a fixed amount every month to the companies offering these plans, thus reducing the government’s exposure through managed care with possible strict networks, referrals needed for specialists and copays. Since 2011, all plans have been required to limit beneficiaries’ out-of-pocket spending for services covered under Medicare Parts A and B to no more than $6,700 (in-network) or $10,000 (in-network and out-of-network combined).
I have recently seen a surge in Medicare Advantage marketing and sales due to the increased number of retirees entering the Medicare-eligible market. These plans are sold as all-in-one plans that cover hospital, medical and usually prescription coverage. The ease of use in carrying just one card with little to no monthly premium for these plans can seem attractive to someone who doesn’t understand that Medicare will no longer be their primary insurance. Having personally talked to thousands of eligible Medicare beneficiaries that have Medicare Advantage plans, most think the Medicare Advantage plan is their supplement to Medicare. Many are surprised to learn that the Medicare Advantage plan is not a supplement to Medicare, but instead an alternative plan designed to privatize and manage an individual’s healthcare.
It is important for retirees to be fully aware of their options when they are new to Medicare or turning 65, as they only have a limited six-month window in most states to get a guaranteed Medicare Supplement plan with no medical questions. Once this window closes, that individual may never qualify for a Medicare Supplement plan in their lifetime due to health conditions. Although Medicare offers exceptional benefits, the big downside to Medicare plans is that they only cover 80% of medical expenses. That leaves a retiree owing the remaining 20% themselves without an out-of-pocket spending limit to protect them. Medicare Advantage plans can be a great option to limit the out-of-pocket exposure for those who can’t afford a Medicare Supplement or who missed the guaranteed issue period and do not qualify for one due to health conditions.
Medicare Supplement plans, also referred to as Medigap Supplement plans, are standardized plans, distinguished using letters, designed to fill the gaps of Medicare. A Medigap plan retains Medicare as the primary insurance. I often tell retirees to think of Medicare as the body and the Medigap as the arm attached to it. The Medigap plan is accepted everywhere Medicare is accepted and is portable if someone moves or is traveling. Medigap Supplement plans are offered by private insurance companies and are standardized to all offer the same coverage and benefits. The three most popular standardized plans used to supplement Medicare are Plans F, G and N. Since Medicare does not cover prescriptions, an individual would need a stand-alone plan referred to as Part D. There is a separate monthly premium for a Medigap Supplement or a Part D plan. Those who want to keep Medicare as their primary insurance should consider a Medicare Supplement and a stand-alone Part D to give them financial security to handle what Medicare will not cover. With most retirees on a fixed income, I recommend to never just have Medicare as the primary insurance without secondary insurance for additional protection.
The challenges that retirees face when they are Medicare-eligible also include being inundated with marketing information through the mail, over the phone and through the various forms of television and social media. It can make what should be an exciting time for the retiree stressful. I would strongly recommend to the retiree that they not try to decipher it on their own, but talk to an expert who can simplify the process from start to finish. There is a key question retirees should always ask themselves before they make their final decision: Will the coverage I am selecting be adequate no matter what my healthcare needs look like down the road? If they have that mindset and are fully aware of the two options available to them, it will help better prepare for this new chapter of their life.