Medicare is a federal health insurance program in the United States designed primarily for people aged 65 and older. This guide aims to provide an overview of Medicare, its various parts, and important considerations for enrollees.

The History and Purpose of Medicare

Medicare was created in 1965 under the Johnson administration to address the financial hardships faced by elderly Americans due to medical expenses. Before Medicare, many retirees were going bankrupt or avoiding necessary medical care because they couldn’t afford it. The program’s primary purpose is to ensure that older Americans have access to affordable healthcare.

Medicare Eligibility and Enrollment

To be eligible for Medicare, you must be:

• 65 years or older
• A U.S. citizen or a legal resident for at least five years
• Qualified for Social Security benefits (having worked for at least 40 quarters or 10 years)
• Individuals under 65 may qualify if they:
  • Have been on Social Security Disability for two years
  • Have ALS (Lou Gehrig’s disease)
  • Are on kidney dialysis

The initial enrollment period spans seven months, starting three months before your 65th birthday month and ending three months after. Failing to enroll during this period may result in permanent penalties if you are not covered by another policy through work.

Best Practice: Start the enrollment process three months before your 65th birthday so you are covered on day 1.

The Four Parts of Medicare

Part A: Hospital Insurance

Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. It’s often premium-free for those who have paid Medicare taxes for at least 40 quarters. To remember this, think A for Admitted to a facility.

Part B: Medical Insurance

Part B covers outpatient care, preventive services, medical supplies, and some doctor services. It requires a monthly premium and has an annual deductible. To remember this, a B looks like to OOs on top of each other, and O is for Outpatient.

Part C: Medicare Advantage

Part C, also known as Medicare Advantage, is offered by private insurance companies approved by Medicare. It combines Part A and B coverage and often includes additional benefits like dental, vision, and wellness programs. If you enroll in C, you will not enroll in A, B, and D. Think C for Company – one company will provide your services, like Kaiser.

Part D: Prescription Drug Coverage

Part D provides prescription drug coverage. It can be obtained as a standalone plan or as part of a Medicare Advantage plan. You may want to enroll even if you don’t use any drugs or you may be penalized for trying to enroll later. Remember, D for Drugs.

Medigap Policies: Bridging the Gaps in Medicare Coverage

Medigap policies, also known as Medicare Supplement Insurance, are private insurance plans designed to cover the “gaps” in Original Medicare (Parts A and B), because not everything is fully covered. These gaps include deductibles, copayments, and coinsurance that beneficiaries would otherwise have to pay out- of-pocket.

Standardization of Medigap Policies

Medigap policies are standardized and labeled with letters (A through N, skipping some letters). This standardization means that benefits for each letter plan are the same across all insurance companies, although prices may vary.

Most Popular Medigap Plans

While there are several Medigap plans available, some of the most popular include:

• Plan G: Often recommended as the most comprehensive option currently available for new enrollees. It covers all gaps except for the Part B deductible. It is also often the most expensive.
• Plan F: Previously the most comprehensive plan, but no longer available to new Medicare beneficiaries as of January 1, 2020.
• Plan N: A cost-sharing plan that offers lower premiums in exchange for some out-of-pocket costs.

Enrollment in Medigap Policies

The best time to enroll in a Medigap policy is during your Medigap Open Enrollment Period, which starts the first month you have Medicare Part B and are 65 or older. This period lasts for 6 months. During this time, you have guaranteed issue rights, meaning insurance companies must sell you a Medigap policy regardless of your health status. This may not be true if you purchase Medicare Advantage and wish to switch back later, so think carefully through this important decision.

Pricing Methods for Medigap Policies

1. Attained-age rating: The most common method in California, this method increases premiums as you age because you’re more likely to need health care.
2. Issue-age rating: Premiums are based on your age when you buy the policy, and don’t increase with age but can increase for other reasons like inflation.
3. No-age rating or community rating: The least common method, this method charges all members the same premium, regardless of age, marital status, or where they live.

Considerations When Choosing a Pricing Method

When selecting a Medigap policy based on its pricing method, consider:

• Your current age and how long you expect to hold the policy.
• Your budget now and your projected budget in the future.
• Your tolerance for premium increases over time.
• The specific rates and projected increases offered by different insurers.
• Any state regulations that might affect pricing (some states mandate certain pricing methods).

Additional Factors Affecting Medigap Premiums

While the pricing method is a significant factor, other elements can affect your

Medigap premiums:

• Discounts: Some insurers offer discounts for non-smokers, married couples, or for paying annually.
• Medical Underwriting: If you’re not in your Medigap Open Enrollment Period or don’t have guaranteed issue rights, your health status could affect your premiums.
• High-Deductible Options: Some plans offer lower premiums in exchange for higher deductibles.
• Inflation Protection: Some policies offer this feature, which can affect how premiums change over time.

Considerations When Choosing a Medigap Policy

When selecting a Medigap policy, consider:

• Your current and anticipated healthcare needs
• Your budget for premiums and out-of-pocket costs
• The pricing method used by the insurance company
• The financial stability and customer service reputation of the insurance company

Limitations of Medigap Policies

It’s important to note that Medigap policies do not cover everything. They typically don’t include:

• Long-term care
• Vision or dental care
• Hearing aids
• Private-duty nursing
• Prescription drugs (these are covered under Medicare Part D)

Switching Medigap Policies

While it’s possible to switch Medigap policies, it’s not always guaranteed. Outside of your initial Medigap Open Enrollment Period, insurance companies may use medical underwriting to decide whether to accept you and how much to charge. Some states have additional open enrollment periods or guaranteed issue rights.

Choosing the Right Medicare Plan

When deciding between Original Medicare (A and B) with a Medigap policy and Part D, or a Medicare Advantage plan (Part C), consider:

• Your budget
• Your health needs
• Your preferred doctors and hospitals
• Your need for additional benefits like dental and vision coverage
• Your willingness to accept network restrictions
• The most comprehensive coverage is often achieved through Parts A, B, and D,

combined with a Medigap Plan G policy (often referred to as “ABDG”).

• Often, the more cost-effective plan is Medicare Advantage or Part C.

Annual Enrollment and Plan Review

The annual Medicare Open Enrollment period runs from October 15 to December

During this time, beneficiaries can:

• Switch from Original Medicare to Medicare Advantage (or vice versa, but you may have to qualify medically)
• Switch between Medicare Advantage plans
• Join, switch, or drop a Part D prescription drug plan
• Change their Medigap/Supplement coverage plan

It’s crucial to review your coverage annually, especially your Part D plan, as formularies and pricing can change significantly from year to year!

Medicare vs. Medicaid

While often confused, Medicare and Medicaid are distinct programs:

• Medicare is an insurance program primarily for those 65 and older, funded through payroll taxes.
• Medicaid is a social welfare program designed to provide healthcare to low-income individuals, regardless of age.

A simple way to remember the difference: “Medicare is for the elderly, Medicaid is for the needy.”

Navigating Medicare can be complex, but understanding its various parts and options is crucial for making informed healthcare decisions. Whether you’re approaching 65 or helping a loved one manage their healthcare, it’s important to stay informed about Medicare options, review coverage annually, and seek professional advice when needed. By understanding your options and choosing the right coverage for your needs, you can make the most of this valuable program. Please talk to a Wright Wealth Advisor to learn more!

Information is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products, or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this post (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of Angela Wright, an Investment Adviser Representative of Gemmer Asset Management LLC (“GAM”) and should not be regarded as the views of GAM, or a description of advisory services provided by GAM or performance returns of any GAM client.  References to securities or market-related performance data are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.