Tradeoffs to Consider Between High Premiums and High Deductibles with Medicare Coverage

Medicare Supplement Plans

Medicare Supplement Plans as a Medical Cost Inflation Hedge

As we age, health care can often encompass a larger percentage of our overall living expenses. In addition, as the cost of health care services continues to rise in general, the actual dollar figure that is charged can also go up – in some cases, by quite a bit.

According to a recent study by Fidelity, the amount that an average couple age 65 (in 2017) can anticipate spending on out-of-pocket health care services for the remainder of their lives is approximately $275,000…and this figure doesn’t even include the cost of long-term care expenses.

This estimate is also $15,000 higher than it was for 2016 – which shows just how high, and how fast, the cost of health care is rising each and every year. So, if you’re age 65 or over, what can you do in order to help ease the burden of your health care expense?

One solution – if you are covered by Medicare Part A and Part B – could be to purchase a Medicare Supplement insurance policy.

Healthcare Cost Inflation Hedge: Medicare Supplemental Insurance

Medicare Supplement insurance is designed specifically for paying some – or even all – of a Medicare enrollee’s out-of-pocket expenses…or at least those that are required by a Medicare beneficiary on various items that are not paid for directly by Medicare.

Because Medicare Parts A and B (also commonly referred to as Original Medicare) can be fraught with deductibles, copayments, and coinsurance costs, Medicare Supplement works to fill in these “gaps” in coverage. This is why Medicare Supplement is oftentimes called Medigap insurance.

But there isn’t just one, single Medicare Supplement plan. Instead, there are currently ten different Medigap plan options to choose from, each with a somewhat different selection of benefits. And, as is the case with most other types of insurance, the plans that offer the most amount of benefit (i.e., those that fill in more of Medicare’s coverage gaps) will usually cost you more in terms of premium.

Oftentimes, Medicare enrollees who are considering the purchase of a Medicare Supplement insurance plan must determine the cost tradeoff between paying a higher price for Medicare Supplement coverage, or enduring the potential for higher Medicare Part A and B out-of-pocket responsibilities like deductibles.

There are also additional considerations that a potential purchaser of Medicare Supplement insurance may need to make. For example, because these plans are sold through private insurance carriers (as versus through Medicare itself), the premium cost can vary – even for the very same coverage – from one insurance company to another.
Also, while all Medicare Supplement insurance plans of the same letter are required by law to provide the same set of benefits, it doesn’t necessarily mean that one’s out-of-pocket charges are all identical. For instance, in addition to the regular Medicare Supplement Plan F, there is also a high-deductible version of this plan. We wrote a great article comparing Medicare Supplement Plan F and high-deductible plan F a while ago and you can read it by clicking here.

What About the Cost of Prescription Drug Coverage?

As an enrollee in Original Medicare, you will also need to add a Medicare Part D plan if you want to have prescription drug coverage. With Medicare Part D, both the benefits and the premium cost can also vary, as these plans are provided via independent insurance companies.

In 2018, the average monthly premium for Medicare Part D plans is $34 nationwide.2 But, just as with any other type of insurance coverage, the costs here can also vary – in some cases, substantially – depending on the actual plan that is chosen.

When determining the cost / benefit tradeoff with Medicare Part D, it is important that you keep in mind that a prescription drug plan with a deductible will not pay for your prescription medication(s) until you have paid the out-of-pocket deductible amount. This year (2018), the highest deductible that may be charged by a Medicare Part D plan is $405.3

Medicare prescription drug plans may also require enrollees to pay a coinsurance and / or a copayment amount. Typically, these costs will be higher when purchasing brand name medications as versus when purchasing generics.
Part D plans will also place the different medications that they pay for into different “tiers,” where Tier 1 includes the least expensive drugs, and Tier 4 includes the most expensive, based on their brand name and specialty.

So here again, when comparing Medicare Part D plan premium quotes, be sure that you take a close look at what is and is not covered in the plan, and that you make a determination as to what your total overall annual cost may be. Once you have done so, you will be in a better position to choose the right plan for your particular needs.

Should You Choose Original Medicare + Medigap or Medicare Advantage?

There is yet another way that Medicare enrollees could weigh their potential cost pros and cons. That is in choosing whether to go with Original Medicare plus a Medicare Supplement plan, or alternatively with Medicare Advantage.
Medicare Advantage (also known as Medicare Part C) provides an alternate method of receiving Medicare coverage. In this case, Medicare Advantage plans are required to provide the same coverage as Medicare Part A and Part B. However, Advantage plans may also offer some added coverages that are not found in Original Medicare, such as dental, vision, and / or wellness benefits.

Because Medicare Advantage plans are offered via independent insurance carriers, the premiums for these plans – as well as any other potential out-of-pocket costs – can vary from one plan to another.

In addition, because many Medicare Advantage plans are structured in a similar manner to HMOs (Health Maintenance Organizations) or PPOs (Preferred Provider Organizations), there may also be various cost incentives (or drawbacks) to using certain providers, such as those that are included in a network.

In some cases, you may even notice that there are $0 premium Medicare Advantage plans available. Here, too, it is imperative to first determine any of the other possible costs that you may be subject to prior to committing to a particular plan. That is because in addition to potential copayments and deductibles, you may also be subject to a high annual out-of-pocket maximum.

Also, those who opt to go with Medicare Advantage will still be required to pay their Medicare Part B premium. For most people, the monthly amount of this coverage (in 2018) is $134. However, if you are considered to be a higher income earner, you may be required to pay as much as $428.60 per month for your Medicare Part B coverage.

So, before you choose any Medicare, Medicare Supplement, or Medicare Advantage plan, be sure that you know what all of your potential costs may be, and that you don’t make your decision based on the plan’s premium alone.

The Takeaway:

With so many different options for your Medicare coverage, it can seem a bit overwhelming when trying to determine the best tradeoff between the premium and the potential deductible, copayment, and / or coinsurance costs.
With that in mind, it can be beneficial to discuss your situation – including your current health status and your future anticipated needs – with an expert in the area of Medicare coverage. That way, you can be more assured that your questions will be answered, and that you will narrow down which plan option may serve you the best.