By Daniel Petkevich
Oct 11, 2022
The most common question from our New to Medicare clients is: “How can I avoid catastrophically expensive medical bills?” 1 in 10 Medicare beneficiaries spent at least 52% of their income on healthcare. Choosing a Medicare plan can be stressful, but not as stressful as one sudden event escalating your medical bills beyond your control. As the old insurance adage goes, you can’t buy fire insurance once the house has already gone up in smoke.
Another analogy is more useful to represent how you can avoid a catastrophe and save money when enrolling in Medicare. Would you rather buy your winter coat in the summer when you might be able to get it for half the price, or wait for the winter when you might have to pay for a markup or the coat you want is no longer in stock? At Fair Square Medicare, we want to empower you to consider the long term implications of what Medicare option you choose and when you choose it.
There are several different options you can choose when enrolling for Medicare:
You are responsible for the Part A Deductible of $1,600 per 60 day benefit period for Hospital Coverage, the Part B Monthly Premium of at least $164.90 depending on your income, and 20% Coinsurance (Medicare will cover the 80%) for Medical Coverage.
You can visit any hospital that accepts Medicare.
OM is the bare-bones package. Maybe you have a retirement health insurance plan that can pay secondary. If you go with this option, you are essentially paying the least upfront while leaving yourself most exposed to potential risks.
Drug Plan (Part D) is not included; it can be purchased separately.
You might have low or no monthly premium with some plans, but you will be responsible for the Maximum Out-of-Pocket Costs which are stipulated by your insurance carrier for each year you are on the plan.
There are two types of plans:
HMO - in-network only. If you pursue care outside their network, you will pay the cost totally out-of-pocket.
PPO - you can pursue out-of-network medical services but you may pay a higher cost-share.
No underwriting is required to change into Medicare Advantage. However, if you want to switch to a Medigap Plan, you need to go through underwriting if you don’t switch within your first year of eligibility.
Drug Plan (Part D) is included.
Medicare Advantage plans are often referred to as the Pay As You Go option. You will still have your Part B premium from Original Medicare; you will receive the same coverage as Original Medicare with some potential added benefits of vision, dental, and other services.
You pay an additional monthly premium, but you don’t have any out-of-pocket costs on many plans. For this article, we’ll consider the most common Medicare Supplement: Plan G.
You can visit any provider or hospital that accepts Medicare.
In many cases, no underwriting is required to sign up. However, as mentioned earlier, you might need to go through underwriting if you are switching into this plan. We’ll talk through an example later about how this might play out, but what’s important to know is that it’s harder to join this plan later.
Drug Plan (Part D) and other ancillary benefits are purchased separately.
Let’s imagine someone newly eligible for Medicare having just turned 65. They eat well, exercise regularly, and visit with their primary care physician once a year for a check-up during which the doctor can offer only as much as “Keep up the good work.”
They are taking a walk around the neighborhood when they suddenly slip on the sidewalk. Before they know it, they have broken a hip. This might seem like a freak accident, but over 300,000 Medicare eligible individuals break a hip each year. Whether it happens during their first year of Medicare or during their 20th, the decision they made when first choosing a Medicare plan can impact their treatment and payment for years to come.
This person thought they didn’t need to consider other forms of coverage since they were totally healthy. Maybe they had planned to spend more on healthcare and get better coverage as they entered their 70s or 80s, but they did not anticipate needing this much coverage so suddenly.
Instead, they’re trying to make it through winter with only a hat and gloves.
Immediately after their fall, they are admitted as an inpatient to the emergency room; they pay the $1,600 deductible.
This might seem like a manageable cost given the severity of a broken hip, but think of all of the potential complications of such a significant injury.
They have surgery, physical therapy, nerve blocks for pain, and more. They would have to pay 20% coinsurance for all of the costs outside of the inpatient hospital admission.
After a few months, they elect to get hip replacement surgery. That’s another deductible of $1,556 since the benefit period is reset after 60 days from the first accident. Plus the 20% coinsurance of all the rehab and pain associated costs again. You can see how these costs will pile up. And with only Original Medicare, there is no Out-of-Pocket maximum to protect them.
From a 2018 study, the average cost of receiving treatment for a hip fracture is $40,000. They might be on the hook for at least 20% of that.
How much does this cost over 2 years?
Part A - $1,600 deductible + $1,600 deductible = $3,200
Part B -
$226 deductible ($226 in 2023) × 2 = $452
$164.90 premium × 24 = $3,957.60
20% of $40,000 = $8,000
Total = $15,609.60
This gives them more coverage than just Original Medicare, but they might still be leaving themselves exposed.
Let’s say they picked an HMO plan because that was the cheapest option, and their PCP was in-network.
If they set up their Medicare Advantage plan in Florida, but break their hip in New York, all non-emergency services (like physical therapy, a follow up with the orthopedic surgeon, even the person reading the X-Ray results to the patient) will be out-of-network and not covered. They could still get in network coverage, but it would likely require getting on a plane with a recently surgically repaired hip. Sounds unpleasant.
If they wanted one specific doctor to fix their hip who happened to be out-of-network, they might have to pay the total cost out-of-pocket.
A PPO plan gives them more flexibility to see someone out of their network if they are traveling. They will have their hard cap on spending with the yearly Out-of-Pocket Maximum, which will depend on their choice of plan.
How much does this cost over 2 years?
Monthly Premium of $164.90 × 24 = $3,957.60
A realistic scenario with an ambulance ($300), 5 day hospital stay ($300 per day for first week), weekly physical therapy ($10 copayment), monthly specialist visits ($35 copayment), and monthly primary care visits ($10 copayment) will have them spending ($300 + $1500) + (104 × $10) + (24 × $25) + (24 × $10)
Total = $1800 + $1,040 + $840 + $240 = $3,920 + $3,957.60 = $7,877.60
A worst-case scenario will see them hit Max. Out-of-Pocket Cost of $5,500 per year × 2 = $11,000
Total = $14,957.60
They picked the plan with the higher monthly premiums, but it might save them money in the long run by avoiding out-of-pocket costs.
Because they signed up for Medigap during their first window of eligibility, they didn’t have to go through Medical Underwriting which could deny them coverage or raise their premium.
Medigap is the option that might cost the most on a monthly basis, but might also give them the most flexibility moving forward.
They can see any doctor that accepts Medicare, there are no networks to fuss over.
They have minimal or no out-of-pocket costs except monthly premiums.
Since they signed up for Plan G, they are also covered against Excess Charges, which can be up to 15% above what Medicare allows for a service.
How much does this cost over 2 years?
Monthly Premium ($164.90 + $115) × 24 = $6,717.60
Annual Part B Deductible of $226 × 2 = $452
A broken hip is just one example of how your decision when you first enroll in Medicare can either pay dividends or cause major headaches in terms of financial strain and/or access to care later on. Let’s talk through some more examples, some of which are real stories from real Fair Square Medicare clients:
In order to save money, our client Brenda* started off with just Original Medicare when she turned 65 over a year ago. Her husband was a year younger, and she decided to wait a year so they could shop for a supplement plan together.
“I didn’t have someone like Fair Square Medicare to call, so I was just going to do the basic stuff,” Brenda said. “I didn’t understand the ramifications.”
When it came time to pick a plan, she had to go through Medical Underwriting with United Healthcare for a Medigap plan. The underwriter found a Chronic Kidney Disease (CKD) stage 3 diagnosis, the result of removing kidney stones a couple years ago.
“I honestly had no idea they could pull up all these old records,” she said. “It was all a big surprise that they came back with that information”
Through testing with her primary care physician and her nephrologist, they determined that she no longer had stage 3. But she still had to endure the bureaucratic process of getting her PCP and nephrologist to submit that she was downgraded to stage 2 only for the insurance company to reject their diagnosis. The insurance company said she needed to find a new nephrologist to accept that diagnosis, but because she was healthy enough to not require urgent attention, she couldn’t find a new nephrologist.
“As a former nurse, I know what’s going on with me,” Brenda said. “I’m healthy and the bureaucracy is bogus.” She is still in the midst of finding a new nephrologist to get the forms submitted.
Because she had to go through Medical Underwriting, the insurance company raised her monthly premium from a manageable $115 to $355 for the same plan. Her next step to try to cut down on monthly costs will be a conversation with one of our agents in October to see if there is a Medicare Advantage plan that will save her money without too much potential for high out-of-pocket costs. The MAPD route worked for Brenda in her current situation, but she acknowledged that if kidney issues arise again, she could pay more years later.
“As long as I stay in good shape. But at 66 you never know,” she said. “Something could change tomorrow. I’m having to risk it and live with their decision.”
Another client of ours was living in Colorado with a Medicare Advantage Plan under Kaiser. They were diagnosed with prostate cancer. There are multiple treatment options for this kind of cancer, including proton therapy. Proton therapy is a form of radiation that might be more discriminating in which cells it targets than standard radiation. This was the treatment the client was most interested in pursuing, except their HMO plan would not allow them. Unless they could afford to pay for this treatment entirely out-of-pocket, it would be denied to them. In this case, the client was able to switch into a Medigap plan through a reputable carrier for a premium of $500 a month. If they didn’t have to go through underwriting, this premium would likely be significantly lower.
For one of our clients in a PPO Medicare Advantage plan, the decision to go out-of-network was not entirely up to them. They were doing physical therapy after a surgery when their usual therapist called in sick. Turns out the substitute physical therapist was out of their network, and they received a bill they weren’t expecting. They now have to either foot the bill, or go through a lengthy appeal process to see if the rehab center gave sufficient notice of the potential for out-of-network costs. Here’s a tool from the CMS to research which providers have opted-out of Medicare.
If you think you might need more flexibility with seeing a doctor outside of a network, you should strongly consider choosing a Medigap plan.
Many people delay enrolling in Medicare, but not everyone thinks of the consequences. Some believe that they are too healthy to pay extra for health insurance. Especially if your monthly premiums are impacted by IRMAA, which is a premium surcharge on your Part B and Part D premiums based on your income from 2 tax years prior.
Our client Mitch* was happy to stick with his health insurance plan that he got from the marketplace when he turned 65. He did not have the whole picture of the costs associated with Medicare, because he will now have to pay a Late Enrollment Penalty for Part B and Part D. Once you miss eligibility, you have to pay the LEP for life:
For Part B, 10% of your premium for each year you’re without coverage.
For Part D, 1% of your premium for each month you’re without coverage.
Mitch realized the mistake, but he was outside of his enrollment window. Not only would he have to wait until January to get the Medicare coverage he was hoping for, but he would have to pay the LEPs for each month that he did not have proper coverage.
The initial enrollment period is crucial, but don’t forget to reevaluate your coverage each year to make sure you’re in the best position. You can save money by getting a household discount based on being on the same plan as your spouse. One of our clients was sold on a Plan G policy after going through underwriting. After his first year on his Medigap plan, his premium jumped by $50 a month. Once his wife turned 65, they joined the same plan, and he got an underwritten policy for $100 less than he would have had to pay on his original Plan G. Rather than spending an extra $600 a year, he saved that much.
As you’ve heard before, Medicare is a minefield. All of this information can be overwhelming to consider, and you don’t want to put a foot wrong if you can help it. Everyone has different healthcare priorities and unique circumstances, but remember the following to help navigate the system:
Your plan should fit your budget, risk preference, coverage needs, and your lifestyle.
Evaluate if you should stick with the plan you are currently committed to, or if you can switch to a potentially better fit plan.
You can switch plans annually, but your first choice of Medicare plan is crucial as it can close some doors.
There are many options to choose from, and some of which can put you in a precarious situation. If you have a predicament similar to what you read above, we can figure out the best course of action for you. Trust the experts at Fair Square Medicare to help you find the best plan for you now and later. Call us at 1-888-376-2028.
*Names changed for privacy reasons.
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