Medicare enrollees are wondering if perhaps there might be a third option to traditional fee-for-service Medicare and Medicare Advantage.
Shawn McGuyer, a retiree from Texas, is trying to determine if it might be financially advantageous to opt out of Medigap and Medicare Part D and self-fund those benefits throughout retirement. McGuyer, however, is unable to find estimated expenses for an individual or couple who wants to consider such an option.
“All the analysis I find online assume one is paying for Parts A, B, Medigap, and D,” said McGuyer in an email to Health Care News. “However, without seeing the economic impact for those retirees that choose only Parts A and B, one cannot begin to compare estimated lifetime out-of-pocket, cash-costs (self-pay) expenses, or total economic impact, to any other scenario. In other words, these reported analyses are woefully incomplete.”
Knowing such a figure could allow an enrollee to make an educated guess whether or not to buy this coverage or forego the expense and invest the savings for a lifetime “self-fund.”
Medigap is supplemental insurance enrollees purchase from private insurers to cover out-of-pocket costs in Original Medicare. Enrollees have six months to purchase such a policy when they first enroll without denial due to a pre-existing condition. Costs can range from $1,224.28 to $2,854.20 a year. Medicare Part D covers drug costs; premiums vary but can add up to $2,341.20 a year.
Is Self-Funding Possible?
McGuyer found one analysis by Healthview Services that modeled lifetime retiree health care costs from $156,208 to $499,290 but wasn’t sure if this included Medigap and Medicare Part D coverage.
“The ‘No-Medigap’ and ‘No-Part D’ scenarios must be modeled, for total out-of-pocket costs, lest all the financial scenario comparisons be viewed as a type of smoke-screen, or incomplete analysis,” said McGuyer.
“This could be a fool’s errand and very dangerous,” said Robert Klein, a retirement health care advisor with the Ardmore Group and policy advisor to The Heartland Institute, which co-publishes Health Care News.
“First, you would lose coverage for the Part A hospital deductible and the copays,” said Klein. “Keep in mind, Medicare is not an annual deductible for Part A. It’s for benefit periods of 60 days. That means one could trigger the deductible and copays multiple times in a given year. You would need a crystal ball, or a very large amount of money, to plan to invest around that.”
Klein points out Medicare Part B has a 20 percent coinsurance with no-cap. “So, if you ring up $100,000 in doctor fees and outpatient services, you will likely owe $20,000,” said Klein.
Part D has a penalty for late enrollment—one percent a month of the average Part D policy premium. “This penalty stays with you forever and will be deducted from Social Retirement benefits,” said Klein.
Also, you could lose your chance to acquire a Medigap policy if you decline in the first six months of enrollment or pay stiff premiums later when you start.
Crazy Rules
Klein points out it is important to keep in mind Medicare uses multiple codes for health care treatment. With every code, there is a cost. Medicare reimburses around 40 percent, and the rest gets picked up by the Medigap policy.
“Is Medicare perfect? asks Klein. “No. Are the rules crazy? Yes. But it’s a fool’s errand, in my view, to try to predict what one’s out-of-pocket costs may be over their retirement without coverage. We can tell you with a high level of accuracy, based on income projections, what Medicare, supplemental (gap), and Part D will cost over retirement. But asking to model specific costs without coverage? Oh boy, that’s tough.”
AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News.
