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A story about three Medicare seniors who chose different Medicare coverage options and how it affected their long-term health costs.
When it comes to your Medicare coverage options, there seems to be an overwhelming number to choose from. But once you learn a few basic things, understanding those Medicare choices become as simple as reciting your 123s.
To see those basic principles at work, let’s look at three hypothetical people who went on Medicare at the same time, but decided to pursue three separate routes: 1.) Amy, who stuck solely with Original Medicare; 2.) Becky, who decided to grab a Medigap policy (Medicare Supplement) and a Plan D subscription plan; and 3.) Carol, who bought a Medicare Advantage (or Part C) plan. We sort through how their Medicare coverage decisions affect them over time. While all hypothetical, the three cases reflect common situations that those turning 65 find themselves in.
1. Amy: The Frugal Shopper (Just Original Medicare)
Amy doesn’t like to spend money, so she decides to stick to just Original Medicare (Parts A and B). She didn’t buy a Medigap policy to pay for her Parts A & B deductibles and copays. Since she doesn’t take any prescriptions, she doesn’t even buy a Part D prescription plan, which would have cost her very little – only about $20 monthly. Amy prides herself on being very healthy, active and athletic, and even competes in triathlons on a regular basis. Amy’s insurance agent warned her that all that physical activity like bicycling, running and swimming puts her at a higher risk for accidents (with their resulting medical expenses).
2. Becky: The Overspender (Medigap + Part D)
Becky is just the opposite of Amy. She is just as healthy as Amy, but not quite as active; however, the thought of having big copays under Parts A & B is too unsettling for her. Risk-averse, Becky doesn’t like leaving things to chance. She buys a Plan G Medigap policy along with a Part D prescription plan. Altogether she pays about $150 monthly for them ($1,800 per year).
3. Carol: The Bargain Hunter (Medicare Advantage)
Not as thrifty as Amy nor as risk-averse as Becky, Carol chooses a Part C or Medicare Advantage plan that covers her hospital, doctor and medical care fees, and even includes her prescription coverage – all in one policy. On top of it, she only has to carry around one policy card. She pays nothing for the plan (zero premium), but has small or moderate copays for almost all her health services. Rather than pay for healthcare up-front, like with Becky’s Medigap policy, the Medical Advantage plan gives Carol the freedom to pay-as-she-goes for healthcare.
Costs for First 5 Years
After the first five years, all three women have had only minor illnesses and mishaps, and undergone routine preventative services (like cancer and heart disease screenings). Their costs, so far:
- Amy: Approx. $1,000 Per Year in Copays; $5000 (Total for 5 Years)
- Becky: $183 Annual Part B Deductible + $1,800 in Insurance Premiums; $9915 (Total for 5 Years)
- Carol: Approx. $500 Per Year in Copays; $2500 (Total for 5 Years)
Major Accidents or Illnesses Will Affect Healthcare Costs
Halfway through their fifth year all three women fall and break their hip. All three receive hip repair surgery, spend three days in the hospital recovering, and then undergo a long series of physical therapy visits. All three also receive a diagnosis of osteoporosis. The accident inevitably ends up affecting their healthcare costs:
- Amy: Pays approx. $1,300 (Part A Deductible) + 20% of Surgeon’s Fees + 20% of Anesthesiologist Fees + 20% of Radiologist Fees + 20% of Physical Therapy Fees
- Becky: Pays nothing out-of-pocket
- Carol: Pays $900 total copay for 3 days of hospital stay + $1,000 in other copays
You Can’t Buy Good Insurance After You Get Sick
Amy tried to “self-insure,” thinking that she wouldn’t need better health insurance since she considered herself pretty healthy. Post-accident, Amy tries to purchase a Medigap policy but is denied coverage due to her osteoporosis; the pre-existing condition means she’ll be denied from any Medigap policy.
Amy also tries to purchase a Part D prescription plan to cover her medication. But because it’s mid-year, her application is rejected and she must wait until October to enroll, and wait even further (until January of the following year) for the policy to activate. This means she has to pay in full for prescriptions until January. Additionally, Amy incurs penalties for late enrollment in Part D.
Additional Medicare Coverage Can Help Significantly
Both Becky and Carol managed to go through the experience with low out-of-pocket expenses. Although Becky went many years with her Plan G Medigap policy unused, it literally paid off in the end.
Likewise, Carol’s plan worked to her advantage (get it?). Her Advantage plan was ideal: she paid very little when she was healthy and just had to pay necessary copays and deductibles to get the coverage she needed during the hip ordeal. Additionally, since she wasn’t paying for a Part D subscription plan, she managed to put money into a savings account each year to help offset her copays and deductibles.
The lesson: While it may seem like a good idea to minimize costs by investing in less health coverage, you never know what will happen in the future – it’s better to enroll in the right policy today than deal with higher health costs for the remainder of your life.
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The views expressed here are those of the author and do not necessarily represent or reflect the views of Healthcare, Inc. and HealthCare.com.