Updated: Aug 17, 2020
Once again, Medicare open enrollment season is upon us. We are going to begin our series, published previously and updated, about Medicare and what open enrollment offers. Although 2020 has been different from any other year in recent memory, open enrollment for Medicare still continues and it's important to understand what Medicare is and just what open enrollment means.
Shortly after Independence Day, the commercials began about the Medicare open enrollment period. On nearly every show watched by a largely older audience -- from Wheel of Fortune to Judge Judy -- spokespersons from numerous insurance companies began making their pitches. And by now you know the names -- Humana, Aetna, AARP, United Healthcare, and multiple others. But before you tune these out, if you're on Medicare or planning to enroll in Medicare, it is important that you pay attention to these messages as the enrollment period for Medicare will soon begin and consumers need to be educated on the plans that are available in your location. These plans vary wildly in cost and availability and from state to state or even regions within states.
Many of the clients who visit Connelly Law for estate planning or other elder law services do express some confusion on Medicare plans and how to determine what is best for them. Unfortunately, there is no cookie-cutter plan that works for everyone. These plans are based on the medical needs a person may have, the medications they require, and the future direction of their healthcare issues. Let's start with the basic question, just what is open enrollment?
2021 Medicare Open Enrollment Period
This open enrollment is for Medicare Advantage and Medicare Part D plans. The dates are October 15, 2020 – December 7, 2020, with changes taking effect January 2021. So what can you do during the open enrollment period? Well, quite a number of things it turns out. You can:
Switch from Original Medicare to Medicare Advantage;
Switch from Medicare Advantage to Original Medicare (plus a Part D plan and possibly a Medigap plan);
Switch from one Medicare Advantage plan to another, or from one Medicare Part D (prescription drug) plan to another;
Drop Part D coverage altogether;
Enroll in a Part D plan – if you didn’t enroll in a Medicare Part D plan when you were first eligible. A late enrollment penalty may apply.
This is a typical ad you will be seeing more and more as the open enrollment period for Medicare comes closer. It is important information for those currently on Medicare and those who are new to Medicare. Click to watch.
We also see some confusion between Medicare and Medicaid. The questions that often come up are about the differences between the two and the fact that some people who qualify can actually be enrolled in both (We will discuss dual enrollment in a later blog in this series). And others, who are insured by a company’s plan and happy with it, are dismayed when the Medicare card arrives in the mail after they turn 65 and they must make a decision. What to do?
In an attempt to give you some guidance, over the next few blogs we are going to try to provide some basic insight into Medicare. We will also discuss the SHIP programs that exist in every state -- programs that are invaluable in helping seniors navigate the Medicare maze -- and better yet, it's free to use their services!
Medicare and Medicaid - What's the Difference?
Let's start out by defining Medicare. Medicare is the federal health insurance program that was signed into law by President Lyndon Johnson over 50 years ago as a way to assist older Americans pay for their health expenses. Medicaid, also a federally run health insurance for low-income Americans, was established at the same time.
Since its inception, Medicare has been expanded to also provide coverage for those under the age of 65 who have certain disabilities (usually those on SSDI). Then in 2003, President George W. Bush added Medicare Part D, an addition to Medicare to help people pay for the ever-increasing cost of medications.
As alluded to earlier in this blog, before reaching the age of 65, the majority of
Americans get their insurance through their employer. Those who are self-employed can purchase health coverage through a number of outlets. However, once someone reaches the age of 65 and is still working and plans to continue working, they must make a decision about enrolling in Medicare or choosing to stay on a private policy if they have one. We will discuss the pros and cons of this in another blog.
Qualifying for Medicare
In most situations, to qualify for Medicare's full range of benefits, you need to be 65 and have worked the required "quarters" needed for coverage. This generally means you are eligible if you or your spouse (or, in some cases, your former spouse) worked — and paid Medicare and Social Security payroll taxes — for at least 10 years or forty quarters.
However, if you’re disabled or meet other requirements, you may also qualify — provided you are a U.S. citizen or permanent resident. (For instance, you might be able to buy into the Medicare program). Complete information about Medicare's eligibility requirements — at age 65 or, in certain situations, younger — is available at Social Security and Medicare.gov.
What About Family Coverage
Unfortunately, there is none. Unlike many health insurance plans, Medicare does not provide family coverage. If you are 65 and qualify, you are insured by Medicare as an individual. You cannot insure your children or a younger spouse through your Medicare plan. Like you, your spouse is eligible for individual Medicare coverage once he or she turns 65.
The Parts of Medicare
Some of the confusion around Medicare is because there are different parts of the insurance that covers different areas of healthcare, and then, not everything is covered totally. First, we'll look at parts A and B, which is considered original Medicare, and then C and D.
This is your hospital insurance plan. It covers nursing care and hospital stays, but not doctors’ fees. Part A also covers some home health services, skilled nursing care after a hospital stay, and hospice care. You likely won’t have to pay a monthly premium for Medicare Part A, thanks in part to all the payroll taxes you paid while you were employed. You must, however, pay a yearly deductible before Medicare will cover any hospitalization costs. In most cases, Medicare will pay 80% of the costs and the remainder is up to you to pay.
You might say that 80% is "not too bad", but let's look at a major hospital stay for cardiac bypass surgery. According to the website debt.org, the average cost in 2019 for this stay was $123,000, meaning $98,400 is covered with you owing $24,600. A rather hefty pricetag considering there are also doctor bills, medication, loss of work time, and other associated costs.
This part pays for a portion of your doctor visits, some home health care, medical equipment, outpatient procedures, rehabilitation therapy, laboratory tests, X-rays, mental health services, ambulance services, and blood. It also pays for screenings like heart disease, some types of cancer, and diabetes. Part B is optional, and you may want to opt-out of Part B if you still have health insurance through an employer, union, your spouse, etc. Part B requires that you pay a monthly premium to Medicare and there is a small deductible that must be reached before Part B begins paying for services. People with higher incomes may pay higher rates. The Part B monthly premium for 2021 is slated to be $144.60.
Part C plans, also known as Medicare Advantage Plans, are Medicare-approved plans offered by private insurance companies. Part C plans are an alternative to Original Medicare. Along with covering doctors and hospitals, they often cover prescription drugs, too. We will discuss Part C plans in the coming weeks.
These plans are Medicare-approved private plans that help people who have Parts A and B to pay for prescription drugs. And within Part D lies one of the most confusing parts of Medicare -- coverage that contains what has been called "the donut hole", which, in reality, is not all that difficult to understand once you have the numbers.
The Dreaded Donut Hole
The donut hole portion of prescription plans is by far the most confusing for many of us, basically, because it involves numbers, circumstances, and phrases that can make us pull out our hair, or what is left of it. The Donut Hole is where there is a gap in coverage but contrary to popular belief, those on Medicare do not pay 100% of the costs of the medications.
Let's talk numbers. The Donut Hole begins once you reach your Medicare Part D plan’s initial coverage limit of $4,130 in 2021 and ends when you spend a total of $6,550 out-of-pocket in 2021. There are discounts on brand name and generic drugs in the "donut hole".
Brand Name Discounts
Part D enrollees receive a 75% Donut Hole discount on the total cost of their brand-name drugs purchased while in the Donut Hole. This includes a 70% discount paid by the brand-name drug manufacturer and a 5% discount paid by your Medicare Part D plan. The 70% paid by the drug manufacturer combined with the 25% you pay, count toward your Donut Hole exit point.
For example: If you reach the Donut Hole and purchase a brand-name medication with a retail cost of $200, you will pay $50 for the medication, and receive $150 credit toward meeting your 2021 total out-of-pocket spending limit.
Generic Drug Discounts
Medicare Part D beneficiaries who reach the Donut Hole will also pay a maximum of 25% co-pay on generic drugs purchased while in the Coverage Gap (receiving a 75% discount).
For example: If you reach the 2021 Donut Hole, and your generic medication has a retail cost of $200, you will pay $50. The $50 that you spend will count toward your Donut Hole exit point.
TrOOP- What's This?
As not to confuse you further, you may hear the term TrOOP, which stands for your total out-of-pocket cost you will spend in a year on your formulary drugs before exiting the Coverage Gap (or Donut Hole) and entering the Catastrophic Coverage of your Medicare Part D prescription drug plan. Simply, TrOOP defines when you exit the Donut Hole or Coverage Gap and enter into the Catastrophic Coverage phase of your Medicare Part D prescription drug plan.
So what drugs count towards your total out of pocket expense and gets you out of the Donut Hole? According to the Centers for Medicaid, they must meet these conditions:
Your generic or brand-name drugs are on your Medicare Part D prescription drug plan’s formulary or drug list OR
Your prescriptions were not on your plan's formulary, but you are allowed to count the coverage costs toward true out-of-pocket costs because you requested a coverage determination (formulary exception) that was granted by your Medicare plan and your non-formulary drugs are now covered by your plan - AND
Your medications were purchased at one of your Medicare plan's network pharmacies, OR
Your Medications were purchased at an out-of-network pharmacy in accordance with the plan’s out-of-network policy (for instance, this was an emergency fill and no network pharmacy was available and you submitted the prescription to your Medicare Part D plan).
Now, there is more good news. The TrOOP can be reached through other expenses and payments as well. Here is a list of them:
The annual initial deductible, that is, the amount a person pays for their Medicare Part D covered prescriptions before their Medicare Part D drug plan begins to pay. Most Medicare Part D plans have an initial deductible and begin with coverage after the deductible is met. So, if your Medicare Part D plan has an initial deductible, you pay 100% of the cost of your medications -- up to your initial deductible limit -- and then your Medicare Part D plan begins to pay along with your co-insurance or co-payment. What you pay during the initial deductible phase counts toward your TrOOP.
Your formulary drug cost-sharing, that is, the amount a person pays for each Medicare Part D plan covered prescription drug after their drug plan begins to pay (i.e., your co-payments or coinsurance). So if you have a $30 co-payment for a particular medication that is covered by your Part D prescription drug plan, you get TrOOP credit for the $30. If someone else, like a friend or family member, makes the payment for you (say, $30 in this example), then this amount is also counted toward TrOOP. So if your medication has a retail cost of $100, and your coverage cost is $30, your Medicare plan pays the other $70, and you get the $30 counted toward TrOOP.
Any payments a person makes during their plan’s coverage gap. This includes what you pay and what others pay on your behalf (for instance, the brand-name drug manufacturer is paying 70% of your brand-name drug cost while you are in the Donut Hole and this 70% of retail cost is counted toward your TrOOP or Donut Hole exit point). For example, if you purchase a formulary brand-name Medicare Part D drug in the Coverage Gap or Donut Hole - you will get the Donut Hole discount of 75% (you pay 25%) and get credit for 95% of the retail cost toward TrOOP. Using the example from above, if your brand-name formulary drug has a negotiated retail cost of $100, you will pay $25 (25% of the retail price) and $70 (or 70%) will be paid by the Pharmaceutical Industry (the additional 5% will be paid by your Medicare Part D plan, but does not count toward TrOOP). So you pay $25, but you will receive $95 (95%) credit toward your TrOOP.
Any payments for drugs made by any of the following programs or organizations on your behalf:
Any money a person enrolled in the Medicare drug plan uses from their Medical Savings Account (MSA), Health Savings Account (HSA), or Flexible Spending Account (FSA)
Payments made by family members or friends
"Extra-Help" from Medicare (Low-Income Subsidy LIS)
Indian Health Services (IHS)
AIDS Drug Assistance Programs (ASAPs)
Most Charities (unless they’re established, run, or controlled by the person’s current or former employer or union or by a drug manufacturer’s Patient Assistance Program (PAP) operating outside Part D)
Qualified State Pharmaceutical Assistance Programs (SPAPs)
The brand-name drug manufacturers providing discounts under the Medicare coverage gap discount program
Once you emerge from the "Donut Hole", you enter the Catastrophic Coverage Phase, meaning that medications will now be much less expensive. Part D beneficiaries will be charged $3.70 for those generic or preferred multisource drugs with a retail price under $74 and 5% for those with a retail price greater than $74. For brand-name drugs, beneficiaries would pay $9.20 for those drugs with a retail price under $184 and 5% for those with a retail price over $184.
To see the costs of drugs when deciding on a Medicare Advantage Plan, check out this webpage to find the drug you use and the costs under the plan you may be using - Medicare Drug Finder.
The State Health Insurance Assistance Program (SHIP) provides Medicare beneficiaries with information, counseling, and enrollment assistance. Its mission is to strengthen the capability of grantees to support a community-based, grassroots network of local SHIP offices that assist beneficiaries with their Medicare-related questions.
SHIPs present and distribute information to groups and individuals to inform them on Medicare benefits, coverage rules, written notices and forms, appeal rights and procedures, and more. They also provide free, in-depth, one-on-one insurance counseling and assistance to Medicare beneficiaries, their families, friends, and caregivers.
SHIPs assist people in obtaining coverage through options that include the Original Medicare program, Medicare Advantage (Part C) Plans, Medicare Prescription Drug (Part D) Plans, and programs designed to help people with limited incomes pay for their health care, such as Medicaid, the Medicare Savings Program, and the Low-Income Subsidy. They can help people compare Medicare Supplemental (Medigap) insurance policies and explain how these and other supplemental insurance options (e.g., insurance plans for retirees) work with Medicare.
SHIPs also provide information on long-term care insurance and, when needed, refer beneficiaries to agencies such as the Social Security Administration and local Medicaid offices for additional assistance. Many SHIP counselors are volunteers who are trained and certified to help navigate systems for older adults and some people with disabilities.
So before you begin the process of finding what Medicare plan is right for you, understand Medicare, and seek guidance from your local SHIP office.
Next week we are going to look at the Medicare Advantage Programs and Medigap.