As a freelancer with no employer-provided health insurance, I have been fortunate to have coverage through my wife's employer. But I became Medicare-eligible two years ago, and I have been looking forward to making the switch, because Medicare consistently receives high marks from enrollees for its breadth of coverage and reasonable cost. I decided that 2022 would be my year.
The enrollment process generally went smoothly, but it served as a disquieting reminder of the complexity of most of our retirement systems, which call for a level of knowledge and navigational skill beyond what is reasonable to expect from the average person.
First, I needed to deal with the fact that I was not signing up at the normal time. Medicare requires that you sign up during a seven-month Initial Enrollment Period (IEP) that includes the three months before your 65th birthday, the month of your birthday, and the three months that follow it. Missing that window triggers late-enrollment penalties levied in the form of costly premium penalties that continue for life. The key exception to that rule: you may delay enrollment in Medicare as long as you are covered by a current employer, and a spouse can also remain on your employer coverage past age 65.
My two-year delay could cost me 20% more for Part B (outpatient services) throughout retirement, and that could really add up. There also are less onerous late penalties for Part D (prescription drugs) plans.
Aiming to avoid those penalties, job one was documenting that I had been covered from age 65. I needed to complete and submit Medicare form CMS-L564, which attests that I had insurance past my IEP, and my wife's employer needed to add information as well. That went fairly smoothly, although the form I mailed in never arrived at the Social Security Administration, which processes initial applications. A staffer helpfully explained that I should fax a copy of the form. (Fax!?)
ORIGINAL OR ADVANTAGE?
I complied, and before long, I had enrolled penalty-free. I had my Medicare number in hand, and I was ready to shop. The first big decision: would I enroll in Original Medicare, or Medicare Advantage?
The Original Medicare program is fee-for-service. You can visit any doctor, hospital or other healthcare provider that participates in the program anywhere in the country; the government pays the provider directly for each healthcare service you receive. You pay your Part B premium, and most people add a Part D plan and Medigap supplemental insurance.
Advantage is the managed care alternative to original Medicare. These plans combine Part A and B services, and often Part D prescription drugs with no premium beyond the monthly Part B premium.
My choice was Original Medicare. This is the gold standard of health insurance - the breadth of healthcare provider choice is unparalleled. And, coupled with a Medigap supplemental policy and Part D prescription drug plan, my coverage would be rock-solid.
The most complex question I faced was how to best insure against the risk of high out-of-pocket costs. I had already avoided the biggest risk by passing on Medicare Advantage. These plans leave you exposed to high out-of-pocket costs in years when you use a lot of healthcare services. This year, the average plan had a ceiling of $5,091 for in-network Part A and Part B services, and $9,208 for in-network and out-of-network services combined, according to the Kaiser Family Foundation.
Original Medicare has no built-in out-of-pocket cap, but Medigap would protect me against high out-of-pocket risk. I considered my plan options carefully.
Medigap coverage levels vary by policy type. The policies come in an alphabet soup of lettered-plan choices that may seem complex at first glance. The key difference is the percentage of coinsurance and deductibles picked up by different plan types. I decided to focus on G plans, which provide strong coverage of out-of-pocket costs for Part A hospital coinsurance and deductibles, outpatient coinsurance and skilled nursing facilities.
In Illinois, where I live, a 65-year-old Medicare enrollee can buy a G plan for a premium ranging from $1,600 to $3,200 per year - not an inexpensive option at all. But I chose a different route: a high-deductible G plan. Here, I would get the same out-of-pocket protection of a regular G plan, but I would pay the first $2,490 as a deductible before the insurer began to pay. In return, my premium would be much lower - just $600 per year.
In years when I use up the deductible my exposure will be higher than it is with the regular G plan. But in years when I do not use up the deductible, I will come out ahead.
And I will have better out-of-pocket protection than I would have had in Advantage - for a starting premium of $600 per year. For my money, this is a sweet spot in Medicare: join the fee-for-service program, but couple it with a high-deductible Medigap plan.
My other key takeaway is this: begin your enrollment process at least two months before your intended date for the start of coverage. The staffers at the Social Security Administration who I spoke with were very helpful, but the agency has been beleaguered by budget and staff cuts over the past decade, and dealt with operational challenges during the pandemic.
There were paperwork hassles and missteps that ate up some time, and reaching the agency by phone was difficult. Four weeks elapsed from the start of my enrollment process to receiving my Medicare number - and then I needed a few more days to enroll in Medigap and Part D. You want to avoid any gaps in your health insurance coverage, so get an early start.
(Writing by Mark Miller in Chicago; Editing by Matthew Lewis)
By Mark Miller