Open Enrollment

Sorting Through Your Medicare Options

Open Enrollment

Americans age 65 and older face what can seem like a daunting task – figuring out how to choose between all of the different healthcare options provided through the government's Medicare benefits system. 

Each year, the program offers its "Open Enrollment" period. In this period, (October 15–December 7) existing Medicare users can choose to re-evaluate part of their coverage and compare it against other plans.

Medicare's Open Enrollment window coincides with annual changes taking place by insurance companies in terms of adjusting costs for the upcoming calendar year. Such an Open Enrollment period, however, doesn't apply to those signing up to be covered for the first time. That's dependent on your birthdate.

(You can check for more details about required dates to notify Medicare before turning age 65. Keep in-mind that missing these deadlines can trigger penalties and effectively limit your use of benefits offered by the program.)

Here's how the system works. In a nutshell, Medicare is split into several different coverage areas, each denoted by a letter of the alphabet. Medicare Part A, for example, covers basic costs of hospitalization. Most people aren't required to pay a monthly premium for Part A. 

There's also Part B, which covers expenses like physician services, outpatient hospital services, durable medical equipment and certain home health services. 

The standard monthly premium for Medicare Part B enrollees will be $148.50 in 2021, an increase of $3.90 from $144.60 in 2020, according to the Centers for Medicare & Medicaid Services (CMS).

These premiums, though, are impacted by a person's Modified Adjusted Gross Income (MAGI). Standard Part B monthly rates in 2021 are scheduled to be adjusted higher by $59 a month for someone with income of $88,000 to $111,000. For those with MAGI of $165,000 to $500,000, the adjustment is $327. Those making above such a threshold in 2021 are due for a Part B adjustment of $356 per month.

Another key Medicare coverage area is Part D. This part of the healthcare benefits plan was created to help pay for the costs of medication such as generic and prescription medications. The monthly premium for a basic Medicare Part D prescription drug plan will average $30.50, the CMS estimates.  

Although the average monthly Part D premium in the coming year will be the lowest since 2013, not everyone will share in such reduced rates of growth. Like Part B, premiums for Part D are determined by income levels. For those with higher expected MAGI, these adjusted Part D "surcharges" in 2021 can tack on another $12 to $77 more a month.

It's worth noting that IFA Taxes uses specialized software to help individuals and business owners manage their income in more tax-efficient ways. In respect to Part B and Part D Medicare costs, we've found that such a tech-aided analysis can prove especially helpful. John Dahlin, who is head of IFA Taxes and a Certified Public Accountant (CPA), provides free initital consultations. He also typically charges on a flat-fee basis rather than by the hour.

The chart below provides an overview of Medicare's basic costs.

Since Medicare isn't designed to cover everything, you also might want to shop for a private insurance policy. Two basic types of insurance plans are available to cover what Medicare doesn't -- by some estimates that coverage "donut hole" amounts to around 20% of a typical person's healthcare needs.  

Along these lines, a popular insurance option is signing up for what's known as a Medigap healthcare plan. 

As mandated by the government, these Medicare "supplement" plans are sold by insurance companies in a standardized fashion. Services and coverage areas are grouped by letter. (See chart below.) For example, all companies selling Plan G will cover 50% of skilled nursing care coinsurance costs. At the same time, those opting for Plan L can get 75% of such expenses covered. 

Buying a Medigap plan might mean you're still going to need to pay at least a portion (if not all) of any Part B monthly premium. You're also likely to need to purchase a Part D policy, which might be cheaper if purchased through a different insurer than the one you choose for your broader Medigap plan. 

Making choices in supplemental plans comes down to deciding which letter-grade plan is best suited to your coverage requirements. Also, these grades will effectively make certain grades more or less expensive than others. And, too, different insurance carriers will charge varying monthly premium rates within the same grades in your area. 

Another caveat: In most cases, Medigap policies only cover coinsurance after you've paid the deductible. By coinsurance, we're referring to the amount you're required to pay after any deductible amount is paid (by you). 

For residents of three states -- Massachusetts, Wisconsin and Minnesota -- Medigap plan services are categorized in a different uniformed manner.

Notice how we skipped Medicare's Part C coverage earlier in this report. That's because it represents a different sort of animal. Such a coverage option is essentially "farmed out" by the government to private healthcare providers such as Kaiser Permanente and Anthem Blue Cross, among others. This means billing and service questions and issues are handled through your MA provider, not a government office. These are known as Medicare Advantage plans, and aim to provide "all-in-one" coverage for those age 65 or older.

Traditionally, MA plans have included coverage of Part D-related drug prescription costs, according to Medicare officials. MA plans also usually cover most Part B costs. If this turns out to be the case in your area, then you're likely not to need to pay Part B and D premiums for choosing such an alternative to the other parts of Medicare. 

Of course, MA plans can offer a range of different services. The lowest premiums are usually charged by those coming with restrictions on doctor networks and operate much like an HMO. Some Medicare Advantage plans, however, do offer PPO-like benefits that are less restrictive in terms of opening up a patient's choices in seeking care from different hospitals, doctors and clinics that might not be considered as "network" providers in the HMO version.

These additional benefits come at a higher premium rate and can vary greatly across insurance provider networks as far as specific doctors and facilities counted as in- and out-of-network.

In order to help you sort through all of the different Medicare options, IFA's wealth advisors might be able to offer an insurance brokerage reference and help you sort through this maze of different healthcare options. Also, we can get you in-touch with Dahlin, our in-house CPA. He can be reached directly at: [email protected] His toll-free phone number is: (888) 302-0765. 

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Certified Public Accountant (CPA) is a license to provide accounting services to the public awarded by states upon passing their respective course work requirements and the Uniform Certified Public Accounting Examination.