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Money November 2016

Financial Fortitude

Making All Those Medicare Choices – It’s Complicated, Confusing, and Crucial

By Karen Telleen-Lawton

Here is an essential point: Medicare Advantage is a whole different system than Medicare. It is managed care, which results in all sorts of different cascading decisions. When you choose MA, you are opting out of Medicare proper. You can only redo that decision once in your life (with some exceptions).

Dear Karen: I’m turning 65 early next year and am flummoxed by the Medicare options. I know I still have to pay for some things, but I always thought you just signed up and that was that. My older friends say it’s confusing and frustrating. How do I start, and what do I do? – Going mental over Medicare

Dear Mental: I wish I could say your friends are exaggerating, but it is a complex set of decisions. I think it helps a bit to spend a few minutes looking at the forest before diving into the decision trees. A little history gives you context with which to frame the choices about which trees to shade your medical future.

When Medicare insurance began in 1966, it consisted only of Part A (hospital insurance) and Part B (medical insurance, which loosely provides some coverage for doctor bills.) It was never intended to cover all your costs. There are still monthly fees, deductibles, and co-pays just like any other insurance, except that the Part A monthly fee is covered by the Medicare tax.

In the 1980s, insurers began offering standardized Medigap policies which, for monthly fees, would cover some or all of those costs. There are ten policies – lettered A, B, C, D, F, G,
K, L, M, and N – which provide various coverage for deductibles, co-pays, hospice, blood, and emergency care abroad. A medigap plan G is the same no matter which insurance company you use. The only differences would be in the price (which you can compare easily) and quality of service (which is hard to tell).

The Medicare Advantage (MA) system began as an option for Medicare patients who were priced out by medigap policies. HMOs and PPOs who provide Medicare Advantage policies must provide the same as Part A and Part B (equivalent coverage) and they usually provide other things such as vision, hearing, and so forth.

Drug coverage began more recently, in 2006. If you want drug coverage, under traditional Medicare you would purchase a Part D plan. You can pick one online by entering your particular prescriptions; the best policies for your prescriptions will be listed. Under MA you could choose an MA plan that includes drug coverage or add a Part D plan. Most seniors want a plan to fill the coverage gap (or “donut hole”) between the initial coverage limit and catastrophic-coverage threshold.

Overall, MA can be less expensive, according to Medicare for Dummies by AARP’s Medicare expert Patricia Berry. But as always, it depends on your needs and your region. With traditional Medicare you may be more likely to keep the doctors you have and find new doctors you want, because you’re not limited to the ones in the HMO or PPO. But you are limited by ones who will accept Medicare patients, which is a problem in some areas. The MA limitation to providers in the HMO/PPO may be an advantage if the group functions as a team to manage your whole care. Traditional Medicare is moving that way also.

Here is an essential point: Medicare Advantage is a whole different system than Medicare. It is managed care, which results in all sorts of different cascading decisions. When you choose MA, you are opting out of Medicare proper. You can only redo that decision once in your life (with some exceptions). If within the first 12 months of choosing an MA, you decide to switch to (or back to) traditional Medicare, you can. If your MA carrier decides to drop your area, or is guilty of some malfeasance, you can return to traditional Medicare. Other than those circumstances, you may still be able to buy a Medigap policy but it will lack the federal guarantees and protections such as for preexisting conditions.

Given that important nuance, I believe the best place to start looking is with traditional Medicare. Go online to www.Medicare.gov to read the basics, then Google questions that you have. You can also go to a fee-only financial planner, who will help you puzzle out what works in your area and also fits your needs. Ask friends in your area what choices they made and whether they are satisfied.

Eventually, you will be reaching out to insurance companies, and then you will be inundated with advice. But best to have at least a primary level of understanding beforehand. Then you will better understand the tradeoffs with the various policies, so you can find your best and healthiest place in the shade.

 

Karen Telleen-Lawton is the principal of Decisive Path fee-only financial advisory in Santa Barbara, California (http://www.DecisivePath.com). You can reach her with your financial planning questions at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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