Tips for Medicare: Get to know the lingo

Unless you understand how Medicare is structured, you may not be able to make good decisions about what you’re buying. These are some of the terms you might see:

› Part A of traditional Medicare covers inpatient hospital services, skilled nursing home care and hospice, among other things.

› Part B of traditional Medicare helps cover preventive care and physician and outpatient services, among other things.

› Part D plans are private insurance plans covering prescription drug costs.

› Medicare Advantage is an alternative to traditional Medicare. In this program, private insurance plans are paid by the federal government to provide coverage that is equivalent to original Medicare.

› Private Medigap plans supplement traditional Medicare and help pay some out-of-pocket costs, such as co-payments and deductibles and sometimes emergency medical expenses overseas. These policies are optional, but if you want one, you’re best buying it when you sign up for traditional Medicare. Otherwise, you won’t be guaranteed coverage and may be subject to medical underwriting, through which you could be denied coverage or charged a higher rate for preexisting conditions.

Failing to sign up can be costly

You may be in for a surprise if you’re among the many baby boomers I’ve encountered who believe Medicare is free. It’s not. Not only is there an annual deductible ($147 for Part B in 2014), but there are also monthly premiums, ranging from $104.90 to $335.70 for individuals. (The exact premium is pegged to your income, generally based on the tax return you filed two years earlier.)

If you don’t sign up in your initial enrollment period or when your job-based coverage ends, you will pay a penalty that will raise your premiums for Medicare Part B and Part D for the rest of your life. Every year you delay signing up for Part B, your monthly premium rises by 10 percent — and missing the deadline by just one month is considered a one-year delay. There is also a waiting period for the coverage to kick in, so you could be without any insurance for several months, perhaps even a year, if you miss the deadline. For Part D, the penalty is 1 percent for every month’s delay. So a year’s delay would add 12 percent to the monthly drug premium base, currently set at $32.42.

Don’t make assumptions

Perhaps the biggest mistake you can make is assuming that your health insurance will stay the same when you turn

65. Retiree plans can end, and even coverage from some workplace plans ends, especially if you or your spouse is employed by a firm with fewer than 20 employees. You also need to apply for Medicare at 65 if you are on COBRA, the program that allows you to purchase health coverage offered by your employer if you’ve been laid off. You also need to apply even if you are entitled to the military’s Tricare coverage for life.

Don’t rely solely on advice from your spouse or close friends. “You need to look at your own medical needs: doctors, hospitals, drugs,” advises Jennifer Whittaker, operations supervisor for Allsup Medicare Advisor of Belleville, Ill., a company that provides enrollment advice for a fee.

‘Open enrollment’ may be a misnomer

Once you’ve signed up for Medicare, you should be notified each fall about an open season that allows you to switch plans. But the open enrollment period allows easy switching only for certain plans, not all of them — and that may affect what you do when you turn 65.

Open enrollment does not give you a free pass to move from one Medigap plan to another, for instance. Although some plans (and some states, like New York) do guarantee the ability to make a change, Medicare allows plans to evaluate your health if you try to switch. So if you’ve developed an illness, you may be rejected or face a sharp rate increase. (If you stay with your existing plan, your rates can always rise

— but only if they are rising for the plan or group as a whole.)

“If you didn’t pick a benefit you wanted initially, you may not be able to get it in the future,” says Diane Omdahl, co-founder of 65 Incorporated, another for-fee consulting firm based outside Milwaukee.

That’s also the situation you could face if you want to change from a Medicare Advantage plan to traditional Medicare with a Medigap plan. One of Omdahl’s clients who was on a Medicare Advantage plan recently developed diabetes, and he concluded that switching to traditional Medicare with Medigap would work better financially. But his diabetes kept him from finding an affordable Medigap plan. If he had signed up for traditional Medicare with a Medigap plan, he would not have been charged extra when he subsequently developed diabetes.

So what does open enrollment really mean? If you’re on a Medicare Advantage plan, you can switch to another plan. You can also switch Part D drug plans annually. And since both Medicare Advantage and the drug plans change premiums, benefits and providers regularly, it’s important to review your plans yearly.

Consider your health over the long term.

Since it may not be easy to switch Medigap plans in the future, many Medicare advisers suggest that if you are choosing a Medigap policy, buy the best coverage you can afford when you sign up.

The cheapest price is not necessarily better

Consider more than the cost of the premium when you sign up for a Medicare Advantage or Medigap plan. Look at co-payments and deductibles, too. The cheapest premium might not provide you with the cheapest overall plan. Also, review a company’s complaint records as well as its financial stability to hopefully ensure that it will be around as long as you plan to be.

For Medicare Advantage plans and drug plans, the Centers for Medicare & Medicare Services (the agency that runs Medicare) provides a helpful five-star rating system based, in part, on member satisfaction surveys.

Customer satisfaction ratings for Medigap plans are harder to find, but one valuable site for me was Missouri’s Complaint Index for Medigap issuers. (Many of the companies on this list operate nationwide.)

Several companies rate the financial strength of insurance carriers, although you may have to pay to get information. Two of the most frequently cited rating firms are Weiss Ratings and A.M. Best, neither of which charges for basic information.

Make calls and ask questions; you’d be surprised by what you learn.

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