Common Mistakes People Make When They Transition To Medicare


English: image edited to hide card's owner nam...
English: image edited to hide card’s owner name. author: Arturo Portilla (Photo credit: Wikipedia)

Sometimes I am convinced that my brain is full of fluff.  I define fluff as any strange and unusual fact or tidbit of information that is interesting but not useful  in my every-day life.

For example, I know that a baby kangaroo is called a Joey, a group of crows is called a “murder of crows” and that color-blindness happens more frequently in males than in females.

Another bit of fluff that I learned in high school Geometry is the difference between similar and congruent.  Two things that are similar may appear to be the same but have different measurements.  If two things are congruent, they are identical.

This is the first time in 30+ years that I have been able to use these terms.  Medicare may be similar to the Major Medical plan you had before you retired but it is not congruent.

The transition from private Major Medical health insurance to Medicare can be traumatic for some people.  Politicians act like they are the same.  The press talks like they are the same.  It is no surprise that many Americans think they are identical.  In reality, there are some significant differences.

In this post, I want to share some common mistakes that people make when they transition to Medicare so that you can avoid them.

1.  MAXIMUM OOP

The term, “Maximum OOP,” refers to a benefit that was probably in your private health insurance.  It is the maximum amount of money that you have to pay towards your medical bills before the insurance company picked up 100% of the tab.

Medicare Part B, the part of Medicare that pays for your doctor and any medical treatment that you receive outside of the hospital, has no “Maximum OOP.”  It requires you to pay 20% of the Medicare approved charges from your doctor, regardless of how much health care you need.

If your doctor’s bills are only $1000, after your Medicare Part B annual deductible, you have to pay $200 for the year.  For most of us, that would hurt but we could pay it.

The problem with having no Maximum OOP is if your medical bills are significantly higher.  If you were to develop a costly disease that is treated as an out-patient and your doctor’s bills were $50,000 for the year.  Medicare would only pay $40,000.  You would be personally liable for the other $10,000.

Unfortunately, as we age, our medical needs increase.  I recently read an estimate that said the average American will spend $240,000 on health care during retirement.  That is a potential $48,000 that Medicare Part B will not pay for you if you do not have to go into the hospital.

Many people are still in good health when they first enroll in Medicare.  They do not see how the lack of a Maximum OOP will harm them.  Others see what could happen in the future.

If you are in good health and see no harm in the lack of a Maximum OOP in Medicare Part B, you do not need to do anything.  However, if you do not like the idea of having an unlimited exposure to doctor’s bills during retirement, you should consider either a Medicare Advantage plan with a Maximum OOP or a Medigap plan that will pay what Medicare does not for you.

2.  MEDICARE D PLANS

Formularies (List of covered drugs)

Traditional Medicare does not pay for prescription drugs.  If you will be wanting that type of insurance help, you will need to enroll in an optional Medicare D plan either when you first retire or during the Annual Enrollment Period.

Medicare uses private insurance companies and pharmacies to administer the Medicare D program.  All providers are free to cover additional drugs but must offer a list of drugs that are mandated by the Centers for Medicare and Medicaid Services (CMS).

As a result, a drug that may be covered by one plan may not be covered by another one.  Recently, I had a client whose doctor has told her that she is only allowed to take a Brand name drug.  Apparently, the generic version of the drug is not as effective in her body as her doctor would like.

The problem is that while the generic version of the drug is available on the CMS Formulary (list of covered drugs) the Brand name drug is not mandated.

This client’s husband has a basic Medicare D plan.  In order to find one that would cover her Brand name drug, we had to look for an “enhanced” plan that has added her drug to the list of drugs it would cover.

If she got the basic plan, like her husband, her drug would not be covered unless she applied for an exception, which may or may not be granted.  For an exception to the plan’s Formulary to be granted, a licensed physician must provide a sound medical reason the insured must have a more expensive drug than the one that is already approved.

In order to avoid the frustration of the exception process, make certain to review your plan’s Formulary each year to make certain that it covers all of your medications.  If it does not, use the Annual Enrollment Period to switch to a Medicare D plan that will cover your prescription needs.

Premiums

There is another potential problem with Medicare D plans.  That is with the payment of premiums.

When you enroll in a Medicare D plan, the application will give you a couple of options to pay your premiums.  One of the options you will have is to have your premium automatically withheld from your Social Security retirement check by Medicare.

That sounds like a nice, convenient option, however there is a potential problem that you might have.  Insurance companies only have 10 days in which to complete their underwriting of your Medicare D application before they are required to either approve your insurance or decline your application if it is not complete.

However, Medicare has no such time limit on setting up your automatic premium withholding with Social Security.  It can take a few months before Medicare communicates with Social Security and your premium is paid through your Social Security retirement check.  Until they are, you will be required to physically send your premiums to your insurance company.

Often people do not understand that they are responsible to pay the premiums that become due prior to Social Security withholding their premiums.  Plans can accidentally lapse for non-payment of premiums if the insured does not pay the premiums directly while they are waiting on Medicare and Social Security to communicate with each other.

If you elect to have your Medicare D premiums paid through you Social Security retirement check, make certain that you are aware that you may have to pay 2 or 3 months of premiums directly.  Once your account is set up correctly, you should have no future problems.  Until it is, however, you will need to remember to pay that premium yourself.

As you can probably tell, I am not a huge fan of this premium payment option.  If you are not willing to remember to send your premium in for a few months, you probably should consider using one of the other premium payment options that you will be offered.

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