By David John Marotta and Beth Anderson Nedelisky
Many seniors look forward to saving on medical insurance costs by enrolling in Medicare at age sixty-five. However, navigating the Medicare system is not for the faint of heart. Medicare is an alphabet soup of plan choices. Currently Medicare is organized as parts A through D.
Medicare Part A provides hospital insurance to seniors. For the majority of seniors who have paid into the plan, enrolling in Part A comes at no cost. Part A covers hospital stays, home health care services, and hospice care. However, if you just need a check up, you’ll need to resort to Part B or Part C to help with those costs.
Part B helps to cover doctor’s services, some outpatient care, and routine preventative services. However, unlike Part A, you’ll have to pay a monthly premium to buy the coverage. The costs of Part B are dependent upon your yearly income. In 2008, seniors will pay $96.40 per month if they were married filing joint and reported $164,000 or less in income. Monthly premiums climb as high as $238.40 if you report lots of income in retirement.
In some cases you will have to pay the $135 deductible plus 20 percent of the remaining costs.
However, unlike Part A, Part B may require you to first pay the $135 deductible before Medicare will pick up the tab. For other services, Medicare will cover 80 percent of your medical costs, requiring you to pay the other 20 percent. Still in other cases, you’ll wind up paying both the $135 deductible plus 20 percent of the remaining costs.
Don’t try and save a few bucks by skipping Part B coverage. If you fail to enroll in Part B at age 65, you’ll be slapped with a 10% penalty for each year you delayed enrollment.
Your Part B insurance will provide you with some free services such as a flu shot, diabetes and cancer screenings, and ‘Welcome to Medicare’ physical exam. If you take advantage of these services you may avoid more costly and more dangerous conditions.
Most seniors sign up for the Original Medicare plan, a combination of Parts A (hospital insurance) and B (medical insurance). However, if Uncle Sam’s doesn’t provide you with sufficient coverage, you may be better served by a private insurance company offering a Medicare-approved insurance plan.
Part C, also known as Medicare Advantage Plan, includes coverage for parts A and B through private insurance companies. The plans are usually offered in the form of a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO). Your premiums, co-payments, coinsurance and deductibles will vary based on your specific plan benefits. And, although offered by private companies, Medicare Advantage Plans are approved by Medicare.
Choosing a Part C plan may mean you already receive prescription drug benefits. If your prescription drug coverage is deemed “creditable” by Medicare, you won’t have to pay an additional premium for the Medicare prescription drug plan, also known as Part D.
Part D, the Medicare Prescription Drug Plan, is the newest of all the Medicare programs. However, Medicare does not provide the insurance directly. Instead, each state has contracted with insurance providers to offer the drug coverage. If you are a senior, you must decide if you should sign up, and then which plan you should purchase.
Most states offer at least 40 different drug plans. Premiums average $28 per month, depending on the level of coverage and the types of drugs covered by the plan. If you are enrolling in the Original Medicare or don’t already have “creditable coverage”, you’ll need enroll in Part D, or face a penalty. If you fail to enroll at age 65 but decide to enroll at a later date, you’ll pay a 1% penalty for each month you delayed enrollment.
The costs of Part D vary, and if you don’t think you will need the coverage you should find the lowest cost Part D to avoid the penalties. That way, if you need the coverage later, you won’t be stuck with premiums inflated by penalties. You can always change providers at a later time, if you decide different coverage suits your situation better.
If your income and assets are low enough, you may be able to save money on your Medicare costs. This assistance is done through your State Medical Assistance and is often called Medicaid. Call even if you aren’t sure if you qualify. Call 1-800-MEDICARE to get the telephone number for other states.
The initial enrollment period begins three months before your sixty-fifth birthday and ends three months after your birthday. Be sure you enroll to avoid unnecessary penalties.
You can get more information by visiting Medicare or by calling 1-800-MEDICARE.
David John Marotta and Beth Anderson Nedelisky work at Marotta Asset Management, Inc. of Charlottesville which provides fee-only financial planning and asset management.
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