Health-care costs are an important planning topic for individuals who are still in the workforce as well as those in retirement. In fact, health care is one of the leading concerns among individuals planning for retirement.
For those 65 and older, Medicare forms the foundation of health coverage. Today, more than 50 million people are enrolled, with that number expected to exceed 80 million in 25 years.
Medicare does not cover everything and, generally, supplemental coverage is needed. Many investors find navigating the program confusing. To understand the basics of how Medicare works, read Putnam’s investor education piece, “Three key things to understand about Medicare.”
Each year, Medicare holds an open enrollment period that allows participants to sign up or make changes to existing plans and supplemental coverage. In 2019, open enrollment runs from October 15 through December 7.
This year it is particularly important to review coverage options with an advisor in light of tax code changes and other policy reforms. There are new rules around prescription drug coverage. Changes have been implemented in the Medigap program for those enrolling for the first time. In addition, there are many new benefits available for 2020 through Medicare Advantage Plans.
Here are possible changes for investors to consider:
1. Switch to a different Medicare Part D plan
It is not uncommon for Medicare Part D plans to change their list of covered drugs which may lead to higher out-of-pocket expenses. Individuals on Medicare should closely monitor and analyze their “Plan Annual Notice of Change” document which details any changes to costs and coverage for the upcoming year. The document is typically mailed by the end of September. Participants can also contact the provider directly. If the new drug formulary no longer covers essential prescriptions, enrollees may want to research other Part D plans that better address their needs. Medicare recently updated their plan comparison tool, “Medicare Plan Finder.”
2. Compare Medicare Advantage plans
Medicare Advantage plans are private plans that bundle together Medicare Parts A, B, and D, and typically offer additional benefits such as vision, dental, and hearing coverage. For 2019, some Medicare co-payments and deductibles are eliminated and there are limits on annual out-of-pocket expenses ($6,700 for 2019).
Enrollment in Medicare Advantage plans has nearly doubled over the past decade, with many participants seeking the potential for lower premiums and out-of-pocket costs, and more comprehensive coverage. However, like Medicare Part D, the drug formularies that companies use may change from year to year. As a result, retirees should make sure important prescription drugs are still covered under the plan. In addition, because most Medicare Advantage plans are administered as health maintenance organizations (HMOs), plan participants should monitor any changes to their list of covered providers.
3. Change from Medicare Advantage to Original Medicare (or vice versa)
While Medicare Advantage plans typically offer additional benefits not included with original Medicare, these services come with an important trade-off. Participants must receive services in network, or risk potentially high out-of-pocket expenses. Individuals who relocate, or anticipate the need to receive care from out-of-network providers, may place a higher premium on flexibility than cost.
Health care is part of a comprehensive plan
Maintaining adequate health-care coverage is an important part of a comprehensive retirement plan. Unexpected medical bills have the potential to drain savings that otherwise could have been used for traveling, philanthropy, and leaving behind a legacy of wealth for family members. Working with qualified professionals during the open enrollment period may help improve coverage and manage future health-care costs.
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