Harvard Health Letter

Surviving the Medicare maze

Medicare, once the post-retirement panacea, is now just the starting point for seniors' health care coverage.

Aging holds many sobering surprises, and some don't even involve mirrors. Not least of the latter is the process of getting health care coverage after retirement.

Men and women accustomed to employer-sponsored health insurance are often ill prepared for the labyrinth of post-retirement insurance choices, according to a survey of Americans born between 1946 and 1964. The National Association of Insurance Commissioners found that two-thirds of respondents to their nationwide poll were unfamiliar with most aspects of Medicare, and four in five had doubts that it would even be around for them.

The good news: Medicare is solvent for now, and is likely to remain so for at least the next decade.

But these boomers are going to have to do a lot of work to mine their Medicare benefits to their best advantage. No longer is it enough to flash the red-white-and-blue card that was their parents' passport to unlimited medical care at negligible cost to them.

A hospitalization can now run the patient thousands of dollars even after Medicare ponies up its 80% of the bill. As a result, many Medicare beneficiaries have some type of supplemental insurance coverage to preserve their financial health. Assessing one's Medicare coverage, like filing one's tax return, is becoming an annual exercise for retirees. And it calls on as many math skills — and may involve more research — as filling out a 1040.

The ABCs — and D — of Medicare

Part A covers inpatient care in hospitals and, under certain conditions, care in skilled nursing facilities, hospice care, and home health care. People who have paid Medicare taxes for a total of 10 years or more don't pay premiums. Others may pay up to $423 a month. Patients must pay a deductible — for 2008 it's $1,024 — and additional payments after 60 days of full coverage are used up.

Part B covers outpatient care, including office visits, diagnostic and screening tests like mammograms and colonoscopies, and preventive services like flu shots. An initial "Welcome to Medicare" exam is covered, but not an annual physical. The monthly premium is $96.40, although people whose annual incomes are over $82,000 pay more. There's an annual deductible ($135 for 2008) and a 20% copayment for all services.

Part C , also known as Medicare Advantage, allows beneficiaries to enroll in HMOs, PPOs, and several other types of plans. The plans receive a payment from Medicare for each patient enrolled, but the enrollees still have out-of-pocket expenses, including the monthly Part B premium, a premium to the plan, and some copayments.

Part D drug plans are run by private companies approved by Medicare. The cost and drugs covered vary. If you decide not to join a Medicare drug plan when you're first eligible, you will pay a late-enrollment penalty if you sign up later.

Not your father's Medicare

Today's Medicare would be barely recognizable to its first cardholder, Harry Truman. The program, which began as a gleam in Truman's eye, was delivered into law in 1965 after a difficult, 20-year gestation. The initial two-pronged program, Medicare Part A (hospitalization coverage) and Medicare Part B (outpatient care), with its $3 monthly premium, was both a bargain for patients and a boon for doctors and hospitals. At the time, health care providers were allowed to bill Medicare any fee they charged.

But within a decade, copayments charged to patients had risen with medical costs, and private insurers sensed a new market for plans that covered patients' burgeoning out-of-pocket costs. These Medigap policies varied from excellent to fraudulent, and by 1980 the federal government was behooved to regulate them (see "Tips for minding Medigap").

During the 1970s Medicare started to allow beneficiaries to join private health maintenance organizations (HMOs) and preferred provider organizations (PPOs). However, it wasn't until 1997 that the federal government stepped in to coordinate such health plans under the rubric Medicare + Choice, which is now known as Medicare Advantage, or simply Part C. The choices under Part C include fee-for-service plans and medical savings accounts.

One thing the original Medicare didn't cover was prescription drugs, and as prices rose, so did the outcry for relief from Medicare patients. A drug benefit was added in 2006 with the creation of Medicare Part D.

Tips for minding Medigap

If you're about to buy a Medigap policy, you should download a free booklet from www.medicare.gov/medigap. You should also check out your state insurance department's Web site.

But here are a few pointers to get you started:

  • Medigap policies are add-on insurance sold by private companies. They're entirely optional and are not funded in any way by the Medicare program.

  • In most states, there are 12 different types of Medigap policies, represented by the letters A through L. The benefits at each level are standardized, so one company's Plan A is going to include exactly the same coverage as another's Plan A. The companies compete on price and by how many of the different types of policies they offer.

  • The premiums vary tremendously with type of policy, the deductibles, and area of the country. The annual cost ranges from about $1,200 for the most basic policy to about $3,000 for the most comprehensive. Medicare Select policies have lower premiums but you must use specific hospitals and perhaps doctors.

  • None of the Medigap policies covers long-term care, private-duty nurses, hearing aids, or eyeglasses.

  • If you have one Medigap policy, don't buy another. In fact, it's illegal for a company to sell you a second policy if they know you already have one unless you've put it in writing that you are canceling the existing policy.

  • If you are 65 or older, the best time to buy a Medigap policy is sometime within the six months after you first enroll in Medicare Part B. During those six months, companies can't charge you more for a policy because of a pre-existing medical condition.

  • If you get Medicare through a Medicare Advantage (Part C) plan, don't buy a Medigap policy. Not only do the two serve much the same purpose — to reduce the out-of-pocket costs associated with Medicare — but a Medigap policy can't pay any of the deductibles, copayments, or coinsurance expenses that you might have under the Medicare Advantage plan.

  • Newly issued Medigap policies no longer can include prescription drug coverage because that's now available under Medicare Part D. If you bought a Medigap policy before 2006 that included drug coverage, you can keep it, although it may be a better deal to get your drug coverage through a Part D plan instead.

  • Beware of "attained-age rating," which may mean the Medigap premium is attractively inexpensive to start but could go up significantly as you "attain" an older age. The premiums of other sorts of Medigap policies may go up for other reasons, but there are no automatic price hikes because of age.

Get ready for some serious shopping

As you approach 65, there will be no hiding your age from your letter carrier. In the six-month period around your birthday, your mailbox will be flooded with notices from the Social Security Administration, urgent missives from Medigap insurers, and glossy packages from every Medicare Advantage plan in the area.

This is the time to be a wise and wary consumer. Although you aren't required to buy a Medigap policy or even a Part D drug plan, doing so is likely to save you money over time. The deductible for hospitalization and the 20% copayment for medical charges can add up and are likely to cost more than the annual premiums for most Medigap plans.

If the prospect of reading and studying all the marketing material is daunting, here are a few suggestions for streamlining the process:

  • Call your primary care physician and the hospitals at which you prefer to receive care to make sure they take Medicare. Doctors who don't accept the fees Medicare pays may agree to treat you anyway. They'll bill Medicare for the amount Medicare charges, and you'll have to pay the difference, which can be up to 15% of the Medicare payment.

  • Get a list of the Medicare Advantage plans your physicians and hospitals accept. This is likely to narrow the field to a handful of insurers.

  • When shopping for a Medigap or a Medicare Advantage plan, consider how much you travel. You might be interested in a plan that covers medical care nationally and internationally.

  • Compare prescription drug benefits both in Plan D options and Medicare Advantage plans. You'll want to look carefully at the drug formulary of each plan to determine whether all medications you are taking are covered. Pay attention also to the copayments for brand-name and generic drugs.

  • Once you have narrowed your choices to a short list of candidates, you'll want to estimate the out-of-pocket costs of each plan by adding up the annual premiums and the potential copayments and deductibles you might pay. You can't predict exactly how much care, and therefore coverage, you'll need, but the doctor, hospital, and drug charges you accrued the previous year should give you some idea.

  • Weigh the choices — and hassles — of each plan. If you choose a Medicare Advantage HMO or PPO, you'll probably be required to use specific hospitals and physicians, while a fee-for-service plan will ostensibly give you more choices. But with the fee-for-service plans, it's up to you to find out whether your insurance will be accepted, and you must do so each time you have an examination, procedure, or laboratory test.

  • Make a date to re-evaluate. Each year, the open enrollment period for health insurance is November 15 to December 31. You'll have the opportunity to change insurers or coverage. Check with your doctor and hospital to make certain that they still accept your insurance. Providers negotiate with insurers every year. Your doctor or hospital may have dropped your plan or added another that better suits you.

  • Check out the following sources of information: Medicare & You, the 120-page guide published by the Centers for Medicare and Medicaid Services, is updated annually. It's available free at www.medicare.gov. Serving the Health Information Needs of Elders (SHINE) is a federal program that provides health insurance counseling services to elderly and disabled adults. Counseling is available through phone numbers on your state government's Web site. Once you're enrolled in a plan, you can track your benefits and payments at http://my.medicare.gov as well as on most insurers' Web sites.