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I've been reading about Medicare as a way to help readers sort through healthcare decisions in retirement and help myself as I prepare for retirement. The language of Medicare is filled with misnomers. These misleading words and phrases make it difficult to untangle meaning and discern truth. Here are a few that I pondered in order to understand:
“Medigap” Doesn't Close the Big Gap
The “gap” in Medigap implies these policies fill a gap in coverage. Well, these policies do help quite a bit. But they don't fill the gap in the way that I expected, compared to marketplace policies for the younger than 65 crowd.
What Medigap policies, also called “supplements,” do is pay partially or completely for deductibles and coinsurance amounts left to the healthcare consumer by Medicare Part A (hospital insurance) and Medicare Part B (medical insurance). They also add to the number of “lifetime reserve days” for hospital stays (interestingly, Part A segments of time are broken into 60-day increments and one's remaining lifetime, rather than years).
However, Medigap policies don't close the big gaping hole in healthcare insurance for those 65 and older. There are no out-of-pocket maximums with these plans.
Technically, supplements are a more descriptive term for these types of policies. However, Medicare.gov references Medigap repeatedly on its website.
“Out-of-Pocket Limits” Don't Limit Out-of-Pocket Expenses
Speaking of Medigap, certain types of supplements carry “out-of-pocket limits.” These limits, however, should not be confused with out-of-pocket maximums. The limits do represent the maximum that a healthcare consumer pays. But the limits are applied to certain categories of medical expenses. There are no caps on other types of expenses that could bankrupt the average healthcare consumer.
“Advantage Plans” Have Some Disadvantages Compared to Alternatives
Medicare Advantage plans aka Part C (another misnomer) do provide the advantage of carrying out-of-pocket maximums. They may also offer services advantageous to your health and budget, such as discounted fitness club memberships.
But there are some definite disadvantages compared to original Medicare (Parts A and B) and certain supplements. Most notably, with many HMOs (health maintenance organizations) and PPOs (preferred provider organizations) the availability of healthcare services may be restricted — both to a certain geographical area and to certain providers. That is, you may not be able to use a non-network provider without enduring financial pain. These difficulties may include higher co-pays, higher out-of-pocket maximums, and complete lack of coverage. This scenario doesn't seem too bad, though, if you've been on a similar plan while working (I have a PPO now and have had no problems).
What concerns most retirees is the restriction of providers when traveling for extended periods. For example, those who spend several months in one location and several months in another (for example, a sunny spot in the winter or near grandchildren in the summer) may find getting treatment for chronic conditions problematic under the Advantage plan setup.
Further, network restrictions apply not just to doctors but also to hospitals and skilled nursing facilities. Original Medicare may offer greater selection than Advantage plans, which can affect quality of life as well as quantity of days. (See Kiplinger article: Medicare vs. Medicare Advantage: Ill Health Often Leads to Plan Switch.)
To be fair, some Advantage plans have loosened their geographic restrictions. They may allow patients to access network providers in other cities and facilitate telemedicine services so you can get help no matter where you are.
Also, emergency care as well as urgent care must be covered with all Medicare Advantage plans.
“Part C” Often Stands Alone
Typically parts make up a whole. But in Medicare parlance, some parts fit together and others stand apart.
Within the Medicare world, you'll find:
- Part A (hospital coverage)
- Part B (medical coverage)
- Part D (drug coverage),
- Part C (which may provide hospital, medical, and drug coverage or hospital and medical coverage only)
You can get Parts A, B, and D together but you can't get Parts A, B, C, and D. And in some circumstances, you can't get Part C and Part D or you'll get kicked out of Part C and enrolled in Parts A and B.
The “Doughnut Hole” is More Sandwich Than Pastry
The doughnut hole describes one of three phases associated with prescription drug plans. This period is the “gap coverage phase” which is sandwiched between the “initial coverage” and “catastrophic coverage” phases.
The hole doesn't really get filled; instead, you pay more either to get through it or until the coverage year ends. In some cases, drug manufacturers offer discounts for the extra costs.
“Guaranteed Renewable” May Not Last
One of the pluses of Medigap plans is that you can get a plan without jumping through the typical hoops (that is, undergo medical underwriting) during initial enrollment periods. In addition, the plan is guaranteed renewable … unless the insurance company becomes bankrupt or insolvent. Also, just because the policy is renewable doesn't mean it's renewable at the same price every year.
“Private Insurance” Follows Government Rules
Medicare Supplements (aka Medigap plans) and Medicare Advantage plans (aka Part C) are offered by private companies. However, they are heavily regulated by Medicare. Further, you typically need to pay Part B premiums to get Part C coverage (which is why many Advantage plans offer insurance for a $0.00 monthly premium).
Sorting through the lingo of Medicare enlightened me on why it's confusing. Some of the terms are commonly used and have been adopted by Medicare.gov and private companies, whether they're descriptive or not. My approach to understanding Medicare is to follow the money, to see what's paid for by what type of plan. Then I can see what names make sense and what phrases are misnomers.
Have you been confused by Medicare terminology? Do these explanations give you better understanding?
I've developed a course on Medicare focused on the costs and coverage associated with Part A, Part B, Part D, and Part C. I've dissected the parts so you won't have to. This course is designed to give you solid understanding of the various parts of Medicare so that you can 1) begin preparations for retirement and 2) shop intelligently for healthcare in retirement. The course doesn't cover how enrollment works, how your plan works with company coverage or veteran's benefits, or how payments are processed through the system. The focus is on your dollar expenditures. It contains a spreadsheet with video instruction outlining what you pay for policies and the coverage you receive in return. Get started with Understanding Medicare Costs (with Spreadsheet) here.