The best Medicare plan satisfies two basic criteria.
You understand how it works.
The plan you select best represents your healthcare needs.
If you're new to Medicare and don't know the basics, you can develop a general understanding in less than 10 minutes by visiting the federal government's overview HERE.
Selecting a Medicare plan probably isn't as complicated as you think, so don't be overwhelmed. However, there is a little bit of depth and nuance to #2 if you're interested in selecting the most appropriate options.
The purpose of this post is to develop a decision-making framework you can use to select the most appropriate plan for your situation. I've also provided a few especially helpful links you can use as you evaluate plan options.
EMPLOYED PAST AGE 65
Are you or your spouse still working and do you or your spouse have health coverage through your employer?
There are some specific rules governing when you need to sign up for Medicare depending on how you answered those questions.
Most people are told they need to sign up for Medicare when they turn 65 to avoid late enrollment penalties. That's not always the case.
According to Medicare.gov, if you're over age 65 and have coverage through work, you might be able to wait to sign up for Medicare until you retire.
If you're required to sign up for Medicare while still working past age 65, your 7-month enrollment window starts three months before the month you turn 65 and concludes at the end of the third month after the month you turn 65.
If you're working past age 65 and aren't required to sign up for Medicare right away, then you potentially can continue making HSA contributions. HSAs offer massive tax benefits, so getting your signup time frame correct can result in getting in more contributions compared to if you stopped contributing at age 65.
ORIGINAL MEDICARE
Original Medicare is healthcare managed by the federal government. Under this option, you get Parts A (hospitals) & B (doctors) and then pick a Part D (drug) plan.
Part B & D costs are always based on your Modified Adjusted Gross Income (MAGI) from two years ago. If MAGI exceeds certain thresholds, expect to pay higher premiums. This is referred to as the "income-related monthly adjusted amount", or IRMAA.
Costs are expected to rise slightly in 2022, but I couldn't confirm the adjusted premium rates at the time I published this post.
In addition to premium costs, it's important to know that Original Medicare has no max out-of-pocket provision governing the 20% "coinsurance" provision of Part B.
Coinsurance is the percentage of the healthcare cost that you're responsible for, even after you meet your deductible. Because of a lack of out-of-pocket maximum related to coinsurance, a chronic condition that requires ongoing care and prescription drugs can result in hefty expenses.
To mitigate this risk, it's always recommended to purchase a Medigap supplement or Medicare Advantage plan to control for mounting coinsurance costs if you require frequent health care.
MEDIGAP
Medigap is supplemental insurance to Original Medicare, purchased from a private health insurer. It helps cover the costs of co-pays, co-insurance, and deductibles that represent out-of-pocket costs. You aren't required to buy Medigap coverage, but as you age and healthcare expenses increase, Medigap becomes more and more valuable. This is especially true for prescription drug costs.
There are 12 different Medigap policies to choose from. Medicare.gov has a nice comparison tool HERE. Once you select a plan that best fits your needs, you can click the "View Policies" button right next to each plan. It will take you to the private insurer's page where you can apply.
Once you select your specific Medigap plan, each insurer is required to provide the exact same benefits. The differences between choosing one insurer over another are price and service.
MEDICARE ADVANTAGE
Medicare Advantage is an alternative to Original Medicare & Medigap. It functions a lot like the group coverage most of us had during our working years. Think PPO/HMO networks.
Advantage plans combine all hospital, doctor, specialist, and drug coverage into a single policy. Instead of buying separate Part D and Medigap coverages as you would under Original Medicare, Advantage plans roll all benefits into a single plan.
Advantage plans may also include benefits Original Medicare doesn't cover such as dental care, eye exams, or even hearing aids.
In general, a basic Medicare Advantage plan is about $100/mo cheaper than Original Medicare paired with a Medigap policy. For a couple, that's $2,400 in average premium savings per year.
However, the main drawback of Advantage plans is you're limited to a specific network of doctors. In my opinion, this may not be a big deal since we've been conditioned to this under our work-related group health insurance plans. Plus, if you add vision and dental benefits to an Advantage plan, costs increase.
PLAN SELECTION QUESTIONS
Whether you're selecting your first Medicare plan or interested in changing plans, here are a few key questions to ask yourself before you compare coverages.
How important is it to keep your current doctor or are you open to establishing yourself someplace new within a different network?
It's likely your current doctor accepts Medicare, but it's worth asking just to make sure. You can use the general free search tools found HERE at the Medicare.gov site.
If you select a Medicare Advantage plan, your network will be limited compared to Original Medicare where you can see any doc that accepts Medicare.
You can compare networks using the free PLAN FINDER TOOL at Medicare.gov.
What is the cost of my policy going to be?
If selecting Original Medicare, this question gets complicated. It depends on several factors:
Are you subject to any LATE ENROLLMENT PENALTIES?
Do you qualify for free Part A?
Is your MAGI above any of the thresholds that trigger IRMAA?
Will you need to stay in the hospital overnight which means a deductible + co-pay?
How often do you visit your primary physician and specialists?
What prescriptions do you take?
Did you purchase a Medigap policy?
Depending on how you answered these questions determines your annual financial outlay. This can vary wildly depending on plan selections and usage. Medicare.gov offers a decent expense summary HERE to help estimate costs.
If you're inclined towards Medicare Advantage, you can get state-by-state average premium costs (including drug coverage) HERE.
How do I know which Part D plan to select?
According to Medicare.com, there are on average 23 potential Part D plans with varying benefits to choose from based on what region of the country you live in.
The best resource is to compare plans using the PLAN FINDER TOOL.
Am I interested in Medicare Advantage plan benefits that Original Medicare doesn't offer?
Dental, vision, and hearing benefits can often be added to Advantage plans. Some Advantage plans come with ancillary benefits such as free wellness programs or gym/rec center members.
You can test adding the benefits to an Advantage plan before you buy to compare the cost to an Original Medicare + a Medigap plan.
Will I be traveling abroad?
Original Medicare doesn't cover care outside the U.S. If you plan on traveling outside the border, you'll definitely want a Medigap policy paired with Original Medicare or an Advantage plan.
OK, SO WHAT IS THE BEST PLAN?
Based on extensive reading, hours of continuing education, webinars, and client feedback, I can tell you that if you're relatively healthy and open to a specific network of docs, a Medicare Advantage plan is a better option.
If deteriorating health issues mean that you want access to every specialist (think going outside a network), then Original Medicare + an appropriate Part D plan + a Medigap supplement policy is your best Medicare cocktail.
I'M OVERWHELMED, WHO CAN HELP?
Most financial planners are not trained to provide Medicare-related advice.
When I was working through my CFP® coursework, there was one tiny paragraph dedicated to Medicare. I don't recall my instructor covering it in my live lessons and I don't believe it came up during my exam.
It's taken me years of research and self-study to develop my Medicare knowledge.
You can rely on me to help relate the information in this post to your situation as well as identify financial planning opportunities & red flags related to Medicare.
However, at the end of the day, you're going to have to use the Medicare resources I've provided to purchase your plan. For example, I can't create a profile for you at Medicare.gov, select your benefits, and purchase your plan for you.
This is your responsibility.
In addition to talking with me about your Medicare decisions, there are insurance brokers as well as your State Health Insurance Program (SHIP) that can offer guidance.
If using insurance brokers, this can get a little wonky since not all brokers represent all possible plan options. However, they may be able to offer "boots on the ground" experience if they're intimately familiar with plans, docs, and networks available where you live.
Your SHIP representative is always going to have full access to every plan option and can also walk you through the nuance of plan selection. Generally, my colleagues in the Financial Planning Association like to refer clients to SHIP to make sure all plan options are considered.
You can get started with SHIP HERE.
FINAL THOUGHTS
Whatever Medicare plan you end up with, you should reevaluate your options after a year where you 1. need to see a new type of specialist, 2. find out your prescriptions are changing, 3. haven't shopped plans in the last 3 to 4 years.
Yes, revisiting Medicare every so often is tedious. However, what's worse, spending 60-90 minutes selecting more appropriate coverage at potentially advantageous pricing or missing out on coverage/benefits and wasting money?
This is a question of what's easiest versus what's best. Most Americans pick a Medicare plan and rarely if ever, revisit it. Now that you're armed with evaluation tools, I hope I've motivated you to take action.
October 15th - December 7th is Medicare's annual open enrollment period. This is your window to review and adjust your plan. If you're turning 65 outside of the annual enrollment window, you can sign up using your "Special Enrollment Period" discussed at the beginning of this post.
There are several financial planning and portfolio decisions that influence Medicare. There isn't enough room in one blog post to cover topics such as HSA contribution pitfalls, long-term care planning, or keeping Modified Adjusted Gross Income under IRMAA thresholds.
These are all uniquely specific considerations to your finances that only should be addressed by a financial planner competent in these domains who is also familiar with your financial situation.
If you'd like to discuss your Medicare options, you can reach out using the Contact link at the top of this page to initiate a discussion.