News and Views

In another month and a half, I become a full-fledged senior citizen, or non-euphemistically: an old man. I’ll be 65 in March.

Perhaps the best part of hitting this milestone is that I will become eligible to receive Medicare.

The following is a little detailed, but could be useful to someone else who is approaching the 65 year mark.

There are three major and many minor decisions that have to made about Medicare. The majors are: Plain Medicare, Medicare Advantage, or Medigap?

Plain Medicare is the simplest and would probably be adequate 9 years out of 10, but in a year with major illness, multiple hospitalizations or surgeries you could run up an astronomical bill. There is no cap (maximum out of pocket) with plain Medicare.

Medicare Advantage plans basically replace Medicare with a privately run insurance plan, often costing no more than plain Medicare and often providing better coverage. But you are almost always limited to a network of doctors and hospitals in one county. If you do much traveling or prefer doctors who are not in the network, you may have to pay on your own. There are many MA plans in every county, all with different coverage, charges and networks. This type of plan works well for my mother, who never travels and has doctors who are all in her network. Her medical expenses are quite low as a result.

The third option is Medigap, or Medicare Supplemental, which is government regulated private insurance that covers the “gaps” in Medicare. This can get really confusing as there are 11 options all with slightly different coverage, but at least the options are all standardized through the country, differing only in cost from one provider to another.

For me, Medigap has several advantages over a Medicare Advantage plan.
1) I can choose any doctor or hospital I want, as long as they accept Medicare.
2) I have coverage anywhere in the country, and as I travel a lot this is important.
3) I don’t need a referral to see a specialist. I just make an appointment and go.
4) Some plans even include Foreign Travel Emergency care.

Almost half of all Medigap subscribers buy Plan F which pays all (Medicare approved) medical expenses. You might never pay another cent for medical care except Prescription drugs. Many people get pushed into this option because it pays the largest commission to insurance brokers, but this plan is very expensive and there are clearly better options.

After extensive study, simulated scenarios and calculations, I have decided to get Medigap Plan F – High Deductible. This is the same as Plan F that I described above, except that it doesn’t cover any more than plain Medicare until you have spent $2180. After you meet this deductible, all medical expenses are covered with $0 copay. The result of this high deductible is that premiums are about 1/3 of the regular Plan F (~$50/month vs. $150 at age 65, ~$100 vs. $300 at age 77 and older), and it is quite unlikely that I will spend more overall than I would have with Plan F. In fact, I expect to save $1000 – $2000 each year in total costs. Even in an exceptional year I know my expenses won’t exceed the $2180 + ~$600 annual premium. This is so much better than the current $600 per month ($7200/year) I pay for a $6000 deductible plan from the Exchange, a plan that many doctors don’t accept.

I considered Medigap Plan N, which would always be cheaper overall than Plan F, but it would cost more than Plan F – High Deductible in all but an exceptional year.

I added a Medicare Part D prescription drug plan to this too. I don’t need it at all right now and the premium will cost much more than any drug expenses I have, but if I do need expensive drugs in the future I will have to pay a large penalty to get into a drug plan. Better to pay $18/month now and be ready.

My philosophy with insurance has always been that it should be to cover expenses that I can’t afford. I can self-insure for the smaller amounts and save more on premiums than I am likely to spend on deductibles. I follow the same strategy with warranties — I’ve saved a lot more by never buying an extended warranty for any of the TVs, cars, microwaves, dishwashers, computers, monitors, printers,… than I have spent repairing or replacing the random item that has failed.