Do You Need  Medicare Part A and Part B?

I had a conversation with a friend yesterday who asked me why he needed insurance beyond original Medicare Part A and Part B. He was questioning just why he would need any additional insurance since he was already paying a monthly premium for to Medicare (His Part B is $144.60 month).  What follows is a summary of our conversation.

RISK IN HAVING NO OUT-OF-POCKET MAXIMUM LIMIT WITH MEDICARE A & B

There is no annual out-of-pocket limit if you have only Medicare Part A & B.  Original Medicare doesn’t cover all your expenses if you're hospitalized or receive out-patient care.  With no out-of-pocket limit, you can be left with huge medical bills that are your responsibility to pay.  Here is a short version of what the cost-sharing for Medicare Part A and Part B looks like.

Medicare Part A (Inpatient hospital stays, skilled nursing facility care, hospice and home health care)                                                 

 There are deductibles, co-pays and co-insurance amounts that are your responsibility when utilizing services under Medicare Part A. Examples are a deductible ($1,400 /2020) for each hospitalization period, a co-pays ($176 day/2020) for skilled nursing facility stays days 21-100, and the first 3 pints of blood.

Medicare Part B (doctor visits and out-patient care.)

 For out-patient services, there is a yearly deductible ($198 /2020) plus a 20% co-insurance charge that is your responsibility. Because there is no cap on the 20% co-insurance charges, you can end up with tens of thousands of medical bills for out-patient surgery, chemo and/or radiation therapy, kidney dialysis or durable medical equipment usage (oxygen).

RISK IN HAVING NO PRESCRIPTION DRUG COVERAGE

Medicare Part A and B doesn’t cover prescriptions.  You must be enrolled in a Medicare Part D plan to have prescription drug coverage. Drug plans are available as a “stand alone” plan or through a Medicare Advantage Plan that include Part D coverage. Not having a Prescription Drug Plan can be costly due to the high cost of certain drugs and the "Late Enrollment Penalty" that builds each month that should you delay enrollment when you first become eligible to.  While the one or two generic drugs you may take now might be less than $10 a month, that doesn't mean that in the future you won’t need an oral chemo drug costing hundreds of dollars a month.

Also, a Late Enrollment Penalty is assessed if you don’t sign up when you are first eligible for coverage.  You will paly an additional 1% of the average Part D premium for each month you delay enrollment.  This penalty is then charged every month for as long as you’re enrolled in Part D. It isn’t worth the risk of going without a Prescription Drug Plan with considering the Late Enrollment Penalty and uncertainty of what future health events you may deal with.

SOLUTIONS FOR CAPPING OUT-OF-POCKET EXPENSES

 There are two options that will protect you from the un-capped out-of-pocket cost of healthcare and prescription drug.  Option one is to purchase a Medicare Supplement Plan plus a Medicare Part D Plan.  Option 2 is enrolling in a Medicare Advantage Plan that incudes a Part D plan.  Both options limit your out-of-pocket exposure. How they work is very different though.  

OPTION 1-MEDICARE SUPPLEMENT PLUS MEDICARE PART D

The Medicare supplement plans help you pay for the out-of-pocket costs that come with Original Medicare Part A & B.  The Part D Plan helps you with your prescription drug costs

There are 8 Medicare Supplement plans available to those turning 65 in 2021.  The Medicare Supplement plans available are Plan A, Plan, Plan B, Plan D, Plan G, Plan K, Plan L, Plan M and Plan N. Supplement.  Medicare Supplements Plan G and Plan N are the two most popular choices because they fill the most “gaps” in Medicare Part A and B coverage.

Medicare supplement plans are “standardized”, meaning the Plan G Medicare Supplement sold by United Healthcare has the same benefits as the Plan G Medicare Supplement sold by Humuna. However, the premium charged by United Healthcare will be different than the premium changed by Humuna for the same plan.

A Plan G Medicare Supplement will cap your out-of-pocket expenses for Medicare approved services by paying all your deductibles, co-pays and co-insurance except the Medicare Part B Deductible ($198 /2020). 

This means if you were hospitalized for 5 days followed by 14-day skilled nursing facility stay, you would pay $0.  You would owe nothing with your Plan G supplement because in-patient hospitalization and skilled nursing care are covered under Medicare Part A and your supplement paid the Part Deductible and any other Medicare approved charges.

If you were sick in February, arrived by ambulance to the nearest hospital emergency room, had lab work, IV’s, a CT Scan, held overnight in an Observation Room and returned home the next day, all that you will owe is your Part B deductible, or $198 in 2020.

Medicare Plan N is very similar to Plan G.  With Plan N, you will be responsible for paying the annual Part B deductible ($198 in 2020) as with Plan G.  On Plan N, you will also have a co-pay of up to $20 per physician office visit and up to $50 for an Emergency Room visit and be responsible for paying Part B “Excess Charges” of up to 15% if your doctor doesn’t accept Medicare Assignment.  This is called “balance billing”, and is uncommon.  Typically, doctors who accept Medicare patients accept the Medicare approved amount as payment in full.

OPTION TWO -MEDICARE ADVANTAGE

 A second option to limit and control your Medicare Part A & B out-of-pocket exposure is through enrolling in a Medicare Advantage Plan.  Medicare Advantage, or Medicare Part C, is an alternative way to get your Medicare benefits.  Medicare Advantage plans are offered by private insurance companies.  Part C plans cover all of the benefits of Medicare Part A and Part B.  They are managed care plans and most plans include a Prescription Drugs Plan.  And the premium for Medicare Advantage plans is affordable to most.  Many areas of the country have $0 premium HMO plans and PPO plans for under $30.

Medicare Advantage plans are required to have a Maximum Out-of-Pocket limit.  The limit is established each year by the Federal Government. Each Part C plan has a contract with the federal government.  Medicare Advantage plans typically offer additional benefits such as dental, vision, hearing, gym memberships, and over-the-counter benefits.

My friend scheduled an appointment with me once he understand the risk of having no annual out-of-pocket limit or going without a drug plan. We'll compare the costs of adding a Medicare Supplement and Part D plan to his original Medicare Part A and B versus going with a Medicare Advantage Plan that has Part A, Part B, Part D and ancillary benefits all delivered through on packaged plan.  I welcome you to do the same.