One of the main reasons I decided to become a CFP was the critical financial decisions confronting me in my advancing years (I passed the exam at the age of 60).  Despite a decades-long career in financial services, I found myself faced with – and confused by – the multiple money decisions I had to make.   I didn’t fully understand the inner workings of products like Social Security and long-term care and I did not trust the motivation of the sellers.  Among the most daunting of those decisions is Medicare, a complicated product made more difficult by the risks of a “bad” enrollment decision. 

With the annual Medicare open enrollment period of October 15 through December 7 fast approaching, I wanted to chip away at some of the complexity.  This space certainly does not allow for a full-blown discussion of all the (many!) detailed provisions of Medicare but is based on my perspective of a few of the most common pitfalls.

Understand the differences between Original Medicare and Medicare Advantage Plans 

Original Medicare is a government sponsored health insurance program.  You enroll in Parts A and B through the Social Security Administration and shop for a prescription drug plan and supplemental (Medigap) insurance through Medicare.gov or a licensed broker.  Care is provided by regular doctors and Medicare pays the bills.  Attentive shopping is important here; the coverage in Medigap plans is standardized but their costs and those of Part D drug plans can vary widely. 

Medicare Advantage plans are health care delivery programs sponsored by private insurers, much like the HMOs you may have been part of during your working years.  You enroll in Parts A and B through the Social Security Administration and shop for a Medicare Advantage plan through Medicare.gov or a licensed broker.  Care is provided by in-network doctors and requires prior authorization for many high-cost services.  Most plans include drug coverage and additional benefits like dental and vision coverage. 

Look beyond the marketing hype

As you approach age 65, you’ll likely be inundated with mailers, calls, and TV advertising urging you to sign up for a Medicare Advantage plan.  Many people are attracted to their low or zero premiums, the extra benefits like vision, dental, and hearing coverage, and simplicity and convenience of “one stop” shopping.  In fact, over 50% of seniors are enrolled in Medicare Advantage plans, which can be a compelling choice for those who believe they are (and will continue to be) low users of health care services.  It’s important to recognize, however, that you are limited to the plan’s network of doctors and that the initial savings of a low monthly premium may be more than offset if you experience serious health issues later in life (more on that later). 

Be prepared to act as your own medical “general contractor”

One of the primary advantages of Original Medicare is the ability to choose any doctor or specialist you choose.  No prior authorizations are required and there are few out-of-pocket costs other than the monthly premiums.  However, unless you have an attentive and thoughtful Primary Care Physician, you will need to sort through sometimes cryptic or conflicting advice and harmonize findings among doctors who have little incentive to coordinate care. 

Beware of the potential long-term risks of Medicare Advantage plans

The bulk of costs for Medicare Advantage plans are in the form of co-payments and coinsurance at the time of treatment, and out-of-pockets costs can rise if your health worsens or if plan coverage changes.  Medicare Advantage plans are one-year contracts sponsored by profit-seeking entities who may narrow their provider network, lower payments to doctors, or deny care to boost profits.  If you want to later switch to Original Medicare (e.g., due to coverage limitations or the desire to see a particular out-of-network specialist), you may not be able to get a Medigap policy.

Get your timing right

One of the most important considerations is your enrollment date, as it’s critical to avoid coverage gaps and lifetime premium surcharges for late enrollment.  Generally, enrollment should be within 3 months either side of your 65^th birthday or the date you’re no longer working if you’re over 65.  If you choose Original Medicare, it’s also important that you buy your Medigap policy within six months of enrolling in Part B, as you may be denied coverage if you wait.      

Review your choices annually

Most people simply continue with their initial elections and do not pay attention to plan changes.  This is particularly important for Medicare Advantage plans, as provider networks can change and out-of-pocket costs for certain services can increase.  Similarly, review your drug plan to determine if your prescribed drugs are still covered or if your out-of-pocket costs have increased.   

Members of the Howe Team can help you to get a basic understanding of your options as you near your 65^thbirthday.  We don’t claim to be Medicare experts, but we can help to steer you in the right direction.