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Understanding Medicare's basic enrollment rules

These are the basic Medicare enrollment rules. In addition, there are a number of special enrollment rules and guaranteed issue periods for the different kinds of coverage.

Managing Medicare’s Costs

  • Three questions to ask before enrolling in an Advantage plan

    Everything seems to be going right these days for the insurance companies that sponsor Medicare Advantage plans. Since 2016 they have seen their enrollment grow by 1.5 million people a year, to the point that almost 35% of Medicare beneficiaries now belong to an Advantage plan. By 2030, some 42% of the Medicare population will be enrolled in Advantage plans, according to projections by the Congressional Budget Office.

    That’s good news for retirees because as plan enrollment rises, insurance companies can offer richer sets of benefits. Even better, Medicare this year is boosting its payments to the plans by an average of 3.4%, the largest percentage increase in recent memory and one that should further strengthen coverage. To top it off, this year almost one-half of plan contracts will divvy up more than $6 billion in quality bonuses, which the plans are required to invest in added benefits.

    The thriving Advantage plan market is attracting interest from firms that have not previously sponsored plans. This year 14 additional insurers, including one that’s funded by a venture capital firm, are introducing Advantage plans. Nationally there are 417 more plans this year than last year, an 18% increase. Meanwhile, only five insurers left the market at the end of 2018 according to the Kaiser Family Foundation’s 2019 Advantage plan spotlight.

    Advantage plans are popular because they are inexpensive compared to Medigap policies. Approximately one-half of plan enrollees do not pay any premiums or have deductibles for medical or prescription drug coverage. In contrast, Medigap policies have steep premiums ranging between $1,200 to $4,000 a year depending on the plan, the policyholder’s age, and the state the policy is issued in.

    Another reason that people find Advantage plans attractive is for their extra benefits — routine vision and dental care and hearing aids, none of which are covered by Medigap policies. And some Advantage plans provide benefits that include a health club membership, a 24-hour nurse hotline, and free van rides to doctors’ offices and physical therapy centers.

    Retirees also like the fact that Advantage plans have out-of-pocket limits to protect them from catastrophic spending – last year the average OOP limit was just over $5,200. Most Medigap plans, on the other hand, do not have out-of-pocket limits, the exceptions being the rarely sold Plans K and L.

    But there’s a tradeoff – Advantage plans manage care in ways that may seem restrictive. Enrollees must use their plans’ network providers or else pay substantially more. In Advantage HMO plans, people often need to get referrals from their primary care doctors before they can see specialists. And they may need to get prior approvals for various treatments and procedures, some of which will be denied if the plan does not consider them medically necessary.

    ***

    To find out whether you should enroll in an Advantage plan, start by answering the three questions below. These aren’t the only ones you should ask, but they are the most important ones.

    1. Can you afford a Medigap policy throughout retirement? The high costs of a Medigap policy often force people to change to Medicare Advantage plans midway through retirement. More than one-half of new Advantage plan enrollees are people switching from Medigap policies, according to the Medicare Payment Advisory Commission. They switch because Medigap policies have become too pricy for their budgets.

    Financial planners usually assume that a 65-year-old client in relatively good health could live another 30 years or more. Using that assumption, they develop a spending plan to make sure the client does not run out of money in late retirement.

    You can use a similar approach to estimate what a Medigap policy will cost over the course of your retirement. And if the price tag seems too high, you may want to enroll in an Advantage plan

    Here are some rough estimates: if you get a Medigap policy at age 65 and live to age 90, you can expect to pay between $75,000 and $100,000 in Medigap premiums. That’s not counting Part B premiums and prescription drug costs. Or if you want to be more precise, start by estimating your first year’s premiums, which will vary depending on your age and the state you live in. Many state insurance departments publish lists of Medigap premiums, which you can access at the bottom of this page.

    Once you’ve estimated your annual premiums, assume they will increase at a 3.5% rate. That is about one percent less than the Medicare trustees’ projected per capita cost increases for the coming decade.

    You can use a shortcut to do the math: multiply your first year’s premiums by the number 40 to estimate how much you’ll pay over 25 years — and by the number 50 to estimate what you’ll pay over 30 years. If the resulting cost will put a crimp in your later retirement spending plans, you may want to consider an Advantage plan.

    Here’s an example: a 65-year-old St. Louis woman can get Plan G, which is a comprehensive Medigap policy, for about $2,000 a year. If she keeps this plan throughout her retirement, during the next 25 years, she will pay roughly $80,000 in Medigap premiums and about $105,000 over the next 30 years.

    Even though you may not be able to afford a Medigap policy over the long term, there could be reasons to purchase one when you first get Part B. Then you have a six-month, one-time Medigap open enrollment period when you do not have to answer health questions or disclose pre-existing conditions.

    Perhaps your doctor recently told you that you will need an expensive medical procedure within the next few years (think knee or hip replacements). When you sign up for Part B, if you get a comprehensive Medigap policy the expensive procedure will be almost fully covered with no prior approvals required.

    Nor do you have to worry about whether your surgeon, the attending physician, and the anesthesiologist are in network. After your operation, you can switch to an Advantage plan during the next Medicare annual open enrollment period (October 15 – December 7).

    2. Are your medical providers in the plan’s network? If not, you may wind up paying substantially more than you think you will. In an Advantage HMO plan, you will pay 100% of the cost to see an out-of-network doctor unless it’s an emergency. And you will also pay the full cost of any tests or treatments that the out-of-network doctor orders – even if the actual tests and treatments are given by network providers.

    In an Advantage PPO plan, you may have a hefty co-insurance payment when you see a provider who is not in the plan’s network. Out-of-network costs can add up quickly, particularly if you undergo an expensive treatment or diagnostic test.

    A 2017 Kaiser Family Foundation analysis found that nationwide only 46% of physicians belong to an Advantage plan network, although the percentage varies widely among counties. This analysis also found that more than one-third of Advantage plan enrollees were in plans whose networks included fewer than 30% of the county’s doctors. Depending on where you live, then, you may not be able to find a network that includes all your doctors.

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