Getting Your Financial Ducks In A Row

Note from Jim:  I’m off on vacation this week, and so have recruited some help from my friends… today’s post is from Steven Young, CFP®.  Steven operates his Fee-Only Financial Planning practice out of Springfield, Missouri.  You can few more about Steven at his website, Steven Young Financial Planning.

As efforts to improve the Medicare insurance system progress, it seems that the confusion only gets worse.  In any given city across the U.S. there are literally dozens of insurance companies offering a hundreds of different policies to supplement, or replace the original Medicare plan. For most seniors, reaching the age of sixty five means having to confront this monster and make decisions that will greatly influence your wealth, your health and your well being.  One of the decisions to be made is; “Do you need a Medicare supplement or a Medicare Advantage Plan?” Let’s take a look at some of the differences.

Medicare Supplements

Medicare Supplement policies are designed to cover the “gaps” in coverage left by original Medicare.  These gaps include deductibles, coinsurance, co pays and extended hospital stays to name just a few. Supplement policies are sold by dozens of companies across the country and prior to 1992 all had different coverages and premiums. In an effort to make decisions easier for seniors the federal government standardized Medicare supplement plans.  The standardization makes every Medicare supplement’s benefits the same regardless of which company you purchase from. For example, if two different insurance companies offered a Plan D, the benefits would be exactly the same. The only difference would be in the plan premiums and the level of customer service. The plans were labeled with sequential letters. As of June 2010 we have plans A through N. Not every plan is available in every state and plan M and N were just recently added. To add to the already confusing topic, plans E, H, I, and J will no longer be available to buy. If you already have Plan E, H, I, or J, you can keep that plan. What plan to choose depends on how much and what type of coverage is needed.

Medicare supplements work in conjunction with Medicare Parts A and B.  When a doctor or hospital submits a bill, Medicare will approve (some of it) and pay its part. After that, the supplement will pick up whatever portion of the bill it was designed to pick up. Next, the insured is responsible for the balance, if any.  A good supplement will pick up all of the deductibles and most, if not all, of the coinsurance or co-payments.

One problem with supplements are the plan’s premiums. The premiums on a supplement can be expensive, especially for someone in good or near good health. Medicare beneficiaries in poor health or are regularly hospitalized can benefit greatly from supplements. However, paying those premiums may not be worth it for those seeing a doctor only a few times a year or only carry the insurance in case they may need it. Plus, the premiums go up every year.

Medicare Supplement Pros:

• There are no networks.  Medicare Supplements are not HMO’s or PPOs. If a doctor, hospital or medical facility accepts Medicare, they accept all Medicare Supplement Plans.
• No need for a referral to see a doctor or specialist. The doctors generally don’t deal with the Medicare Supplement Company, they submit their claims to Medicare, Medicare pays their part, and then Medicare sends the balance to the Medicare Supplement Company to “Pay the Rest.”
• Medicare Supplement Insurance pays “after” Medicare pays.
• There are generally no co-pays when services are rendered.
• With standardization (plans A through N) you can compare prices from one company to another and know you are comparing the same exact coverage (Plan F with one company is identical to Plan F with every other company).
• Other than the premiums, there are generally no additional out of pocket costs throughout the year.
• Medicare Supplement Policies are “Guaranteed Renewable”. As long as you continue to make the premium payments, you can never lose the coverage.
• If you move to another city or state, your Medicare Supplement policy moves with you.

Medicare Supplement Cons:

• The average monthly Medicare Supplement policy premium is around $150.00.  Some Medicare Supplement companies offer BIG discounts for things such as No tobacco use, married, spousal discounts, female discounts and others. If you work through an independent broker, he/she will likely be able to help you locate a Medicare Supplement that does offer these types of discounts.
• Even if you never visit a doctor or hospital during the year, you still pay the monthly premium.
• Medicare Supplement policies usually do not include Prescription coverage. You need to get a separate Medicare Part-D plan to cover your prescriptions.

Medicare Advantage Plans

Medicare Advantage Plans are a result of the government outsourcing Medicare duties such as administration, claims processing etc. to private insurance companies. What actually happens here is that Medicare contracts with private insurance companies and pays them a “subsidy” (part or all of your part B premium) to take care of people in a specific geographic area. Let us say For example, that it costs Medicare $100 per senior to administer Medicare in Jackson County in Missouri. Medicare contracts with a private insurance company and says it will pay the company $75 per senior in Jackson County to administer and pay all claims coming from those qualified for Medicare. The insurance company must provide everything Medicare covers plus extra benefits. Everybody wins here. Medicare saves money, the insurance company receives more clients and the policy holder pays less for more benefits.

Medicare Advantage plans pay “INSTEAD” of Medicare.  A Medicare Advantage Plan provides Medicare-covered benefits for relatively low premiums and Medicare pays them to provide Medicare-covered benefits. In other words, Medicare Advantage Plans work in place of Medicare. Types of Medicare Advantage Plans include Health Maintenance Organizations (HMOs), Preferred Provider Organization (PPOs), and Private Fee-for- Service Plan (PFFS). Deductibles, co-pays, and additional premiums may be required for certain services and not all doctors are covered as “in network.” You typically choose your doctor from a network.

Medicare Advantage Pros:

• Low monthly premiums (average is about $50/month) some as low as $0.00
• They can be offered with No Monthly Premium to you, because Medicare takes your $96.40 monthly Medicare Part B premium and gives it to the Medicare Advantage Provider. Medicare also pays Medicare Advantage companies additional funds to help cover your Medicare expenses (the money that was deducted from your pay check throughout your working career).
• If you don’t go to the doctor much, then a Medicare Advantage plan could save you more money over the course of a year than a Medicare Supplement, since the monthly premiums are generally much lower.
• Some Medicare Advantage plans include prescription coverage. These are called MAPD plans.
• Some include additional benefits such as coverage for dental (routine cleanings) and vision (routine checkup) health club memberships.

Medicare Advantage Cons:

• They are NOT standardized. There are hundreds of different varieties of MA plans. Consumers really need to read the fine print to make sure they know what they are getting.
• MA plans are NOT guaranteed renewable. The company can discontinue the plan at the end of any year. You would then need to get another plan.
• Even if they accept Medicare, doctors do not have to accept MA plans.
• Your primary care physician may accept the plan but a specialist that you are referred to may not.
• Most MA plans have co-pays for almost every visit to a doctor or hospital. For example many will have something like: $20 for doctor visit. $35 for specialist, $250/day for first 5 days of hospital stay.
• There is generally more paperwork for the consumer. Many co-pays are a percentage of the Medicare approved amount, which is not known until after the bill has been submitted to the Medicare Advantage provider, so you will be billed for your co-pay at a later date, sometime several months later.
• If you move to another county or state, the plan you have may not be available in that area and you will need to get another plan.
• If you have a particularly unhealthy year, out of pocket costs could reach your “Out of Pocket Maximum” which could be $4,000-$5,000 or more.

To get more help on deciding on the various options available to you visit www.medicare.gov . There you will find tools and resources to help with the decision and tame the monster. I especially found the “Medicare & You 2010 handbook” very useful.

Photo by NASA