April 2013

Medical Section: Understanding Medicare

Author: Paul Devere

“Don’t panic.” — Douglas Adams, The Hitchhiker’s Guide to the Galaxy
Author’s note: The purpose of this article is to help people enroll in Medicare, not to judge its value, merits, faults or burden on the federal deficit. I am not an expert on Medicare, but I am a participant. The figures and statistics used are from a variety of sources, but mainly attributable to cms.gov, medicare.gov, webmd.com, ama.org, aarp.org and nytimes.com.

Everyone seems to have a “dog in the hunt,” including the sites mentioned, when it comes to what to do about Medicare. But no matter where you stand politically, as you roll into that 65-plus age range, the chances are that we (Medicare enrollees) have or will develop one chronic health condition (87 percent), and half that number have or will develop three or more. Bottom line, there’s an 87 percent chance you’ll need some powerful health insurance in your “golden years.”

BACKGROUND
In 1965, President Lyndon Johnson signed into law Title XVIII of the Social Security Act that created Medicare. At the time about 50 percent of older Americans had no health insurance because of expense (they had to pay three times as much as younger folks with half or less of the average income at the time).

When Medicare began, it was pretty simple and cheap. For folks 65 years old, hospital (Part A) and doctor’s bills (Part B) were paid. About $3 was taken out of pay checks per month to cover the program. Other than Social Security, Medicare is the most popular federal program for seniors, but just as the cost of care has risen dramatically since that time, so too has the cost of Medicare. Which is what all the fuss is about.

BOOMERS
You have probably read this: About 8,000 Baby Boomers (born between 1946 and 1964) are turning 65 every day. While some say 65 is the new 45 (choose your own year), from the standpoint of insurance companies’ actuarial tables, the federal government, and Wendy’s “free senior drink,” you are 65 when you achieve your 65th birthday.

In theory that’s when you can retire. In theory, life becomes simpler; the kids are gone (unless they moved back in with you during the economic downturn). You can now use your 401(k). You might even get your pension check. And, at 65, you become eligible to sign up for that big “entitlement,” Medicare. What does that mean for the Boomers? Plenty. And so much for a simpler life.

DIRECT MAIL, E-MAIL
Medicare “providers” (private insurance companies) have a database with your name in it and, of course, your age. As more Boomers arrive at 65, the United States Postal Service may start to turn a profit. Automatic mailings start arriving just after your 64th birthday.

Even in this day of digital communication, rain forests are at risk due to the amount of paper needed for Medicare solicitation mailings. And they are all after the same thing—the money part of Medicare where you pay and insurance companies make money.

THE PARTS: WHAT’S IN IT FOR YOU?
You’ve looked at health insurance policies. They are somewhat like the disclosure statement you get with your credit card only the print is slightly bigger and there are more pages. They are also often as intimidating. Medicare plans are no different.
Medicare is made up of four parts: A, B, C, and D. Coverage in all these parts can vary because of income, but Part A is usually the “free” part. Here is what they (generally) cover and the average costs:

• Part A. Hospital stays, skilled nursing facilities (short stay), home health care, hospice care and blood transfusions. For most, this is the “premium free” part of Medicare if you are on Social Security. Of course, there are exceptions, which can require premiums of $450 or more a month. But those are rare exceptions. “Free” doesn’t mean you pay nothing. There is still a deductible of about $1,200 per year.

• Part B. Doctor visits, preventive services (screenings, flu shots) ambulance services and much more. You are automatically signed up when you go on Social Security. In 2013 you have annual deductible of $147. Your monthly premium is based on your income. If you file a join tax return and your yearly income in 2011 was $170,000 or less, your monthly nut is $104.90. As your tax bracket goes up, so do your premiums, at an average of $50 more a month.

• Part C. Here is where it gets a bit complicated. Back in 1997, folks signing up for Medicare were given an option of signing up with a private insurance company that offered everything that Parts A and B covered (traditional Medicare) but included other benefits. Medicare paid the companies a standard rate and you paid a premium.

In 2003, Part C turned into Medicare Advantage programs that insurance companies started offering. Not only do these plans cover traditional Medicare, but they include Part D (see below) and perks like dental and eye care, even health club costs. There are over 25 of these programs available to just about every Medicare enrollee. The Center for Medicare and Medicaid Services (CMS), the administrator of Medicare, rates these plans on the “star” system, five stars being the best plans based on quality of performance. You will still pay the monthly Medicare premium, plus a premium to the insurance company, which was $31.54 on average in 2012.

• Part D. This pays for part of your prescription drugs. Now, this one gets a little whacky. You might think those who dreamed this up were abusing prescription drugs.

But in reality, it was congressional staffers and representatives of drug companies who put together the plan to help Medicare beneficiaries cover some of their prescription medicine costs. The whacky part is that when it was first introduced, Part D had a gap (the infamous “donut hole”) that left people paying full retail for drugs after their drug costs (at full retail price—a combination of your out-of-pocket expense and what your plan paid) reached a certain level. Since the Affordable Care Act was created, that original model has changed significantly. The donut hole is closing. In 2013, anyone reaching the donut hole will get a 52 percent discount on brand name drugs and 21 percent on generic medications. The hole will be closed by 2020. You don’t have to sign up for Part D, but according to non-profit Consumer Health Information Corporation, it sure looks like it’s worth it. Say your drug costs for the year are $6,000 without Part D. With Part D, that would be knocked down to $3,980, a $2,020 savings. And that includes your monthly premium payment, which will average $15-18 a month with a deductible on average of $300.

• Medigap. “Medigap,” also called “Medicare Supplemental Insurance,” covers costs that are left over from Parts A, B, and D. There are about a dozen to choose from. This, too, is private insurance. Your monthly premium will be between $90 and $300 at the very high end. Is it worth it? It depends on your circumstances.

According to Ray Moglin, a regional volunteer Medicare counselor, “Medicare, Parts A and B with Medigap and Part D is considered the gold standard.” An unscientific poll of eight Hilton Head Island and Bluffton physicians who take Medicare concurred with Moglin.

THERE IS HELP OUT THERE
Trying to decide which plans fit your budget, lifestyle and sense of security is tough. Today, if you use a financial planner, they are usually fully informed about the choices. Organizations like AARP (aarphealthcare.com) do a very reasonable job of explaining options and making suggestions of what to do. Understand, AARP is, tangentially, in the insurance business. Keep that in mind.

For South Carolina residents, the best website for personal guidance is the South Carolina Lieutenant Governor’s Office on Aging (aging.sc.gov). That’s where Moglin fits in.

BOTTOM LINE
Medicare will be changing with the Affordable Care Act. It already is. Some costs have come down. Some plans have improved significantly (like Medicare Advantage) because of it. You can argue about those changes with your congressman or senator. Or your barber or hairdresser.

In the meantime, be safe. Sign up.

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