It's open enrollment season for Medicare, and you can save hundreds or even thousands of dollars on Medicare expenses by employing some smart shopping strategies. This medical insurance covers eligible retirees who've attained age 65. If you're eligible, you can switch plans during open enrollment, which lasts from Oct. 15 through Dec. 7 this year.
First, let's cover some background about Medicare, then discuss how you can save money.
Medicare has four parts (Parts A and B are often called "traditional Medicare").
- Part A covers hospital expenses and is available for no additional premium if you've paid FICA taxes (for Federal Insurance Contributions Act, which collects for Social Security and Medicare) for at least 10 years.
- Part B covers outpatient expenses, such as those for physicians and other health care professionals, and requires an additional premium (which will not increase for 2015, as recently announced).
- Part D covers prescription drugs and typically requires an additional premium.
- Part C is an alternative to traditional Medicare, called Medicare Advantage (MA). It combines coverage for Parts A and B, and usually includes prescription drugs (Part D) as well. MA plans are managed care plans that typically dictate the health care providers that you can use, similar to an HMO or PPO.
All of these parts have various deductibles and co-payments.
It's possible that retirees will incur substantial out-of-pocket expenses under traditional Medicare (Parts A and B), so these retirees will often buy Medigap policies (at an additional premium) to help cover such expenses. This approach typically provides the most flexibility when it comes to choosing health care providers.
MA plans are intended to reduce your out-of-pocket expenses by providing higher coverage than stand-alone Parts A and B, and are an alternative to traditional Medicare and Medigap plans. Some MA plans are called zero premium plans, because there's no additional premium charged beyond the standard Part B premium, while other MA plans require additional premiums. One "price" you pay for MA coverage is the restriction in providers you can use.
How you can save by shopping
Insurance providers often review and change the features of their policies in an attempt to manage their costs. It's highly possible that the your current plan's features have changed, whether you have a Medigap, MA or Part D prescription drug plan.
Here are the types of changes you might see for 2015:
- Increased premiums and/or deductibles and co-pays for Medigap, MA or Part D
- Increased out-of-pocket limits
- Zero-premium MA plans might now charge a premium
- Shrinking networks of health care providers
- Changes in the drug formulary that describes reimbursements for specific drugs, or expensive brand-name drugs disappearing altogether from a formulary
- Some drug plans that previously filled in gaps created by Medicare's "donut hole" are now reverting to the standard coverage under the donut hole
Any of these changes would have the potential to increase your costs by hundreds or thousands of dollars next year. That's why you should carefully review the enrollment material you receive for 2015 and compare it to what you received in 2014 to see if any of these changes apply to you.
If you have to take a significant number of prescription drugs or if their costs are high, it pays to make sure your plan covers the specific drugs you take. One study found that the average citizen could save $368 just by shopping around for Part D coverage.
The Medicare website also contains a number of good tools you can use to shop for coverage, including a plan shopper. With this tool, you can enter the specific drugs you're taking and compare your current plan's premiums and out-of-pocket costs to alternative plans. In addition, some proprietary websites contain shopping tools that include formulary browsers.
If shopping for Medigap, MA and Part D plans seems overwhelming, you might consider working with an experienced advisor whose compensation doesn't depend on the type of plan you choose. One such consulting firm is Sixty-Five Incorporated. Its website contains a wealth of free educational information. While it charges a fee, the convenience and money you save may be a worthwhile investment.
Diane Omdahl, president of Sixty-Five Incorporated, recently told me "One of our clients was looking at an increase in out-of-pocket expenses from $3,000 to $9,000 per year, because his expensive brand-name drugs were being dropped by his plan. We found an alternative plan that significantly reduced his expected out-of-pocket costs."
One last word of advice: While you're doing your Medicare research, don't focus exclusively on the money you might save on medical premiums and out-of-pocket expenses. If you have significant medical issues, you'll want to make sure your plan covers your favorite providers. My wife and I both recently experienced major medical issues, and we were very grateful for the freedom we had to select our providers.
It may take a few afternoons to think about and research your Medicare and medical coverage for 2015, but given what's at stake, it may be a very good use of your time. Consider it a worthwhile annual ritual you'll partake in for the rest of your life.