Medicare Supplement Plan F and the Medicare Excess Charge

Medicare Supplement Plan F, also known as Medigap Plan F, is and has been by far the most popular plan purchased by seniors looking for the most complete Medicare coverage. It’s also the most expensive, with premiums ranging from $150-$250 per person, per month. I say most complete, because Plan F pays the rest of the charges Original Medicare doesn’t charge plus an additional amount called, “excess charges.” What are excess charges? The vast majority of doctors and hospitals across the country accept what’s called, “Medicare Assignment.”

What is Medicare Assignment?

In plain English, that means Medicare says they’ll pay them a certain amount for a procedure or a doctor’s visit, and those doctors and hospitals essentially say, “OK.” These folks are considered to be “participating” in Medicare. In return, they’re not allowed to bill the person receiving medical care any additional amounts. If the doctor, hospital or facility does NOT accept Medicare Assignment (non-participating) they can still bill Medicare, get paid and then bill YOU an additional 15% above and beyond what Medicare paid them. This is called the Medicare Excess Charge. Of course, doctors and hospitals that opt out of Medicare altogether can bill you whatever they want.

Before you get all worried about these charges, it’s important to put them in perspective. Over 99% of doctors and hospitals across the country accept Medicare Assignment. The doctors and hospitals that don’t are usually specialty cancer centers or research institutions.

The Takeaway

Medicare Supplement Plan F is the only Medicare supplement product that covers that additional 15% should you need it. Odds are you won’t, but if you like that security blanket (and it seems many do, based on the popularity) then Medicare Supplement Plan F is for you.

Of course, and this is true with all Medicare Supplement buyers, most folks buy these because they want the freedom to choose any doctor or hospital they want, don’t want the hassle of a network (PPO or HMO) and they can afford the monthly premium.

One last note: Medicare Supplement Plan C (second most popular plan) is essentially Plan F, without the excess charge coverage. If there’s a meaningful difference in premium between the two in your state and your doctors and hospitals take Medicare assignment, it may make sense to go that route.

Should I Stick With Original Medicare?

Choosing a Medicare plan isn’t a once-in-a-lifetime experience, it’s something you really need to be doing every year.  Just as your financial situation, health and even living arrangements change, so do the benefits and premiums of Medicare insurance policies.  Hopefully, this post will give you some things to think about if you’re considering staying on original Medicare for your hospital and doctor coverage.  This is known as, “Going Bare with Medicare.”  Future posts will provide an overview of hospital and doctor coverage when considering Medicare Supplement and Medicare Advantage plans, and when they’re up I’ll link them in blue.

Protect Your Savings!

At its core, any insurance product should really serve one primary purpose:  Provide you financial protection against exposure to high-dollar claims. Think about your car insurance… no one in their right mind has a $250 or even a $500 deductible anymore… and if you do, you’re paying entirely too much for car insurance!  The days of first dollar insurance coverage, especially in the health insurance field are long, long gone.  Just look at the Affordable Care Act (ACA) plans that were rolled out a few years back.  The average (annual!) deductible for an individual in 2016 is now over $5,700 and more than $11,000 for a family!   I wouldn’t be alone in arguing that those deductible levels are borderline insane, but the point remains; first dollar coverage is over!

Anyway, back to the point of the article.  Staying, “Bare with Medicare” isn’t a bad way to go… and about 20% of the population who have Medicare don’t have any additional coverage.  It’s true Original Medicare (parts A and B) works for a lot of people, but it also has plenty of gaps… gaps that could expose you to high-dollar claims, however unlikely.  Let’s review a few of them.

You Need a MOOP

First of all, Original Medicare has deductibles and coinsurance, and no MOOP.  By far my favorite acronym, the MOOP stands for “Maximum Out Of Pocket.”  That’s a fancy way of saying under Original Medicare, you have no annual or lifetime cap on how much you’ll pay for healthcare.  Once you meet your Part A and Part B deducible (every year, BTW), then you’ll pay coinsurance (a percentage of all additional charges) up to…. well, forever.  There’s no MOOP!  On the other hand, all Medicare Advantage plans must have a MOOP, and none have one higher than $6,700 annually in 2016 (More on those plans in Choosing a Medicare Plan Part 3).

Let’s say you’re hospitalized and have Original Medicare A and B only.  In 2016, you’ll first pay a deductible of $1,288.  As long as you’re not in the hospital for more than 60 days, you’re all set.  However beginning day 61 through day 90 you’ll pay an additional $304 per day.  If you do the quick math, a 90 day hospital stay will cost you a minimum of your $1,288 deductible, plus 30 days X $304 ($9,120) = $10,408!!!

That’s huge.  How likely is it you’re in the hospital for 90 days?  Highly unlikely.  More likely is a) you’ll be dead or b) you’ll be moved out to a nursing home or a Skilled Nursing Facility (SNF).  Not trying to be morbid, just realistic.

If we assume you end up in a Skilled Nursing Facility, then Medicare will cover your stay at 100% for days 1-20.  Days 21-100 will cost you $152 per day in 2016.  The price tag for a (SNF) stay that lasts exactly 100 days is $12,008!   Anything longer for 100 days, and you’ll be picking up 20% of the entire tab for every day you’re in the facility.   Once again, there’s no MOOP!

Worst-case scenario: If you’re in the hospital for exactly 90 days, then get moved into a Skilled Nursing Facility, stay there for 100 days, you’ll have a bill totaling $22,416!

Going back to our original premise, first and foremost insurance should provide you financial protection.  How much financial protection is up to your personal risk tolerance, health status and thickness of your wallet. I think it’s safe to say most people shouldn’t be purchasing super-rich insurance products that offer first dollar coverage.  That is of course unless you simply like the peace of mind giving all of your money to insurance companies for first dollar coverage instead of keeping it in your own wallet!

Not Covered Under Original Medicare A and B:

  1. Routine eye exams & glasses (except after cataract surgery, but who wants that?)
  2. Dental insurance & dentures
  3. Outpatient prescription drugs prescribed by your doctor (Part D covers this)
  4. Gym memberships or fitness classes
  5. Weight management programs
  6. Routing hearing tests
  7. Custodial care (help with bathing, dressing, using the bathroom & eating) at home or in a nursing home
  8. Long-term care (fancy phrase for nursing homes and in-home assisted living)
  9. Acupuncture
  10. Cosmetic Surgery
  11. Most chiropractic services
  12. Most care while traveling outside the United States

The Takeaway

Going “Bare with Medicare” isn’t for everyone, but it’s a fine solution that has worked literally for hundreds of thousands of Medicare beneficiaries since 1966!  Odds are that you’ll never come close to being in the hospital for more than 60 days in any one stay, and it’s highly unlikely you’ll be in a Skilled Nursing Facility for more than 20 days.   I’ve highlighted a few worse-case scenarios, but the real problem is the fact Original Medicare has, you guessed it, no MOOP!  And that’s precisely the reason you’re probably better off served by purchasing some type of supplemental policy or Medicare Advantage plan that offers an annual MOOP limit.

Readers, what’s been your experience going “Bare with Medicare?”

Why Am I Paying More for My Medicare?

Amazed.  Dazed.  Incredulous.  Angry.  Frustrated.  These are words describing people on Medicare who get a nice, neat letter from the Social Security Administration People announcing their Medicare premiums are going to be more than they were anticipating.  A lot more.  Folks earning above $85,000 and married couples earning more than $170,000 in retirement are required to pay higher premiums for Medicare Part B and Part D, most often significantly higher.

As a reminder, Medicare Part B covers doctor visits, outpatient services and other care, Medicare part D covers prescription drugs. Your monthly Medicare Part B premium will be higher if your income is above a certain amount. You’ll pay more for Part B if the income you reported on your IRS tax return two years ago was above $85,000 per year ($170,000 for couples). The income that counts is the adjusted gross income you reported plus other forms of tax-exempt income.

Will I be Affected?

The qualifying income amounts are shockingly low.  If an individual makes $7,084 per month in retirement, their Medicare Part B premiums are a whopping 40% higher every month plus an additional $12.70 every month in Part D premium.  Add those up, and folks in this category actually pay 50% more for their Medicare coverage every single month.

“But I’ve been paying into Medicare my entire working career.  I went to college/graduate school/took a risk and started my own company and succeeded.  I’m proud to have made a good amount of money, but have also lived below my means, saved a high percentage of my pre and post-tax income to be able to retire on an amount I can live comfortably on for the rest of my life.  I’ve paid my Medicare taxes, I’ve been responsible and now I have to pay more?!?!

Yep.  I’ve heard hundreds of versions of the paragraph above.  It’s a shock to most people in this situation, and usually the reaction once the Social Security Administration letter announcing they’re now going to charge you more for being successful and responsible.   That’s essentially what this is… you can pay more than your neighbor or fellow retiree, therefore you will.  You’re subsidizing those who cannot afford to pay higher Medicare premiums.

As you may already be painfully aware, we’re not just talking about multi-millionaires here.  The Social Security Administration reports less than 5 percent of Medicare beneficiaries pay higher premiums, but small percentages can be deceiving.  That means almost 3 million people across the country have higher premiums than their neighbors, and the differences are significant.

Don’t worry, they’ll just take the extra premiums out of your Social Security check.  It’s really convenient.  (Apply dripping sarcasm)

The federal government looks at the modified adjusted gross income in the latest returns filed with the Internal Revenue Service (typically two years back) to determine if you must pay an income-related premium.

Adjusted Gross Income2016 Part B Monthly Premium Amount2016 Part D Monthly Premium Amount
Individuals with adjusted gross income of $85,000 or less
OR married couples with a $170,000 or less
Standard
premium:
$121.80
Your plan
premium
Individuals with adjusted income
above $214,000
OR married couples with adjusted income above $428,000
Standard
premium
+ $268.00
Your plan
premium
+ $72.90
Individuals with adjusted income above $160,000 up to $214,000
OR married couples with adjusted income
above $320,000 up to $428,000
Standard
premium
+ $194.90
Your plan
premium
+ $52.80
Individuals with adjusted income above $107,000 up to $160,000
OR Married couples with adjusted income
above $214,000 up to $320,000
Standard
premium
+ $121.80
Your plan
premium
+ $32.80
Individuals with adjusted income above $85,000 up to $107,000
OR married couples above $170,000 up to $214,000
Standard
premium
+ $48.70
Your plan
premium
+ $12.70

There’s even more good news (more sarcasm).  If you don’t fall into a higher-income Medicare bracket, you might sometime soon because the Affordable Care Act froze the income thresholds through 2019, rather than allowing the thresholds to rise with inflation.  This means as inflation marches on, the number of people considered “high income” will increase.

The Takeaway

If you make more, you’re going to be paying more. Much more.  If you disagree with the way the Social Security Administration has processed your tax information, file an appeal.  As you can imagine, in true bureaucratic fashion, there’s a form to fill out.  You may request an appeal in writing by completing a Request for Reconsideration (Form SSA-561-U2), or you may contact your local Social Security office to
file your appeal. You can find the appeal form online
at www.socialsecurity.gov/online or request a copy
through their toll-free number at 1-800-772-1213 (TTY
1-800-325-0778)

Convenience From your Medicare Part D Plan Is a Double-Edged Sword

When you have Medicare Part D, the last thing you want to do is spend your time reviewing the booklets, flyers and letters your plan and/or other competitive plans may send you. Other than an auto repair manual or circuit schematic of your TV, could anything be stuffier than relaxing on the couch with a Medicare Plan Guide…oops, “Decision Guide” as they like to call them? Please.

Then again, once you’ve enrolled in a Medicare Part D plan, and made it through the onslaught of mailers, flyers and Medicare advertising that’s made to look like official government business so you’ll open it, it’s a good idea to stay connected with them. This is especially true if your plan sends you a letter. It usually means they have something important to tell you about your drugs or your network or your cost. You should always read their letters—in particularly those that begin with “Dear Your Name” rather than “Dear Member.” The same holds true if they call you. Again, it means there’s news about something that could affect your pocketbook or the prescriptions you take.

On the other hand, if a Medicare Part D plan sends you something that looks like advertising, it probably is. The reason being that once a plan has you as a member, their only job is to then KEEP you as a member for as long as they can. One way plans do that is by continuing to embed you deeper and deeper into their realm by enticing you into what is known as “sticky services.”

Sticky services are just what the term implies: a Medicare Part D plan for example, wants you to sign up for their auto bill pay service or their mail order prescriptions or online ordering of your medications, because it’s convenient for you. While that may be, what they don’t tell you is that once they’ve convinced you to take advantage of those conveniences, it’s that much thornier for you to leave their plan.

Let’s say you’re the type of Medicare beneficiary that shops every year, because you’re not convinced there isn’t a Medicare Part D plan out there that can offer you more for less than the one you have now. And let’s say you happen upon a different Part D plan that covers your drugs, but does so for less than you’re currently paying. Or maybe the monthly premiums are lower, and you don’t want to continue paying more than you should. You decide then, that you’d like to switch from your current Part D plan to that cheaper plan in October.

Ah, but it’s not so simple when you’re “embedded” in your current Part D plan. That’s because in order to leave your current plan you must “undo” all of those “convenient” sticky services, which is anything but convenient. In fact, your current Part D plan hopes that the idea of undoing all of your convenience is just enough of a pain that you’ll stay with them to avoid the effort. Sticky is as sticky does.

Then again, you may be the kind of Medicare beneficiary that rarely shops. The kind of member Medicare Part D plans absolutely love because it would take an act of God to get you to go through the process of switching plans and starting over with a new Medicare Part D insurer. Bodies at rest, as they say, tend to stay at rest. And your Part D plan is counting on you to stay put because it’s “comfortable.” And why wouldn’t you if you’re in the right plan, and getting the best value for your Medicare dollar? If you’re sure that’s the case, then the convenient services offered by your plan are positives—especially since you’re “sticking” with them through thick and thin.

The moral of the story is this: before you buy into all the sticky convenient services your Medicare prescription drug plan offers you, wait a while. Take some time to be sure you’re in the right plan and not overpaying for the same quality you may get from another Part D plan for less. Part D plans are NOT all the same. And sometimes the Plan you loved when you enrolled is not so lovable because they changed the prescriptions they cover or the prices they charge during the year—AFTER they have your enrollment. Yes, Part D plans can do that! So it’s to your advantage not to be a body at rest. Take the time to compare plans to be sure there isn’t something better out there for your specific situation. Make a few calls, visit a few websites, and if you’re feeling really ambitious, visit Medicare.gov where all Part D plans compete for your business, and show you their wares.

If after shopping around, you still like the Medicare Part D plan you’re in, the way they treat you when you call, the coverage they offer and the prices you’re paying for your premiums and your prescriptions, then let the conveniences flow, and stick with them.

Mid-year Formulary Changes

While it’s true that companies selling Medicare Part D plans can’t raise their premiums mid-year, sometimes things can happen that affect the level of coverage you’re getting from.  One of those is called a mid-year negative formulary change.

A “negative formulary change” happens when a Medicare insurance company changes what prescriptions are covered and how much they’ll cost you, right in the middle of the plan year!

Can they do this?  Sure can, and happens all the time.  If this happens to one of the prescriptions you take, you’ll get a nice little letter from your insurance company telling you what’s happening, and why.  You’ll usually get notified at least 60 days before the change is made.  Common changes your insurance company can make mid-year are:

  1. Remove the prescription  from the formulary because it was removed from the market
  2. Stop covering a prescription because Medicare decided to stop paying for it
  3. The insurance company placing quantity limits on the drug (usually due to high cost, or potential for abuse)
  4. Mandating prior authorization (which means special permission needs to be granted in order for you to fill your prescription)
  5. Moving prescriptions in a higher Tier (more expensive for you)

Let’s say you have a Medicare Part D plan who makes a negative formulary change to one of your prescriptions.  Well, next time you fill that prescriptions, insurance companies are required to send a written notice to you within 3 business days of the fill, explaining that in the future, you’ll have to contact your doctor for a different prescription.

How can they do this?  Well, it’s complicated, but I’ll summarize: Every year, plans new and old begin discussing the plans, prices and benefits they’re going to offer the upcoming year around February.  That’s right! Mere weeks after the Annual Election Period (AEP) ends, companies begin to plan for the following year.  From there, companies on their bids which they submit to Medicare around June/July for the following January.  Insurance companies must bid each year, and if they’re approved to offer Medicare Part D, they only have permission from Medicare for the upcoming calendar year.  As a part of this bid, these companies must tell Medicare what drugs they’re going to cover, what benefits they’re going to offer (copay tiers, etc.) and how much monthly premium their plans are going to cost you, the consumer.  Once Medicare accepts an insurance company’s bid, the company is locked into those prices and benefits for the entire year.  Likewise, once you pick a Medicare Part D plan during the AEP, you’re usually stuck with it for a year.

What are your options if this happens to you?  Well, for one, you should call your doctor and ask him or her to switch your prescription to something else that is on the formulary.  That’s by far the easiest solution. If you’ve tried everything else and really need to keep that prescription going, you can call your insurance company and request an exception be made.  The process is long and tedious and yes, there are lots of forms to fill out and phone calls to sit on.  If that’s your thing, or you for some reason really need the particular prescription that’s being affected, then by all means please travel down this path.

But at Prepare for Medicare, we strive to simplify Medicare, so your best bet is to get your doctor to find an alternative prescription, or simply pay for it out of your own pocket until the fall.  Then, vote with your feet!  AEP begins October 15.  Grab your prescriptions, head on over to Medicare.gov and find a new Medicare Part D drug plan that meets your needs.

Welcome to Prepare for Medicare

Hello, world!  Welcome to Prepare for Medicare. We’re going to cover a lot of ground on this site, hopefully a bit educational and some fun sprinkled in to make your life easier, save you money and hassle.  We’re talking about everything Medicare on this site with (I’m sure) some sidebars into retirement, money matters, etc.  Along the way, I’m going to teach you what you need to know and how to filter out all the noise.

Just before your 65th birthday (and for the rest of your life) insurance companies will absolutely flood you with ads. Direct mail will jam your mailbox, TV and newspaper ads with smiling celebrities or unassuming presenters will urge you to call for, “information” and blinking, flashing pay-per-click advertising online will promise the moon.  Meanwhile, news anchors and newspaper headlines blare out various injustices and scams perpetrated by insurance agents and companies that hurt normal Americans just tying to buy the right coverage.   Yet, for the more than 40 Million people already on Medicare and the estimated 10,000 Baby Boomers turning 65 every day, coverage choices must be made.

Sticking your head in the sand won’t help; the wrong choice could cost you thousands of dollars.  How do you know if you’re in the wrong plan?  Paying too much?  Enrolling in a quality, reputable plan?  Using a quality, reputable insurance agent?  Is the system beating you, or are you beating the system? If you’re a caregiver helping your parents or other family members decide, what’s your role?  Where can you turn for objective guidance?

It comes down to this: You can learn how to use the system to your advantage.  You either need to educate yourself and understand the tools to do it yourself, or be able to identify a professional independent insurance agent to help you navigate through the maze.  This site is a living, breathing opportunity for you to do both.

Welcome!