Knowing how your health insurance works and what your part of any medical cost will be is important at any age.  But once you are living on a fixed income, understanding what Medicare covers and what you have to pay at a doctor’s office or at the hospital or for prescription drugs is critical. Your budget depends upon it!

When it comes to figuring out Medicare coverage understanding the difference between a co-pay and co-insurance is a good place to start.  This article from the New York Times has some helpful information, especially when it comes to employer plans. You might want to pass it along to someone figuring out their workplace health insurance.

The same basic concepts apply in Medicare – but how they apply to different types of plans is important to know. So let’s take a look at the basics in figuring out your cost of care: co-insurance, co-payment and deductible (we’ll cover insurance premiums in a later post.)

Deductible is the amount you must pay for health care or prescriptions, before Original Medicare, your prescription drug plan, or other insurance begins to pay. For example, in Original Medicare, you pay a new deductible for each benefit period for Part A, and each year for Part B. These amounts can change every year.

Co-insuranceis the amount you may be required to pay for services after you pay any plan deductibles.  In Original Medicare, this is a percentage (like 20%) of the Medicare approved amount. You have to pay this amount after you pay the deductible for Part A and/or Part B. In a Medicare Part D Prescription Drug Plan, the coinsurance will vary depending on how much you have spent (the doughnut hole issue.) so, if the procedure is $100, Medicare pays $80 and you must pay $20.

Co-payment (co-pay) on the other hand is the amount you pay for each medical service, like a doctor’s visit, or prescription. You’ll find this most frequently in Medicare Advantage plans and Medicare Part D plans. A co-payment is usually a set amount you pay. For example, this could be $10 or $20 for a doctor’s visit or prescription. Co-payments are also used for some hospital outpatient services in Original Medicare.

Also, Medicare doesn’t cover everything.  That surprises a lot of people …often at a critical time of need when they find that the cost of care is theirs alone.  For example, generally long-term care is not covered.  So, for example, Medicare may cover rehabilitation services following a stroke, but once the person is ready to go home, they will pay for their own care.

So how does all this fit together when you are trying to decide among Medicare Advantage, Medicare Supplement and Part D prescription drug coverage?

Here are a couple rules of thumb as you consider different Medicare plans:

Medicare supplement insurance covers the gap (that’s why it’s called Medigap insurance) in Medicare Part A and Part B coverage – the 20% of cost that Medicare doesn’t cover, some plans cover the Part B deductible, provide additional days of coverage beyond what Medicare provides.  A good way  to think about medigap insurance is that it pays only when Medicare pays. You generally won’t find co-pays in these plans.  But, two new plans: Plan M and Plan N do have co-pays – so calculate in those costs if you consider these Medigap plans. All Medigap plans are standardized which means all insurance companies offering the plans must offer the same benefits.  But prices can vary, so compare plans before you buy.

Medicare Advantage (Medicare Part C): These plans wrap Medicare Part A and Part B together – sometimes includePart D and sometimes additional benefits like vision or dental.  Cost sharing in these plans takes all types of forms.  It depends on the individual plan.  So ask lots of questions and make sure you understand deductibles, co-insurance, and co-payments.

Part D prescription drug plans vary widely.  So look closely for deductibles, co-payments, co-insurance and the coverage gap (donut hole).

So when you shop and compare Medicare plans make sure you fully understand your cost of care:  know the deductibles, co-pays and co-insurance of any plan you are considering so you won’t be surprised when the bill comes due.

Resources:

Medicare and You 2010  Government resource

What’s New About Medicare Supplement Plans from Longevity Alliance

The growing cost of retiree health care is a very real issue for millions of today’s retirees.  If you haven’t thought about health care costs in retirement, two new studies should give you some food for thought…and action.

Health care costs in retirement 

Fidelity Investments estimates that a 65 year old couple today will need $250,000 to pay for medical expenses during their lifetime, not including long-term care expenses.  By any standard, that’s a big number and pretty much matches up with the many other retiree health care expense projections. 

The Fidelity study of retirees  found that health care costs average $535 a month, or about one-fifth of an average couple’s total monthly expenses of $2,842. Among those surveyed, 11 percent said their health care costs are $1,000 a month or higher. 

Almost half (47%) are paying more each month for insurance premiums and out-of-pocket health care costs than they had anticipated in retirement. 

Fewer retirees will be able to count on retiree health insurance benefits from their employers.  And, as some know, even if you have it now, doesn’t mean it won’t change in years to come.  So segregating some retirement funds for health care costs is smart planning.  How much depends on your health and the amount of risk you cover through insurance. 

The cost of health care in retirement is 4.2% higher than Fidelity 2009 survey, and 56% higher than when they began in 2002. 

Worried About health Care Costs 

So it’s no wonder that 44% of U.S. adults are worried about health care costs.  A new survey from Harris Interactive and HealthDay found high concern among older adults.

How worried, if at all, are you about having to pay more for your healthcare and/or health insurance?

Harris Interactive, March 25, 2010

Preparing for Retiree Health Care Costs

So, what can you do to prepare for retiree health care costs?  

*Understand what Medicare covers and what it does not, the deductibles, co-pays.  Calculate the costs including your part B premium. http://www.medicare.gov

* Consider supplemental coverage and Part D or Medicare Advantage to help you cover what Medicare doesn’t.  http://www.laihealth.com

* If you choose to purchase insurance, shop and compare. It can save you hundreds of dollars– not just in premiums but in co-pays and deductibles if you find the plan that is matched to your health care needs. 

*Consider how you will pay for long-term care if you need it–whether you’ll pay for it out of your savings, purchase long-term care insurance to cover some or all of the costs or impoverish yourself and rely on government programs (Medicaid). 

* Health care reform will provide some relief on prescription drug costs for Medicare beneficiaries. 

But most importantly, sit down and figure out the potential costs and how much of a bite it will take out of your budget.  It’s a guess, to be sure.  And you probably won’t match the “average” costs sited by the research.  But you will walk away with a more realistic view of what promises to be one of your biggest expenses in retirement.

 If you are approaching retirement or retired, you really want to pay attention to the trends in the cost of retiree health care.

 It’s not very good news for your wallet.  More of the cost of health care is shifting to the individual.  And the cost can make a big difference in how far your fixed income in retirement goes. A tough punch after the hit retirement savings have taken in the past year.

 A study from Towers Perrin says that only 45% of the companies surveyed subsidize retiree health care costs –a number that has been continually declining over the past ten years.  And in some cases, employers have in place caps on their premium subsidies, and as those caps are hit, the costs shift to the employee.

Pre-65 retiree health coverage (with no employer subsidy) in 2010 is $7,596 for a single retiree – family coverage hit a whopping $19,596!

With an employer subsidy the cost for a pre-65 employee is $3,984 and $10,548 for family coverage.

Post 65 retirees are generally seeing a 4% increase to $3,840 and $7,848 for a family..  The survey warns however that the low increase masks such plan changes as elimination of prescription drug coverage or other benefit reductions which end up with more out-of-pocket costs.

So what does this mean for health care planning in retirement?  Do the numbers early and often.  Don’t make assumptions that what you have today, is what you’ll have tomorrow. 

If your health care is employer subsidized now, run the numbers of what happens to your payment if you lose that subsidy. Can you afford it?  Better to be prepared than surprised.

 If you are on your own to pay, it may make financial sense to work a bit longer and save more to pay for health care in retirement.

 It is unclear what impact health care reform will have on retiree benefits, but Towers Parrin warns that it could bring significant changes for retiree medical benefits. Some provisions could encourage employers to terminate retiree health benefit plans.  On the other hand, universal access to coverage for those under 65 might give companies a reason to leave that retiree market since employees would have access to health care elsewhere.

What kind of changes are you seeing in retiree health benefits?

 Resources:

Towers Perrin Report

Medicare Health Plan Quotes from Longevity Alliance — http://www.laihealth.com

American Airlines non-union retirees got some bad news about their retiree health insurance:  It’s gone as of 2010.  That shifts a big financial burden to 5500 retirees:  health insurance costs they thought were covered. Retirees will be paying the entire cost putting a big dent in their retirement budget.

American Airlines is hardly the first employer to stop retiree health insurance.  The trend toward reducing or eliminating retiree health insurance has been going on for several years.  But for the people who receive the letter, it comes as a shock and adds new concern for their financial future. It also probably means entering the Medicare maze of plan choices, outside of the employer selected plan, for the first time.

 If you find yourself in this situation, what should you do?  Here are three important steps.

1.  Learn About Medicare Health Plan Options.  Find out the difference between Medicare Supplement plans and Medicare Advantage plans and  Medicare Part D plans.  Determine which product is right for you. Make sure you compare out-of-pocket costs as you use the plan, not just the monthly premium. If keeping the same doctors is important to you, then find out what Medicare health plans they accept.  Medicare.gov has helpful information on the differences in the types of coverage as well as a compare plan feature.

2.  Shop and Compare at Least Two Plans.  In this new pay-on-you-own environment you need to shop and compare.  Once you start shopping you will find that there are a number of options and prices can vary dramatically for the same coverage among different insurance companies. Start with the company you had, if you were pleased with their plan.  But don’t stop there.  The insurance company you had may not be the right company now from a price perspective. You can use an insurance broker with expertise and experience in Medicare related health insurance products to help you find the right coverage for your budget and needs.  If you will be shopping for Part D prescription drug coverage have a list of your medications, quantity and frequency ready.

3.  Know Your Deadlines.  Know exactly when your coverage ends since that will trigger your eligibility to switch to a new plan and may protect you from having to go through health underwriting.  In most cases you have 63 days after you employer-provided coverage ends to get new coverage without having to wait for the annual Enrollment period (Nov. 15 – Dec. 31) for Medicare Advantage and Medicare Part D plans. But check the specific detials with the employer.

Don’t delay.  Start shopping right away so that you can find the best plan for your budget.

If you cut back on prescribed medication are you saving money?  In the short run, maybe – in the long run, probably not.  It’s one of those paradoxes where our actions can have the opposite impact of what we intended.

Many of us  just don’t do what the doctor says.  We stop taking pills before we should; we don’t take it in the prescribed amounts or timing; or, we don’t get a prescription filled or refilled.  We might be trying to save on our prescription costs.  Or we just might be engaging in a bit of “I know what’s best for me.”

But a new survey says that we are in danger of dramatically increasing our health care costs by failing to follow a prescribed course of medical treatment.  Not doing what the doctor says can increase the risk of hospitalization leading to higher health care costs for you and your insurance company.  That can ultimately lead to higher health insurance costs for all of us.

For example, among diabetes patients, those with low levels of adherence to prescribed medication treatment almost doubled their annual cost of health care to $16,498 from $8,886., according to a study by the New England Health Care Institute.

Failing to follow the doctor’s directions is estimated to cost $290 billion per year or 13 per cent of total health care expenditures.

The introduction of Medicare Part D prescription drug coverage has helped many seniors pay for their prescriptions and increased the number of people staying on their prescribed medications. Before the implementation of Part D, surveys confirmed that beneficiaries without drug coverage were not filling prescriptions, were skipping doses, and were splitting pills at troubling rates, which raised concern about the quality of care for patients who could not afford their medicines.

Research to date has shown an increase in the use of medications attributable to Part D coverage, particularly among enrollees who previously lacked drug coverage.

If you are a Medicare beneficiary – or soon to be – insurance to help pay for prescription drugs can be extremely important to helping you stay healthy or control chronic diseases. The open enrollment period for Part D plans begins November 15.  Information about plans for 2010 will be available beginning in October, so you have time to shop and compare before the enrollment period. Except for special circumstances, this is the only time of year when you can change your Part D prescription drug plan.

If you are not taking your medication for reasons other than cost, such as confusion about the instructions or concern about the medication, talk to your doctor now.  If your prescription are costing you too much, a change in your Part D plan might help ease the financial cost.  If your prescriptions have changed in the past year, this will be the time to shop and compare other Part D plans to see if you can get better coverage.

Make sure you look at the big picture.  Even if a plan costs you a bit more, the savings in future health care costs can be great.

Medicare beneficiaries got some good news this week:  only a slight increase in rates on their Part D prescription drug plans in 2010.  The average rate paid is expected to increase to $30 from $28 in 2009 based on bids submitted by Part D plans, according to to the Centers for Medicare and Medicaid (CMS).

 “Although most Part D plan should have relatively stable premiums, all beneficiaries should compare their current coverage with the plans that will be offered in 2010 when information becomes available in October,” recommended Jonathan Blum, acting director of CMS’ Center for Health Plan choices.

 Premiums and benefits for Medicare Advantage plans and more details on Part D plans will be announced in September. Specific  rate and benefit information about plans is usually available in October and open enrollment period for Part D and Medicare Advantage plans begins Nov. 15.

If you are turning 65 or shopping for a new Medicare health plan you can find more information at Medicare Made Simple.

Turning 65 is an age that for many signals a new phase of life…retirement, a new career, relocations, part-time work…to name just a few.  One of the biggest changes it brings is in health care coverage.  For many it marks a shift from employer coverage or self-insurance to a government sponsored program – Medicare.  It can seem like a maze but making the right decisions about your coverage is essential.  Here is a guide on what you need to do if you’re turning 65 this year.

Most people qualify for Medicare when they turn 65. You qualify if you’re eligible for Social Security or Railroad Retirement benefits. Or you may qualify on a spouse’s (including a divorced spouse’s) record.  Others qualify because they are government employees not covered by Social Security who paid the Medicare part of the Social Security tax.

Part A and Part B are two key parts of Medicare:  Part A (hospital insurance) helps cover your inpatient care in hospitals.  It also helps cover skilled nursing, hospice and home health care if you meet certain conditions.  Part B (medical insurance) helps cover medically necessary services like doctor’s services and outpatient care.

If you are already getting Social Security benefits, you’ll automatically be enrolled in Medicare Parts A and B. However, because you must pay a premium for Part B coverage, you have the option of turning it down.  You will be contacted by mail a few months before you become eligible and given all the information you need. 

You’ll find great information at http://www.medicare.gov and the “Medicare and You” booklet available online.

Signing Up for Part A and B

• If you get benefits from Social Security or the Railroad Retirement Board (RRB), you will automatically get Part A starting the first day of the month you turn age 65.
• If you aren’t eligible for premium-free Part A, you can buy Part A during your Initial Enrollment Period—the 7-month period that begins 3 months before your 65th birthday and ends 3 months after your 65th birthday.
• If you aren’t getting Social Security or RRB benefits (for instance, if you are still working), you will need to sign up for Part A. You should contact Social Security 3 months before you turn age 65 to sign up for Part A.
• If you get benefits from Social Security or the Railroad Retirement Board (RRB), you will automatically get Part B starting the first day of the month you turn age 65. You will get your Medicare card in the mail about 3 months before your 65th birthday.
• If you don’t want Part B, follow the instructions that come with the card, and send the card back. If you keep the card, you keep Part B.   

More decisions to make

Don’t be fooled into thinking your health coverage is now complete.   Original Medicare will not pay for all of your medical expenses. You may be liable for deductibles and coinsurances, and a prescription drug plan will be necessary to help you with your prescription drug costs.

You can choose different ways to get your Medicare benefits. In most cases, if you do nothing when you are first eligible for Medicare, you will automatically be in the Original Medicare Plan, and you can join a Medicare Prescription Drug Plan. Or, you can choose to join a Medicare Advantage Plan (like an HMO or PPO) to get all of your Medicare benefits. In many cases, the Medicare Advantage plan will include Medicare prescription drug coverage.

Here are some of the choices:

• A Medicare Advantage Plan will usually provide more benefits than Original Medicare but may require that you use specific medical providers or may charge an additional monthly premium over and above your Part B premium.
• A Medicare Supplement (or Medigap) plan will pay most or all of your out-of-pocket liability under Original Medicare, but will require a monthly premium in addition to your Part B premium.
• A Prescription Drug Plan (Part D) provides Medicare Beneficiaries with assistance in paying for their prescription drugs. Medicare Prescription Drug Plans are offered by private companies and have varying benefit designs, premiums, co pays, formularies and participating pharmacies

Make sure you know and meet the sign-up deadlines.  In many states, insurance companies offering Medicare Supplement plans  will ask medical questions (medical underwriting) for the purposes of accepting or denying your application for coverage or to set rates.  

During the first 6 months after you turn 65 and enroll in Part B of Medicare, you have a Guaranteed Issue Period.  During this time you can enroll in any Medicare Supplement Plan offered by any insurance company in your state without having to answer medical questions. Your premiums during this Guaranteed Issue Period can not be based on any health conditions that you have. If you wait until after this Guaranteed Issue period, you may be required to answer medical questions and your application for coverage could be denied, leaving you liable for those expenses which Medicare does not pay.

If you are in Original Medicare with or without a Medicare Supplement Plan, or in a type of Medicare Advantage Plan called a Private Fee for Service Plan, you will also have the opportunity to enroll in a Prescription Drug Plan.  All plans must meet minimum standards defined by the Centers for Medicare and Medicaid (CMS).

If you do not have retiree benefits through your employer and are shopping on your own, make sure you get advice from a company that specializes in Medicare plans.