Carla Fried: Medicare – what they don’t tell you

In less than 15 years, Americans 65 years old and older will outnumber Americans under 18.

If you’re one of millions rounding the bend toward 65 in the next decade or so, getting up to speed now on Medicare’s intricacies will help you avoid costly mistakes. To get you started, here are more nuanced takes on five truisms about Medicare.

‘Once you turn 65, your health care expenses are covered by Medicare’

What they don’t tell you: Medicare covers a lot, but most enrollees still pay plenty in premiums, deductibles, copays and coinsurance.

To be fair, Medicare doesn’t hide this fact, but neither is it well explained across the various pieces of Medicare.

For instance, most people pay a monthly premium for Medicare (Part B). The lowest premium in 2021 is $148.50 per person per month. Most everyone pays this – except lower-income enrollees – regardless of whether they choose Original Medicare or Medicare Advantage. Your Part B premium could be higher, based on your adjusted gross income.

There are also deductibles, copays and coinsurance to contend with. Peter Stahl, a certified financial planner specializing in retiree healthcare, recently estimated the per-person, monthly out-of-pocket costs this year are near $500.

‘Medicare offers broad health care coverage’

What they don’t tell you: Not as broad as you might think.

The program is for older Americans, but there is no long-term care coverage.

Nor is there dental coverage for Original Medicare enrollees. Most Medicare Advantage enrollees do have dental coverage, but according to the Kaiser Family Foundation, more than half of MA enrollees are in a plan with a maximum benefit of $1,000, and the most common coinsurance rate is 50% for everything from filings to root canal.

Coverage for vision and hearing is just as meager, if available at all.

‘You can always switch to Original Medicare if you aren’t pleased with Medicare Advantage’

What they don’t tell you: That’s typically not going to work if you have a serious illness or pre-existing condition.

There are two separate Medicare programs: Original Medicare and Medicare Advantage, and when you are first eligible you have to choose which path you are going to take.

Medicare Advantage can look very appealing to a healthy 65-year-old, as the upfront costs are typically less than if you opt for Original Medicare.

A key difference is that, with Original Medicare, you can work with any doctor or facility that accepts Medicare. Most Medicare Advantage policies limit you to a network of doctors and facilities (think: HMO).

If you start with Medicare Advantage and later want more choice, you can technically switch to Original Medicare. But you will likely run into a snag that makes it impractical.

With Original Medicare, it is imperative to also purchase a supplemental policy – called a Medigap policy – to cover certain out-of-pocket costs. When you first sign up for Medicare you are entitled to get a Medigap policy regardless of pre-existing conditions. In insurance terms, you get a one-time pass where there is no “medical underwriting.”

That pass is only good for the first year you are enrolled. If you want to switch from Medicare Advantage into Original Medicare after that, when you apply for a Medigap policy, in most states all pre-existing conditions will be taken into consideration. That means you could be refused coverage entirely, refused coverage for a pre-existing condition for six months, or be offered a policy with a too-high premium.

If your motivation to switch is a recent diagnosis of serious illness, the Medigap underwriting could be a daunting hurdle.

‘A Medicare Part D policy covers retirees’ prescription drug costs’

What they don’t tell you: There’s no annual out-of-pocket maximum.

Some good news is that most Medicare Part D plans don’t charge an annual deductible. Among those that do, the 2021 maximum is $445.

But there is typically co-insurance to pay even after you’ve paid the deductible. In 2021, the coinsurance is 25% on the first $6,550 in prescription drug costs. Once you hit that annual spending sum, your coinsurance drops to 5%. Yet that 5% remains in place regardless of how much you spend once you’re in this “catastrophic” spending tier. There’s no maximum limit on your share of annual Part D drug costs.

A recent report from Kaiser Family Foundation estimated that, in 2019, 1.5 million people paid more than the “catastrophic” limit, and the 5% coinsurance amounted to an additional $1,200 per person. Over a five-year period Kaiser studied, 2.7 million enrollees exceeded the catastrophic limit in at least one of the five years.

‘Medicare Part A covers hospital stays’

What they don’t tell you: There’s either a deductible or daily copay. And if the hospital hoodwinks you into being “under observation,” rather than formally admitting you, your costs are going to be even higher.

If you’re in Original Medicare, Part A covers hospital stays. If you end up in the hospital, there’s a $1,484 deductible in 2021, but no coinsurance for the first 60 days of a stay.

Medicare Advantage plans typically don’t charge a deductible, and instead impose a per-day copay. An analysis by Kaiser estimates that if your hospital stay is three days, you’ll come out ahead with Medicare Advantage. For a stay of six or more days, more than half of Medicare Advantage enrollees would pay more, and if your stay is 10 days, 70% of Advantage enrollees would have a copay that exceeds the Medicare Part A deductible for enrollees in Original Medicare.

Oh, and all of that presumes you are formally admitted to the hospital. Hospitals sometimes pull a fast one and keep patients for days, not as admitted, but merely as “under observation.” Why? Because they get paid more by Medicare.

But when that happens, you aren’t covered by Part A (hospital insurance), but rather Part B, which can mean sizable coinsurance costs depending on your coverage.

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