If you approach age 65, you will soon become Medicare-eligible, and you have a few decisions to make. For starters, if you do not yet collect Social Security, you should apply for "original" Medicare around your 65th birthday (from three months prior to or after the month of your 65th birthday). Original Medicare includes Part A (hospital insurance), which generally is available at no cost, and Part B (medical insurance), which typically requires a monthly premium of $100 per person (more if your income is beyond certain threshold levels). Drug coverage is provided through Medicare Part D, which is applied for during the same time period but separately from Original Medicare.
Yet Medicare does not cover all of the costs of health care in retirement. Given that most people are likely to need more medical care as they grow older, it makes sense to consider adding a Medicare Supplement policy, sometimes referred to as "Medigap."
Here are some key points to know about Medigap insurance:
• Private insurance companies sell these policies. Their purpose is to cover expenses that are not paid for by traditional Medicare, including copayments, coinsurance, deductibles, and medical services outside of the U.S.
• You can only buy a Medigap policy if you enroll in Part A and Part B.
• If you plan to buy a Medigap policy, you should do it during your initial open enrollment period. This period begins on the first day of the month you are at least age 65 and enrolled in Medicare Part B. You have a six-month window from that point to choose any Medigap policy you want regardless of pre-existing conditions*. Insurance companies must charge you a standardized rate and cannot reject you due to your medical condition provided you enroll during this six-month window. In addition, they must renew your coverage each year regardless of your health status.
• Medigap policies sold after January 1, 2006, are not allowed to include prescription drug coverage. If you want prescription drug coverage, you can join a Medicare Prescription Drug Plan (Part D) offered by private companies approved by Medicare.
A variety of choices
Private insurance companies offer Medicare supplement coverage, but the types of coverage offered are standardized. Every Medigap policy is required to abide by certain federal and state laws.
However, you can choose a specific Medigap policy that suits your needs. These plans are identified with a letter system (Plan A, Plan B, Plan C, etc.). Any insurer who offers a plan under any of those categories must provide the standard level of coverage defined for that category.
Plans typically cover coinsurance or copayments that you must pay under your Medicare coverage. Other benefits will vary depending on the type of plan you choose. The plan you select may or may not cover:
• Hospice care
• Skilled nursing facility care
• Deductibles for services otherwise covered by Part A or Part B
• Foreign travel.
You can decide on the type of coverage that is appropriate for your needs. Typically, the more comprehensive the coverage, the higher the premiums will be. If you look for a Medicare supplement plan, shop around to understand if you have access to plans that may include long-term care coverage, hearing aids, and vision or dental care.
You can consider Medigap policies from a variety of providers in your state (the types of plans offered in each state can differ). Pricing may also vary. Insurance companies can base premiums in one of three ways:
• Community rated, meaning premiums are not based on age.
• Issue-age rated, where premiums remain steady (and generally lower) if you first buy the policy at a younger age.
• Attained-age rated, where premiums are lower when you first buy the policy, but will rise as you grow older.
Be sure you understand the pricing structure of the policy you consider. If policies you compare use different pricing structures, a policy that might cost you less today could be more expensive down the road as there are a number of variables that can affect premiums.
Also be sure to understand exactly how your policy works, what it covers, and how premiums might change in the future. You may want to check with the State Health Insurance Assistance Program where you live to answer any specific questions you have about Medicare supplement policies. You can also visit www.Medicare.gov for more information and a free, helpful booklet titled "Choosing a Medigap Policy." Planning for health care expenses in retirement can be very complex and daunting, so consider working with a financial professional who can help you review your options and determine what fits best for your personal goals and financial situation.
* While the insurance company cannot make you wait for your coverage to start, it may be able to make you wait for coverage related to a pre-existing condition.
Sources: "2013 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare", published by the Centers for Medicare & Medicaid Services and "When can I sign up for Part A & Part B" on Medicare.gov.
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This communication is published in the United States for Texas only; and this advisor is licensed only in the states of CA, CO, FL, KS, MO, NC, NM, OK, TX, and VA.
M. Ahmad Adnan, CFP®, CRPC®, RFC®
Business Financial Advisor
Ameriprise Financial Services, Inc.
3200 Steck Avenue | Suite 250 | Austin, TX 78757
Phone: 512.213.6400 Ext. 102 | Toll Free: 866.238.4230
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