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Medicare Open Enrollment: What Retirees Should Know

Do you list an unexpected healthcare cost as one of your top financial concerns in retirement? Are you receiving Medicare?

If so, are you aware that every fall (from October 15th through December 7th in 2018) Medicare gives you the opportunity to review your coverage, costs, and change policies? During this period, you can shop around, review plans and if necessary switch coverage to make sure you have the features and coverage that fit your needs.

To help, here are frequently asked questions and steps you can consider now:

What is the fall Medicare Open Enrollment Period (OEP)?

Many people pick a Medicare plan and coverage at age 65 and never change it. But Medicare coverage isn’t a one-time decision. Informed consumers take advantage of the OEP to review their current coverage, any changes to that coverage including changes to premiums or other costs, and new types of coverage and plans, to compare features and costs. The process and open enrollment period is similar to the open enrollment period with an employer, where you have the opportunity to review and change your coverage annually.

What are the decisions you can make during Medicare Open Enrollment?

During open enrollment, you can sign up for new coverage, like changing to a new prescription drug plan, a different Medicare Advantage plan or changing from Original Medicare to Medicare Advantage (Part C), described in more detail below. Any changes you make take effect January 1st of the next year.

What is Original Medicare and should you stick with it?

Original Medicare includes Medicare Part A (hospital insurance) and Part B (medical insurance). Two-thirds of individuals receiving Medicare stick with Original Medicare, according to recent statistics from the Kaiser Family Foundation1. Original Medicare is a fee-for-service plan. It pays a set fee for any services provided by any doctor or specialist who agrees to cover Medicare patients.

If you chose Original Medicare, should you add a Medigap policy?

One-third of retirees who stick with Original Medicare add a private-insurer-provided supplemental plan (Medigap). Medicare spells out, by law, 10 Medigap plan types. Each is labeled with a letter, and each has standardized coverage factors dictated by law. Supplemental coverage in Medigap policies is provided by private insurers, however, so the premiums charged can change annually and vary by insurer.

Original Medicare does not pay 100% of your healthcare costs. A Medigap policy fills in and pays a portion of the coinsurance, copayments, or deductibles not covered under Original Medicare, depending on the plan type.

For some retirees, the limit on out-of-pocket costs may be even more important than coinsurance, copayments or deductibles. Medigap plans K and L, for example, include out-of-pocket limits. You can find a handy table of Medigap plan types and required coverage at the Medicare site.

Should you enroll in or change Medicare Advantage (Part C) coverage?

Medicare Advantage, sometimes referred to as Medicare Part C, is a Medicare-approved private health insurance plan. It can be added to Original Medicare to provide additional benefits, such as vision, dental, hearing, gym memberships, wellness services, or drug coverage, depending on the plan. Also, similar to a Medigap policy, it can cover out-of-pocket costs, such as deductibles or co-payments, not covered by Original Medicare. It may also include caps on annual out-of-pocket expenses, to reduce the financial risk of an expensive health care condition or event.

As more insurers and providers enter the Medicare market, Medicare Advantage (Part C) has become an important option for many individuals covered by Medicare, and the percentage of retirees choosing it has been increasing, according to the Kaiser Family Foundation study.1 Individuals who choose a Medicare Advantage (Part C) are still enrolled in Medicare Part A (hospital insurance) and Medicare Part B (medical insurance).

What are the costs and trade-offs of a Medicare Advantage policy?

To manage costs and coordinate service, Medicare Advantage providers limit the network of physicians and facilities you can use without paying out-of-network fees. You generally need to use physicians and facilities in their network and typically need referrals to see specialists, as they are managed care providers. This is the biggest difference between Original Medicare and Medicare Advantage policies.

The most significant issue in a Medicare Advantage (Part C) plan is whether you have current doctors or preferred facilities that are part of the network. If not, would you be comfortable with new doctors or facilities offered as part of the Medicare Advantage plan, and moving from a relatively broad network to a more narrow network? If so the Open Enrollment Period is a time to compare managed care providers, insurers, and shop around.

Note: If you’re a snowbird, or live different parts of the year in different states, make sure your doctors and facilities are covered by the Part C policy in each state. If not, and you’re attached to or want to keep your doctors, or have flexibility to choose, sticking with Original Medicare could make sense.

What about Prescription Drug (Part D) coverage?

Retirees sticking with Original Medicare (Part A and Part B) can and generally should add additional coverage for prescription drugs by purchasing a Prescription Drug (Part D) plan. Medicare Advantage (Part C) plans typically include some form of supplemental prescription drug coverage. You should use OEP to review drugs covered, and to compare how the plan “tiers” drugs by price, copays and other features.

Summary of approaches

 

Approach

Coverage

What it Means

Original Medicare

Part A (hospital insurance)

Part B (medical insurance)

  • Provided by Medicare
  • Fee-for-service
  • In 2019, the standard Medicare Part B premium will be $135.50 per month, with no premium for Part A
  • If your Modified Adjusted Gross Income (MAGI) is over $85,000 for an individual ($170,000 for couples) the premium will be higher
  • The premium may be higher if you did not enroll during the initial enrollment period

Supplemental plan (often called a Medigap)

Added to Original Medicare (Parts A and B)

 

  • Private insurance
  • Standardized coverage options
  • Premiums charged differ by plan and provider
  • Covers some additional out-of-pocket costs under Parts A and B
  • Some have out-of-pocket caps

Medicare Advantage (Part C)

Private Insurance

  • Selected physicians, service areas
  • May be lower cost
  • Covers all services under A and B and may offer additional services
  • Medigap not needed if you have a Medicare Advantage policy
  • Often includes prescription drug coverage, so Part D generally will not be needed
  • Managed care
  • Out-of-pocket caps

Prescription Drugs (Part D)

Private Insurance

  • Covers prescription drug coverage

 

Source: Schwab Center for Financial Research

 

What to do now?

Medicare is an extremely valuable benefit. But like most insurance, the details can seem overwhelming. Make sure you take advantage of Medicare’s benefits and potential by using the Open Enrollment Period each year to educate yourself, review options, and make changes if needed. Here are steps to help:

  • Step 1:  Review your current coverage. What type or types of Medicare coverage are you enrolled in now? Original Medicare (Parts A and B)? Original Medicare with a Medigap policy? Medicare Advantage (Part C)? A Prescription Drug (Part D) plan?
  • Step 2:  If you’re enrolled in a Medicare Advantage (Part C) plan, review your Annual Notice of Change (ANOC) and Explanation of Benefits (EOB). Insurers must mail these to you in September. They’ll explain changes in costs, coverage, or features, if any, in your plan. The ANOC is a summary. The EOB provides details.
  • Step 3:  Review whether your physicians, facilities, and prescriptions are covered in each plan. Details of changes are included in the ANOC for Medicare Advantage plans.
  • Step 4:  Review prices—premiums, copays, deductibles, and annual out-of-pocket limits—in combination with coverage. This should include your prescription drug coverage. OEP is your opportunity to change plans, price, and coverage. Medicare helps with the handy Medicare Plan Finder.

For help, go to www.medicare.gov or talk with an advisor or consultant at your State Health Insurance Program.

 

¹ Henry J Kaiser Family Foundation, “Medicare Advantage 2017 Spotlight: Enrollment Market Update,” June 2017.

 

 

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Important Disclosures:

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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