When was the last time you researched Medicare benefit options for your clients? Upon their 65th birthday, retirees must make critical choices regarding coverage that can impact the shape of their financial future. Selecting Original Medicare versus Medicare Advantage, adding a prescription plan, determining whether to obtain supplemental health insurance (and which kind) — must be all be decided.
Costs, medical providers, and current health status are major factors when clients make these decisions. With proficiency in the different structures of Medicare plans, financial advisors can help clients configure a customized health care plan that addresses individual needs and preferences. Summarized below are important policy options to research before your retiring clients apply for Medicare.
Original Medicare or Medicare Advantage Plan?
Medicare is available in two basic packages: Original Medicare (Parts A and B) and Medicare Advantage Plan (known as Part C). Both plans offer hospital and medical coverage but work differently.
- Original Medicare allows a subscriber to choose any doctor, hospital or provider within the United States that participates in this government health care program. The plan does not require enrollees to select a primary physician or obtain referrals as long as specialists accept Medicare. Flexibility in choosing a health care network is a significant benefit under this option, especially for clients that have formed relationships with doctors over the years and don’t want to start over with a new physician.
- Services provided by Original Medicare Parts A and B have deductibles and copays, which can be controlled by a Medicare Supplement Plan such as a Medigap Plan F insurance that covers many out-of-pocket expenses for Medicare-approved services. Such supplemental insurance can provide tremendous out-of-pocket cost-savings for individuals in poor health or with chronic conditions that require constant medical services. Choosing Original Medicare also requires the purchase of a separate Medicare Part D drug plan for prescription coverage.
- Offered through a private insurance company and not as a government program, Medicare Advantage (MA) covers all services provided under traditional Medicare but limits choice to in-network doctors and hospitals. Most popular in MA enrollment are HMO and PPO plans. While losing the flexibility to choose service providers, the plan does offer prescription drug coverage, so a separate Part D enrollment is not required. Additional benefits such as vision care, hearing aids and dental are often covered under MA plans. Comprehensive services are provided under one card with one premium payment that is typically lower than paying for Original Medicare plus a Supplement Plan. However, co-pays and out-of-pocket costs can be high, especially for those frequently seeking medical care. The Kaiser Family Foundation reports that the average out-of-pocket limit in 2015 was $5,041. Unfortunately, Medigap insurance can't supplement the MA in paying copayments, deductibles, and premiums.
How to Choose the Right Drug Coverage
Prescription coverage is a must for retirees. According to the Centers for Disease Control and Prevention, more than 76 percent of Americans older than 60 use two or more prescription drugs, with 35 percent using five or more. Seniors enrolling in Original Medicare can obtain prescription drug coverage by participating in Medicare Part D. Unlike Medicare Parts A and B that are government programs, prescription coverage is sold by private companies approved by Medicare. However, enrollment is required when first applying for Medicare to avoid paying a penalty later. Medicare Advantage subscribers do not pay for Medicare Part D as prescription coverage is included in their plans. In fact, those that do enroll in a Medicare Prescription drug plan are automatically disenrolled from a Medicare Advantage plan.
Whether a standalone plan or offered as part of a Medicare Advantage program, plans differ by costs and formulary. When shopping for a plan, ensure necessary drugs are covered and, if so, at what charge. Individuals have the freedom to shop around and choose the plan that offers the most value, so you can help them the following suggestions:
- Look for the most coverage at the lowest price and shop based on total costs (premiums plus deductibles and copays) — not just premiums.
- Review star ratings
- Review coverage rules that may affect costs
- Use Medicare’s Plan Finder for Part D to locate plans in their geographic area
Understanding Medicare’s many details will help financial planners guide clients in making sound choices that protect retirement assets from unexpected medical expenses. Tackling the topic of Medicare can be challenging, however, with all its complexities and moving parts.
David A. Littell, JD, ChFC®, Professor of Taxation at The American College of Financial Services, provides insights on this hot topic in the webinar “10 Tips for Helping Your Retired Clients Manage Health Care Expenses” scheduled for March 1, 2017. This free webinar will provide valuable advice for your clients on how much money should be set aside for future health care expenses.
To gain more insights on how to help your clients navigate and choose the right Medicare benefits, watch the replay of the webcast “10 Tips for Helping Your Retired Clients Manage Health Care Expenses.”
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