Know the difference!
It goes without saying that turning 65 is a pretty big milestone for most people. The main reason is that most of us will become eligible for retirement at that age. We also qualify to be covered under the federal government’s health plan for older Americans, Medicare.
But it’s not as simple as it sounds. Having Medicare alone results in quite a bit of outofpocket spending on your part, averaging around $6000 per year in a recent survey of older Americans relying solely on Medicare for their healthcare coverage. Most people look for additional coverage in the form of prescription drug plans and Medicare supplement plans, also known as “Medigap” plans.
Another alternative is choosing to replace Medicare Parts A (hospitalization insurance) and B (medical insurance) with a plan from a private insurer. These are called Medicare Advantage (MA) plans, and many people like them because they offer additional benefits, such as prescription drug coverage, vision and dental coverage, and extra perks such as gym memberships.
But I’d advise you to do some thinking before you ditch Medicare and sign up for an MA plan. While they might seem attractive because of their very low premiums, you could be left with substantial out of pocket costs. And you’ll also be restricted to the doctors in the plan’s network, so you might lose access to physicians you’ve come to trust and rely on.
Complicating matters is the fact that you have limited opportunities to sign up for a Medigap plan under “guaranteed issue” terms. Guaranteed issue means that the insurer cannot turn down your application due to any health problems you have. You can get a Medigap plan under guaranteed issue terms during your initial Medicare enrollment period (This period automatically starts the month you’re 65 and enrolled in Medicare Part B). You can also get one if you originally sign up for an MA plan, then change your mind in the first year.
After that, if you want a Medigap plan, you’ll most likely have to qualify based on your health. Not a problem for those in the younger age ranges, but it gets tougher and tougher as we get older. So be sure to consider all of the angles when you think about moving into a Medicare Advantage plan and away from original Medicare.
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