Still Time to Switch Medicare Advantage Plans and Meet the March 31st Deadline!

Most health insurers bury the true cost of your healthcare in copays, deductibles and coinsurances.  Often seniors don't realize they may have purchased too little or too much health insurance.  March 31st is the last day you can "switch" health insurance.  If you purchased your insurance based solely on the premium - then you've only looked at the tip of the iceberg. Your monthly premium only represents a small fraction of your annual cost "when you are sick." So it is really important to understand how Medicare Advantage plans hide the true cost of healthcare and how to calculate those costs when you are sick.

Plan Premiums - The Bait (10% of annual cost): Medicare Advantage Insurance plans are largely affordable when you are healthy. That low monthly premium is the shiny lure or bait to get you to buy a plan.  Most insurers offer plans starting with low or no plan premium and allow you select from at least two to three options based on a simple set of formulas:

Low Plan Premiums equal high copayments

High Plan Premiums equal low copayments

These copayments or out-of-pocket costs are paid when you are sick.

Tip: If you are healthy, rarely visit the doctor and are not taking any prescriptions and do not have a family history of medical issues - a medical plan with low premiums may save you hundreds each year.  If your medical needs should change, you can always upgrade starting on November 15th of each year to a plan with lower out-of-pocket costs and prescription drug coverage.

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Maximum Annual Out-of-Pocket Cost - The Hook: The federal government requires all Medicare Advantage plans to provide an annual limit on your "out-of-pocket cost" - these are your copays, deductibles and coninsurances. This is the maximum you will pay "when you are sick" (hospital and medical services).  You still have to pay your monthly premiums and prescription drug copayments are not included (neither is your Part B premium).  This is the "hook" because it gives you a false sense of security and only applies to medical costs.

Tip: You can expect ranges for out-of-pocket-costs to be pretty extreme across all plan types (HMO, PPO, PFFS), insurers and across state lines.  This information can be found in a document called the "Summary of Benefits" located in each plan's sales materials.  The maximum is actually set by each insurer and can range between $3,500 or as high as $10,000 or more per year.  Local plans will generally be cheaper than national plans.  Remember, maximums are reset to zero each year.  So if you get sick during the last three to six months of a year and expect to have additional care in the following year - you could potentially pay these maximums twice in a twelve month period.

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Medical Copays & Deductibles - The Club (30% of annual costs): If you ever been deep sea fishing, the club is the last tool used when you get the fish onboard the boat.  The following costs (copays, deductibles, coinsurances) are the true hidden costs of healthcare and when the bills come in -- it can feel like you've been hit over the head with a club: $20 to see your doctor, $30 dollars to see a specialists,  $200 per day/up to first 10 days for inpatient hospital stay, $200 annual deductible for outpaitient surgery, $30 for each physical therapy visit.  All of these costs can be found in a booklet called the "Summary of Benefits" and all Medicare Advantage plans are required to include this brochure in their sales materials.

Tip: Insurers are very good at analyzing the annual cost of healthcare.  These hidden costs are often scientifically calculated to ensure you will reach the maximum out-of-pocket costs when you are sick.  So if you have medical issues choose the plan with the high monthly premium and low out-of-pocket costs.  Remember, your premium is called "first dollar coverage" and in the insurance world all that means is when you are sick the insurer is taking more of the financial risk and not you.

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Rx Copays & Deductibles - The Other Club (55% of annual costs): OK, the fishing metaphor is wearing a little thin.  When you select a Medicare Advantage plan you often have the option of adding "prescription drug coverage."  This can add anywhere between $25 to $55 to your plan premium each month.  The bottomline with prescription drug plans - you are paying premium to get a fixed monthly cost for your prescription drugs - known as copay.

Tip: You need to compare the "retail cost" of each drug in your medicine cabinet to the copayment you will pay under that plan.  If the copayment is MORE than the "retail cost" of your drug - you are waisting your money.  Think of it this way - your premium is an investment in lowering the cost of your prescription drugs.  If the "annual retail cost" of each drug in your medicine cabinet is $30,000 per year, then your copayments should be around $10,000 per year.

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Generally, when you are sick you can expect your premium to about 15% of your annual cost, medical copays to be about 30%  and prescription drug copays to be about 55%.  Attached is a worksheet created using premiums, copayments and prescription drug costs from www.Medicare.gov "plan finder tool" for plans available in Franklin, Massachusetts (02038).  When using Medicare's tools set your conditions to "poor" and use a range of prescription drugs that reflect your medical history (example  below includes heart disease, arthritis and acid reflux).  Remember, March 31st is the last day this year you can "switch" health insurance.  The attacheed spreadsheet could help you save thousands each year.

In the example above Tufts Medicare Preferred and Blue Cross Blue Shield do not provide coverage for Humira or Prilosec but all three Fallon Plans do offer coverage for those drugs. As you can see the difference in annual cost is significant.  As you can see the annual costs for Tufts Medicare Preferred are exactly the same across all three products.  This means whether you join the Basic, Value or Prime plan, you will pay exactly the same amount.  However, under Fallon Community Health Plan you actually pay less under their lowest premium plan - Senior Plan Saver Enhanced Rx.  Good product design in the insurance world is about ensuring all products cost about the same - it is smoke and mirrors and identifies a potential flaw that benefits those who select Fallon Community Health Plan.

About the Author:

My name is Dana Cutter and I am Founder and Editor of Medicare Sherpa. Our staff spends their days searching the Internet for the best content and advice on retirement.  On our site you will find articles on Social Security, Medicare Benefits, Prescription Drug Benefits and more. Please feel fee to send me an email with ideas for content, site improvements or general help launching your online persona. I hope you will consider joining and I am looking forward to reading more about you online.

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