Sift Through Your Medicare Choices

EDITOR'S NOTE: This article was originally published in the October 2012 issue of Kiplinger's Retirement Report. To subscribe, click here.

It's that time of year -- pumpkins, goblins and, of course, Medicare open enrollment. As you sort through your cool-weather clothes, take some time to sort through your options for a Part D prescription-drug plan or a private Medicare Advantage plan.

You have from October 15 to December 7 to choose a plan for 2013. If you don't take any action, you will be automatically reenrolled in your current plan.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Even if you're happy with your current plan, check out your options -- and look beyond the premiums. The average Part D premium will remain about $30 a month, but many plans are making changes to co-payments and coverage that could boost your out-of-pocket costs. A study by PlanPrescriber, a division of broker eHealth Inc., found that the average enrollee in Part D could have saved $654 in 2012 by switching to a plan that covered the same drugs at the lowest cost.

There are few big changes to Medicare for 2013. But in the holiday spirit, Uncle Sam still has some treats for you. As part of the health care law approved in 2010, the dreaded Part D "doughnut hole," which is the period during which you must pay out-of-pocket for your drugs, continues to shrink. The discount on brand-name drugs in the coverage gap will rise to 52.5%, from 50%, in 2013. And the federal subsidy for generics will rise to 21%, from 14%.

Also, people can now change Medicare Advantage plans outside of open enrollment if they switch into a plan with a five-star quality rating. This relatively new government system assesses the quality of Advantage plans. Only 12 plans qualified in 2012, but more are expected to make the cut in 2013. Here are guidelines on making a Medicare choice.

Selecting a Part D plan. You'll choose a Part D plan if you are going with traditional Medicare coverage. Even if you expect to take the same medications as you do now, review your plan's "annual notice of change," which you should have received by the end of September. The notice will let you know if your plan will increase premiums, boost co-payments and change pricing tiers. For instance, the plan may continue to charge $30 for preferred brand-name drugs and $50 for nonpreferred brand-name drugs -- but your costs will rise if any of your medications are bumped from the preferred to the nonpreferred tier.

Then see how your plan compares with your other options. Look up the costs for Part D plans in your area using Medicare.gov's Plan Finder (www.medicare.gov/find-a-plan). Your choices for 2013 will become available in the database on October 1.

First, type in your zip code. Then type in the name of each drug; a prompt will give you choices on dosages and frequency. Once you're done, you'll see a list of all your plan choices. Only consider the plans that have your drugs on their formulary, which is the approved drug list. You will see each plan's premium, deductible and co-payments. The most important column is "estimated annual drug costs," which is a projection of your total out-of-pocket costs for the year. Your costs may be lower if you choose a mail-order pharmacy.

It's especially important this year to look at your plan's preferred pharmacies. An increasing number of plans are making deals with networks of certain pharmacies to offer better rates, says Ross Blair, president of PlanPrescriber.com, a Web site that helps people compare and find information about Medicare plans. Beneficiaries should "see if their pharmacy is included in the preferred network," he says. If not, he says, it may be worthwhile to "switch pharmacies to get the network."

In 2012, for example, the Humana Walmart-Preferred Rx plan charges premiums of $15.10 a month, co-payments as low as $1 for preferred generic drugs and $5 for other generics at Walmart and Sam's Club, and no co-payment for generic drugs at RightSourceRx mail-order pharmacy. You have to pay 20% of the cost of preferred brand-name drugs at preferred pharmacies, compared with 37% at nonpreferred pharmacies. Because you get the best deals with generic drugs, ask your doctor if you can safely switch from brand-name medications.

Review your options if you've been prescribed any new medications or if any of your regular drugs, such as blockbusters Lipitor and Plavix, have gone generic over the past year. The plan that offers the best deal for the brand-name drugs may be different from the plan that offers the best deal for generics.

Also, make sure you don't have to first get prior authorization, which means your doctor must prove certain clinical criteria before the plan will approve the drug, says Cindy Polich, president of United Healthcare's Medicare and Retirement product division. Some plans also require step therapy, which will not cover a drug unless you try another drug first or your doctor shows why you can't take that other drug. If beneficiaries can't pass these hurdles, "their drugs may not be covered under the plan and they may have to pay for them out of pocket," says Polich.

Choosing a Medicare Advantage plan. The calculation becomes a bit more complicated if you're searching for an Advantage plan, which covers both drugs and medical expenses. As with Part D, look at your "annual notice of change" for information about premiums and co-payments. After typing in your zip code, go to the "Medicare Health Plan" section of the Medicare.gov Plan Finder for cost information for plans in your area. The tool will allow you to compare premiums as well as co-payments for your drugs and medical expenses based on your health status.

[page break]

Also look up coverage for specific types of doctor's visits or special supplies you know you will need. Mary Dale Walters, senior vice-president of Allsup Medicare Advisor, which helps people with their Medicare decisions, discovered the importance of checking out these details when helping her father pick an Advantage plan. He needed a special syringe, which was covered under some plans and not under others. "Tiny things like that can make a big difference," she says.

You can find these details when you click the "health plan benefits" button on the list of plans in the Plan Finder tool, or contact the plans for details.

If you have a chronic condition, you may be eligible for an Advantage "chronic needs health plan" that is tailored for beneficiaries with that type of condition, says Polich. "Some plans offer programs designed to help beneficiaries more effectively manage a chronic condition," she says. Some Part D and Advantage plans will offer formularies that include the drugs most commonly used to treat certain chronic conditions, she says.

The tough part about choosing an Advantage plan is that you don't know if your medical expenses will change. "While the benefits may look favorable for someone who is healthy, if the person becomes sick, the plan may charge higher co-pays for hospitalizations or other expenses," says Alan Mittermaier, president of Columbus, Ohio-based HealthMetrix Research, which analyzes Advantage plans.

To protect yourself from the unexpected, compare plans' out-of-pocket maximum, which is the most you'd have to pay for premiums, deductibles and co-payments over the year. Some plans have maximums of $2,500 or less in competitive markets, while others have maximums of $4,500 or more, says Eric Maddux, benefits administrator with PlanPrescriber.

One of the big changes expected for Advantage plans this year is that insurers are shrinking the size of provider networks, for doctors, hospitals, pharmacies, and even labs and physical therapy sites, says Dr. Jan Berger, chief medical officer with Silverlink Communications, which helps Advantage plans communicate with consumers. If you're in an Advantage plan now, check with the plan to find out if your providers will remain in the network.

Another change is the expansion of the government's quality star ratings. The ratings assess Advantage plans on 50 measures, focusing on coverage, communications and customer service. The highest rating is five stars. On the Medicare.gov Plan Finder tool, compare the ratings of the plans you're considering.

If you're moved to traditional Medicare because your plan has folded, you should enroll in a private Medigap supplemental insurance plan to help cover deductibles, co-payments and other gaps. You'll need a separate Part D policy. Or you can switch to another Advantage plan during open enrollment.

Evaluate Medigap policies. If you're sticking with traditional Medicare, you should reassess your Medigap coverage. These private policies don't have the same open-enrollment schedule as Part D and Medicare Advantage -- you can switch Medigap plans at any time. But you could be charged more or denied coverage based on your health if you change plans more than six months after you first signed up for Medicare Part B, which pays for outpatient services.

Under federal law, Medigap companies in most states can only sell a standardized policy identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits. Usually, the only difference between same-letter policies is the cost.

If you like the coverage offered by your current policy, check out other companies that offer the same letter coverage. You may be able to get a better deal. For instance, Plan F, the most popular policy because of its comprehensive coverage, has a wide range of prices -- from an annual $934 to $5,590 for a male, according to PlanPrescriber.

Some plans base their pricing on "issue age," which means that their rates only rise because of medical inflation. Some are "attained age" policies, which increase rates every year because of your age. And some are "community rated" policies, which charge everyone in the community the same price regardless of age. It's generally best to go with the lowest-cost issue-age or community-rated policy.

PlanPrescriber's Maddux says premiums for some Plan F policies are rising. If you want to stick with Plan F, consider a high-deductible version -- a deductible of $2,070 but premiums as little as $600 to $960 a year.

Also look at Plan N, a new comprehensive plan that includes some cost sharing, usually in return for lower premiums. Plan N covers many of the same expenses as Plan F, including the full $1,100 Part A deductible, but it doesn't cover the $155 Part B deductible. It also charges a $20 co-payment for doctors' office visits and a $50 co-payment for emergency-room visits. The average Plan F in PlanPrescriber's database costs a man $2,107 a year, compared with $1,470 for Plan N.

Some insurers let you switch into Plan N regardless of your health as long as you already have a more comprehensive plan with the same company. Otherwise, the insurer can charge you more, or reject you, because of your health. Maddux says it's common to see rate hikes for smokers or for those who are overweight. Some insurers deny applicants who have more serious conditions. However, a few companies do offer policies without medical underwriting in certain states.

If you have a tough time finding an affordable Medigap policy, consider your Advantage options, which are available to anyone regardless of health during open enrollment. In many cases, Advantage policies charge lower premiums but have higher cost sharing. You will be more limited in your choice of providers than with traditional Medicare.

Getting help with Medicare decisions. Ignore all the mailings, seminars and calls from salespeople claiming to offer the best deal during open enrollment. Your best unbiased source of information is the Plan Finder at Medicare.gov. But it can be complicated to navigate. The following resources can provide additional help.

A State Health Insurance Assistance Program (SHIP) provides phone and in-person consultations as well as community seminars. You can get the contact information for your local SHIP at www.shiptalk.org or by calling 800-633-4227.

HealthMetrix Research's Cost Share Report will be available after October 15 at www.medicarenewswatch.com. This resource lists the best Advantage plans by area based on health status (it categorizes by good, fair and poor). It also reviews plans by the most common health benefits, such as physician office visits, emergency care and prescriptions. The "Senior Choice Awards" recognize the Advantage plans with the best value.

Private fee-based services also can help you sort through your choices. With Allsup Medicare Advisor (866-521-7655), you will pay $75 for help with Part D, $175 for help with Medigap and Part D, and $395 to help you decide whether to go with traditional Medicare or Medicare Advantage in addition to a full review. Another choice is Healthcare Navigation (www.healthcarenavigation.com; 877-811-8211). This firm is pricier, but it offers a comprehensive review of Medicare and retiree health care.

PlanPrescriber.com helps you compare the costs and coverage of Part D and Advantage plans, and the site can be easier to navigate than Medicare.gov's Plan Finder. The site provides helpful information about Medigap plans and premiums. Go to www.planprescriber.com or call 888-312-5447.

Haven't yet filed for Social Security? Create a personalized strategy to maximize your lifetime income from Social Security. Order Kiplinger's Social Security Solutions today.