Health Insurance Part II 4/22/07
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
Health Insurance Part II
“Health Insurance Part II”
Last week, I discussed health insurance options for non-retirees. This week, I will focus on retirees and their Medicare choices. Over the past few years, Medicare has become more complex with the introduction of new plans such as the Prescription Drug Coverage. In this article, I will outline the options you should consider when making your choice.
The first option is the Original Medicare Plan which consists of Part A (Hospital) and Part B (Medical). Most people automatically get Part A coverage without having to pay a monthly premium. Part A helps cover your inpatient care in hospitals including critical access hospitals and skilled nursing facilities. It is important to understand that Part A does not cover long-term care which can be costly. Part B helps cover doctor’s services, outpatient care and other medical services not covered by Part A . Part B is optional and you pay a monthly premium for this coverage. As of January 1, 2007, your premium is based on your income. Most people pay the standard monthly premium of $93.50 but if your income as an individual filer is greater than $80,000 ($160,000 for joint filer) then your monthly premium will be higher. There is also a deductible that must be met each year before Medicare Part B starts to pay its share.
In addition to Part A and B, many people choose to purchase a Medigap plan which is a Medicare Supplement Insurance Policy. This is coverage provided by private companies, an employer, or union to fill in the gaps in Part A and Part B coverage. The costs and benefits vary by policy and company.
The Original Medicare Plan does not cover prescription drugs. In 2006, Medicare introduced Part D which is Prescription Drug Coverage. This is an optional coverage that is provided through private companies approved by Medicare. There are numerous plans and each plan has a different premium, deductible, co-payments, and drug formulary. Each plan covers different drugs and many plans have added prior authorization rules. The most important consideration when selecting a drug plan is to ensure that your current prescriptions are covered by that particular plan. Most plans have a gap or doughnut hole. This is the time period after the drug costs reaches $2,400 that the individual must pay the entire drug costs out-of-pocket until the individual’s out-of-pocket costs reaches $3,850. Some plans offer coverage during the gap or doughnut hole period. These plans are best suited for individuals who have high drug costs.
The second option is to enroll in a Medicare Advantage Plan which is called Part C. This type of plan combines your Part A (hospital) and Part B (medical) coverage. These health plans are run through private insurance companies and are approved by Medicare. These plans generally offer extra benefits and many include the Part D prescription drug coverage. Many of the plans have networks meaning you see doctors who belong to the plan or you must use certain hospitals to get covered services.
Both the Original Medicare Plan and the Medicare Advantage Plan have their advantages and disadvantages depending on your particular health needs. Each year you should review your health and prescription needs. You should consider switching to a different plan during the open enrollment period in the fall if another plan is more advantageous.