Choose the Right Medicare Plan for Your Needs

If you're 65 or older, Medicare covers the bulk of your medical expenses. But it still leaves some big gaps, and it doesn't cover prescription drugs. You must act fast -- between November 15 and December 31 -- to decide how you'll pay for your prescriptions in 2010. You can pick a medigap policy and a Part D prescription-drug plan to supplement Medicare, or you may choose an all-in-one Medicare Advantage plan that provides medical as well as prescription-drug coverage through a private insurer.

It's particularly important to analyze all of your options this year, as most insurers are raising premiums and increasing out-of-pocket costs. For example, average premiums for Part D plans are increasing by 7% in 2010, to $30 per month, and average premiums for Medicare Advantage plans are jumping by 22%, to $39 per month. For some, these price hikes will be a bitter pill to swallow because there will be no cost-of-living adjustment in Social Security benefits in 2010 to offset the additional cost. Switching to a new plan could save you money and provide better coverage.

Choosing a Part D plan. Premium increases are only part of the picture. More than 60% of Part D plans will charge an annual deductible in 2010 ($310 is standard) before covering any drug costs. That's up from 45% of plans that charged a deductible in 2009, according to the Kaiser Family Foundation. And fewer Part D plans will provide coverage in the so-called doughnut hole, which begins after you spend $2,830 on prescriptions in 2010 and extends until your total drug costs for the year reach $6,440. Within that gap, you generally have to pay all of the bills yourself. The plans that do provide some coverage in the doughnut hole pay only for generic drugs.

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Be sure to check how each Part D plan treats your specific medications: Co-payments are rising, and many insurers are changing their pricing tiers. For example, you could end up with higher out-of-pocket costs if your insurer moves your drug from, say, a "preferred" category with lower co-payments to a "nonpreferred" category that requires higher co-pays. Ask your doctor now whether you can switch any of your drugs to a generic or lower-cost medication. Beware: The Part D policy with the best deal for brand-name drugs may not be the best deal for generics.

This year's premium increases are just the latest in a steady stream of price hikes. Premiums for AARP MedicareRx Preferred, the most popular Part D plan, have risen by 50% since 2006, according to Avalere Health, a health-care consulting firm. Humana Enhanced, also a popular plan, has increased premiums by 180% over the same period.

Medicare Advantage. If the combined premiums for Medicare Part B, a Part D prescription-drug plan and a medigap policy are too much for you to handle, consider switching to an all-inclusive Medicare Advantage plan. Nearly 90% of Medicare beneficiaries will have access in 2010 to a Medicare Advantage plan that charges nothing beyond the cost of Medicare Part B (which is usually deducted from retirees' monthly Social Security checks).

But these plans also have their drawbacks. Many are boosting premiums and increasing co-payments for doctor's visits, hospital stays and prescription drugs. You may have to pay significantly more out of pocket for certain types of expenses, such as chemotherapy, than you would if you stuck with traditional Medicare supplemented by a medigap policy.

If you are already enrolled in a Medicare Advantage plan, you should have received an annual notice of change that outlines any differences in your plan's coverage and costs from 2009 to 2010. To find out about prices and coverage for plans available in your area, as well as customer-service ratings, go to www.medicare.gov/mppf to use the Medicare Options Compare tool.

Many people are concerned that some Medicare Advantage plans will leave the business if Congress passes a health-care-reform plan that cuts back on subsidies to private insurers. If your plan shuts down, you may switch to another Medicare Advantage plan or move back to traditional Medicare. If you do, insurers must offer you medigap plans A, B, C, F, K or L regardless of your health. However, if your Medicare Advantage plan sticks around but you decide you want to switch back to traditional Medicare, the price of a new medigap policy may be based on your health.