Here are tips from financial advisors for getting your Medicare coverage right

For the nation’s older cohort, the stakes can’t be higher when it comes to choosing health-care coverage.

That’s partly because under Medicare — you’re eligible at age 65 — changing plans can be challenging in some circumstances and costly if you get your choices wrong. So whether you’re giving your coverage an annual checkup during open enrollment (Oct. 15 through Dec. 7) or are just signing up for the first time, financial advisors say there are some key considerations to factor into your decision-making. 

“I encourage people to get the best plan they can, because you don’t know what will happen with your health,” said certified financial planner Carolyn McClanahan, a physician and the founder of Life Planning Partners in Jacksonville, Florida.

“The most important thing when it comes to health-care costs is to be adequately insured,” McClanahan said.

Roughly 62.8 million individuals are enrolled in Medicare, the majority of whom are age 65 or older (the remainder are younger with disabilities or individuals with end-stage renal disease).

About a third choose to get their benefits delivered through Advantage Plans, which are offered by private insurers and typically include Part D prescription drug coverage. The remainder stick with original Medicare: Part A (hospital coverage) and Part B (outpatient care). Those beneficiaries often pair that with a standalone Part D plan and a Medicare supplemental plan (aka Medigap), both of which also are offered by private insurance companies.

The current open enrollment period is for making changes related to those standalone drug plans and Advantage Plans: You can switch, drop or add them.

This window is different from your initial sign-up for Medicare, when you get a seven-month period that starts three months before the month in which you turn 65 and ends three months after it. During that time, unless you meet an exception — i.e., you have acceptable coverage elsewhere — you generally must sign up for Parts A and B.

When deciding on your coverage, it’s important to consider all associated costs. In addition to things like premiums, copays or coinsurance through Medicare, be sure to consider aspects of your care that may not be covered. For example, dental, vision and hearing generally are not covered under original Medicare, which also comes with no out-of-pocket maximums.

Additionally, higher-income beneficiaries pay extra each month for their Part B and Part D premiums through so-called income-related monthly adjustment amounts, or IRMAAs. Your tax return from two years prior to the coverage year is generally relied on to determine whether you’re subject to the extra charges. However, if your financial situation has changed, you can appeal the decision. The charts farther below show the 2020 amounts to give you a sense of how the IRMAAs are applied (income thresholds and monthly charges for 2021 have not been released yet).

Here are some tips from financial advisors when it comes to determining which type of coverage is most suitable for you.

Enrollment in Advantage Plans has more than doubled over the last decade, to 24.1 million beneficiaries in 2020 from 11.1 million in 2010, according to the Kaiser Family Foundation. 

These plans often come with a low (or no) monthly premium (although you usually still pay your Part B premium). As mentioned, they also typically include prescription drug coverage, as well as extras such as dental or vision.

However, “just know that it might look good on the surface at first, but it can be very limiting,” McClanahan said.

For example, you may have to see a doctor or other provider in the plan’s network. This means if you have a health crisis, you might be unable to see the specialist you want. And while Advantage Plans also come with out-of-pocket maximums, they can be as high as $7,550 (in 2021) for in-network coverage before the plan pays 100% of covered services. 

Nevertheless, one of these plans may be suitable, depending on how much you use the health-care system. Keep in mind that generally speaking, the lower the premium, the more you’ll pay in copays or other cost-sharing.

If you’re already enrolled in an Advantage Plan, you can switch to another during this open enrollment if you find one that’s more suitable. If you take no action, your current coverage will continue next year.

“Just make sure your prescriptions and doctors are still being covered under your current plan,” said CFP Joe Boden, senior wealth advisor and partnerat EP Wealth Advisors in Seattle.

If you want to drop your Advantage Plan during this enrollment period and are planning to pair original Medicare with a Part D plan and Medigap, be aware that getting the latter may involve medical underwriting. And if you have underlying health issues, you may be charged more or denied coverage altogether (more on that farther below).

Also, if you discover after open enrollment ends that you aren’t happy with the Advantage Plan you chose, you can switch to another, or drop it and return to original Medicare, during a separate window that runs from Jan. 1 to March 31.

So-called Medigap policies either fully or partially cover some cost-sharing aspects of Parts A and B, including copays and coinsurance and, perhaps, deductibles.

Each is simply assigned a letter: A, B, C, D, F, G, K, L, M and N. Some states also offer high-deductible versions of Plan F and G. While they are standardized from state to state, coverage between each plan varies. And, the premiums can vary widely among locations and insurers.

For instance, the difference among the highest- and lowest-cost Plan G policies in various markets can be stark, according to the American Association for Medicare Supplement Insurance. In one Dallas ZIP code, the lowest cost is $99 per month for a 65-year-old female and the highest was $381 monthly for that same consumer. So yearly, that would be $1,188 vs. $4,572.

More from FA Playbook:
Advisors need to listen more to keep clients on board
Here are tips financial advisors offer to new parents
Workplace benefits may reflect new reality of Covid-19

Nevertheless, many Medicare beneficiaries like the lower out-of-pocket predictability that can come with a Medigap plan. For example, if you get Plan D, you know that all of your Part B copays (usually 20% of covered services) would be picked up by Medigap. Same goes for the Part A deductible charged per benefit period (in 2020, that amount is $1,408).

Sticking with original Medicare also comes with flexibility in choosing where to get care. For example, if you’re vacationing far from your home state, most providers accept original Medicare. Some Medigap plans will even partially cover care if you’re traveling overseas.

“If you want to make sure you’re covered no matter where you are, a Medigap plan may be more advantageous than an Advantage Plan,” Boden said.

It’s important to know that if you don’t get a Medigap plan during your six-month “guaranteed issue” period — which starts when you sign up for Part B — it could be hard to get one down the road. 

After that window, unless you live in a state with different rules, you would have to undergo medical underwriting, which could result in a higher premium or being denied coverage altogether if you have underlying health issues.

One exception: If you try out an Advantage Plan for the first time and decide within the first 12 months that it’s not for you, you generally would get a special enrollment period to purchase a Medigap policy without any underwriting.

Additionally, be sure that if you definitely want Medigap, pick the one that would be suitable long-term, McClanahan said.

“Once you pick a Medigap plan, it can be really difficult to change because there might be underwriting,” she said.

If you’re first signing up for Medicare and wonder why you’d need prescription drug coverage when you are healthy and take no medications, be aware that you may face a life-lasting late-enrollment penalty if you change your mind down the road. And, you could find yourself shelling out full price for medicines if you have a health event and no coverage.

“People hate paying for Part D if they don’t have health issues, but the problem is that you don’t know when something could happen,” McClanahan said. 

If you already have a standalone Part D prescription drug plan alongside original Medicare (and, perhaps, a Medigap policy), you can change it during this open enrollment if you find one that better suits you. If you take no action, you generally will remain with the same plan — which could have changed its formulary and how it covers (or doesn’t cover) certain medicines.

Be sure that any medications you take are on your plan’s formulary and that you’re at peace with any additional requirements for the plan, such as step therapy (trying a lower-cost drug before a more expensive one). Also, know your deductible. While not all Part D plans have one, it could be up to $435 (for 2020).

The bottom line is that regardless of the Medicare coverage you choose, it’s important to consider the “what ifs” in addition to the cost.

“Insurance is always one of those things where you might be glad you paid an extra amount up front,” Boden said. “Sometimes it’s about peace of mind, even if you’re paying a little more each month.”