Making (a little) Sense of Medicare by Len Lamberg

Friends learned recently that they are facing imminent retirement with the accompanying medicare and insurance decisions - that have to be made now and made right. They asked how we figured out what to do. I asked Len if he could write up what he knows in plain English - and thought this would take him 20 minutes.

This took Len several hours over several days.

Our friends say this makes more sense than anything else they have read so far.

Len was a college English major so many years ago we don't want to say. His career was in advertising and marketing, usually of exciting products like parts for tool and die machines and insurance products and, just once, a McDonald's Happy Meal box that was an airpane hanger with cute little plastic airplanes.  A checkered career.

He once tutored a young women on her French homework, and she remarked, "Everything he said is wrong, but I like the way he said it."  So, it's probably unwise to make a big financial decision based on this ... but, seriously, it might help you make sense of what you read elsewhere.

For verified information go to the government's Social Security site at: https://www.ssa.gov/

.....

Making (a little) Sense of Medicare

May 14, 2020

If you have been using most employer-supplied health insurance Plans, you know that they’ve been getting worse and worse over the years. There is a deductible, they only cover a portion (usually 80%) of the bill, and there are rules about what hospital you can go to and what doctors you can see. There are always surprises about what isn’t covered, or what’s over their “usual and expected” cost.

Medicare is actually a lot better, probably because it was created back when most health insurance was actually useful. But it’s still a little complicated and there are choices to be made.

Here is what the different parts of Medicare are

“Regular” Medicare has three parts, A, B and D (I don’t know where C went). They cover hospitalization, doctor’s visits and drugs.

Part A is hospitals. It’s pretty simple, it covers 100% of hospital costs after a deductible. The deductible changes over time, for 2020 it’s $1,408. So, you pay the first $1,408 of the bill, and Medicare pays all the rest. There is no dollar limit, but there is a limit of hospital days that it pays for.

After 60 days, you have to pay part of the costs, and there is a lifetime maximum amount. That only applies to people who are hospitalized for a long time; however, it can happen. I prefer not to think about it (that’s probably a mistake on my part).

$1,408 is a lot of money, but hospital costs can be astronomical, so this is a pretty good deal because it protects you from going completely broke. Also, practically every hospital accepts Medicare coverage, so you don’t have to shop for hospitals when you get sick, even if you’re away from home.

There are a jillion exceptions that people write about, including nursing homes, outpatient surgical centers that aren’t hospitals and more. Importantly, if you go to a hospital emergency room but are not admitted, or “in for observation” part A coverage doesn’t cover you. But, most major medical things in a hospital are, and it is really not bad.

The best thing about part A is that you don’t have to make a lot of choices. There’s only one kind, and the government gives it to you. You get it automatically when you turn 65, and you DO NOT PAY ANYTHING. (There are some exceptions, including people who didn’t work, noncitizens, people with special employer coverage and also very rich people, but what I said is nearly always true. Also, you paid into the Plan when you were working, and it is actually paid for by people who are currently working.)

Part B is doctors. It is also pretty simple: there is a deductible, $198. Then it pays 80% of the doctor bill. So, you have to pay the first $198, plus 20% of the rest of the bill. Medicare also negotiates some doctor bills to something less than the sticker price, similar to what most private health insurance Plans do. The deductible is only once per year, no matter how many times you go to the doctor. There is no maximum on what they pay (but also no maximum on what you have to pay on the 20%). Most doctors accept Medicare, so you don’t have to shop around as far as the part B is concerned (*but see the stuff below).

There is a premium for part B, it’s currently $144.60/month, but most people don’t know this because it comes out of your Social Security. So you don’t see a bill. Selecting Part B is also pretty simple (*but see the whole thing about Medicare Advantage, below): there is only one brand, the government’s. Very rich people pay more than $144.60. You usually get automatically enrolled in part B at the same time as part A.

There are a number of things that part B doesn’t cover, and that’s what usually surprises people. Part B doesn’t cover drugs, dentists or eyeglasses. It does cover chiropractors, physical therapists and nutrition. Also you get free vaccinations, diagnostic tests (mammograms) and some free vaccines (flu, but not shingles).

Things get squirrelly for mental health and long-term care between part A and part B, and you should really get someone smarter than me to help.

Really, except for the drug coverage, it’s similar to what a lot of people have from an employer, but better because the premiums and the deductible are both lower.

So, Medicare: Up to now, pretty simple because you don’t have make a lot of choices. Now it gets exciting.

A lot of people were upset about Part B, because the 20% can add up pretty quickly. In fact, most people pay the deductible in the first doctor visit. Plus, if you are admitted to the hospital for anything, you’re going to have to pay the $1,408 deductible. And there are several other things that Part B doesn’t cover completely.

Medicare Supplement (also called Medigap – they are two names for the same thing) covers most of the stuff that part B doesn’t cover.

That includes the remaining 20% on doctor bills and a lot of other charges that either Part A or Part B don’t completely cover.

The plans vary a little: some of them have a deductible before coverage starts and some don’t. (With all plans, you always have to pay the Plan B deductible of $198, the deductible, if there is one, comes when the plan starts to cover the remaining 20% on your doctor bills). They also vary on some of the weird things that Medicare doesn’t completely cover, like blood and hospice care. Most of them cover the things that Part A doesn’t cover, like Emergency Rooms and “observation,” although you still might pay something.

There are also some extras you can purchase on top of the basic Plan for extended days at a nursing home and for medical bills if you are out of the country (remember, Medicare only works in the US, so if you travel to Canada you’re on your own).

One important benefit is that you don’t have to switch doctors. Medicare Supplement covers bills from any doctor or clinic which accepts Medicare (which means nearly all of them). If you want to see a different doctor or a specialist, it’s easy and you don’t worry about networks.

Medicare Supplement is private insurance, so you buy it through an insurance agent. It is expensive, we pay almost $150/month each (on top of the $144.60), and they DON’T take the money out of your Social Security, so most people know that they are paying for this insurance. Premiums go up as you get older (in addition to increasing due to inflation). Like Medicare Part B, it doesn’t cover drugs.

Medicare supplement is NOT a government Plan, although the government has some laws about what it must cover. Curiously, the state determines what must be in each Plan, and not all Plans are available in all states. But they are pretty similar. In Wisconsin, the Department on Aging puts together a list of different companies that offer Medicare Supplement insurance, with contact numbers, so you can call and compare Plans.

Medicare Advantage is the big asterisk that’s an exception to everything I said about Part B. Several years ago, a lot of people were interested in HMO’s, where you get enrolled in a system and they make all your health care decisions for you. It was nice, because you didn’t see any bills, but there was the idea that it took away choice and was un-American. I am not sure what I think about that. But, there are not too many private insurers who offer HMOs to young people any more.

Medicare Advantage is like an HMO. What the Plan actually does it take the $144.50/month that you pay for your regular Plan B plus an additional premium and then they take care of everything for you. It’s like they said to the government, “Hey, we can handle this person’s healthcare better. So give us all the money you were getting from them and let us handle it with this HMO-like network.” That means, technically, you don’t have Medicare part B, you have the Medicare Advantage (but, they still take the $144.50 that was coming out of your Social Security for regular Part B, so most people don’t know this).

Some people refer to Medicare Part B, possibly with a supplement plan, as “regular Medicare.” Medicare Advantage is an alternative to that.

You get a primary care doctor, and that doctor decides when you should come in, what procedures you should get, and what specialists you need to see.  As long as you play by their rules, it works pretty well. And, if you have a doctor you like, you can see if they are on the Advantage Plan; if they are, you can make them your primary doctor and it will be good. If you don’t care who you see, it’s also good because they all use the same basic medical systems.

In most cases, you don’t see a bill. Actually, plans vary, and some of them do have copays and out-of-pocket maximums, but some don’t. The basic idea is that you don’t get too many bills no matter what you need within their system.

The real benefit to Medicare Advantage is that it is a lot cheaper. You pay more than the $144.50 that was coming out for Part B, but not much. The additional premium you pay can be $25 or $50 per month – there are also Plans that have NO premium (because they’re still getting the $144.50 from your Social Security).

On top of that, many Medicare Advantage Plans cover drugs, dental and vision. Of course, you still have to go to their drug store, dentist and optician, but it’s basically good.

Mostly, it only works in a single area, although there is usually some provision for people who get sick when travelling.

Medicare Advantage Plans vary a lot from company to company (more than Medicare Supplement insurance), but the state might provide a list, and insurance agents can help a lot in making sense of it.

Part D is coverage for drugs. Drugs were not as expensive when Medicare began, so I don’t think that they were given much thought. In fact, drugs usually lower the cost of healthcare, by reducing hospitalization and surgery, but they are still neglected by Medicare. Alas.

Part D coverage is also private coverage, since Medicare doesn’t cover drugs at all (except for drugs you get while you’re admitted in a hospital, which are in Part A). That means prices are all over the place. Also, drug prices are ridiculously complicated, so the price for a given drug varies by Plan.

Mostly, Part D pays for part of the drugs you get at the drug store. There is no deductible, but there is a maximum. After the maximum, which is several thousand, you pay the full amount until you get to an out-of-pocket maximum, at which point they pay 100%. (That’s the “donut.”)

We are fortunate in that I don’t really know how the donut works, but it’s scary. All the drugs that you see advertised on the evening news are expensive and involve the donut, so you know it’s hitting a lot of people really hard.

Part D plans also negotiate drug prices, which helps for some of those really expensive drugs, but, like I said, drug pricing is a scam and it’s hard to tell who is really benefiting from the discounts and rebates.

You buy part D through an insurance agent, and they take the premium out of your Social Security (usually). You need Part D if you get any of the Medicare Supplement plans or if you get a Medicare Advantage Plan that doesn’t cover drugs. You can also get Part D without getting either a Medicare Supplement plan or Medicare Advantage, they’re separate.

One nice thing about Part D is that the federal government regulates them, and they have a website that helps you decide which one is best for you. You tell it what drugs you are currently taking, and they show what you would pay over a year for the drugs plus the Plan premium.

Finally, there are also dental and vision Plans that anyone can get, including seniors (who don’t get the coverage through a Medicare Advantage Plan). You’re probably getting stuff in the mail about those Plans now.

Making sense of it all

The problem is choices. And you need to act right away (when you turn 65).

Here’s the deal: Part A is a no-brainer. You want it, it’s free, you don’t have to apply, and everyone gets it (there are a few exceptions, including end-stage renal disease, but that’s covered by a special section of Medicaid). You CANNOT be shut out of Part A because you have a pre-existing condition as long as you accept it when you turn 65.

Then you need to decide if you want Medicare Supplement Insurance or Medicare Advantage. Medicare Advantage is cheaper, but limits your choices. If you want to see a specialist, especially one that’s out of the system, it might be hard (probably will be impossible). It’s also a little harder if you travel, or if you don’t like the doctor they set you up with.

Medicare Supplement is more expensive, but it gives you more choices, which can be nice.

PLUS THERE IS THIS: As soon as you turn 65, you enter an enrollment period that’s a few (seven) months long. In that time, you can pick any Plan, and you can switch around if, for example, you don’t like the Medicare Advantage doctor they assign you to. But you NEED TO PICK SOMETHING. If you delay, and don’t pick a Plan until later, you will have to pay a penalty to make up for the months in which you didn’t pay.

Significantly, you can’t be denied coverage for any plan you pick during those first seven months. There is no pre-existing exclusion for any of them (except, as I said, end-care renal failure, but that’s covered a different way).

But, it is really important that you select some plan, either one of the Medicare Supplement Plans or a Medicare Advantage Plan, in those first seven months.

After those seven months, they might not let you on or let you on with a penalty that makes it more expensive. Every year, there is an “Open Enrollment” month that you hear advertised on TV, but that’s only for similar Plans. If you opt for the cheaper Medicare Advantage Plan, and then choose to get a Medicare Supplement Plan, you probably WILL NOT be able to do it. And, if you have not had coverage from either a Medicare Supplement Plan or Medicare Advantage, you will have to pay a penalty on top of the $144.50/month plus whatever the Medicare Advantage Plan premium is.

Ditto on the Plan D (drug) coverage. You need to have some coverage from the time you turn 65, or else you will have to pay more when you finally do get coverage. In Wisconsin, there is “senior care” which you can enroll in for just $30/year. It offers almost no benefits for middle-income people, but it counts as drug coverage so that you can enroll in a better Plan later without paying anything extra as a penalty.

So, after you decide if you want either the Medicare Supplement or Advantage, then what?

Well, you can call all the Plans that offer coverage in your state. Or, you can call a few and talk to an agent. You can also ask a local insurance agent if you like them.

It’ll probably turn out that there are a few big players in each state, and most people go with them. That’s never a terrible choice, although you can always investigate the heck out of it and find something a little better. But we didn’t.

We spoke with a really nice guy at WPS, which is insurance offered in several (but not all) states. They offer both Medicare Supplement and Medicare Advantage. They also offer their own Part D coverage, but he walked us through several Plans using the government website and suggested that we take a Part D Plan from another company (SilverScript). SilverScript is related to CareMark, and they are one of the biggest players across the country.

We actually pay very little ($3/month) for my several blood pressure prescriptions. But I know if I need any of those drugs on the TV ads, I’m looking at a world of hurt.

One last word

There is no such thing as “AARP Medicare.” AARP is not an insurance company. AARP gets money from insurance companies (I think it varies by state, but it’s usually United Healthcare) to get their name on policies. UHC offers both Medicare Supplement and Medicare Advantage just like everyone else, and their prices are about the same as everyone else’s. It’s fine insurance, but there is nothing unique about it.

Does it work?

Yes, Medicare works very well. Doctors accept it without any problem. They take care of the billing just like other insurance.

As for billing, every time you go to the doctor, you get two statements. One is from Medicare, and shows that they paid something but you will still owe a lot on the remaining 20%. You also get a statement from the insurance company, showing what they paid. Sadly, they are NOT coordinated, and it is very difficult to match them up. But it seems to work, because I usually get bills from the provider that wind up totaling no more than the deductible.