While Shimon Levine, who will be turning 65 shortly, is looking forward to his upcoming retirement, he also has a lot of questions and concerns. Among these is what he should be doing about health insurance now that he’ll no longer be on his company’s policy. He’s been getting a lot of mail recently about buying Medicare insurance plans. He’s also noticed that money has been deducted from his paychecks in the past few years to be put aside for Medicare.

What exactly does Medicare encompass, and will it satisfy Shimon’s health insurance needs as he enters his golden years?

What is Medicare?

Medicare is the federal health insurance program for people aged 65 and over or for younger people with long-term disabilities. Anyone who falls into one of these categories is eligible for the insurance regardless of income, medical history, and current health status. Medicare is not a health service system; it’s a financing system that pays private medical providers. With 60 million Americans receiving Medicare, its budget constitutes 20% of all federal health spending and 12% of the entire federal budget. In other words, as a taxpayer, you’ve been paying for this for years. And if you are getting close to or are over age 65, it’s worthwhile to educate yourself about the benefits you’ve become eligible for.

The Four Parts

When it comes to Medicare, there are so many different parts and options that it can make a person’s head swim.

In simplified terms, Medicare consists of four parts:

Part A covers inpatient stays at hospitals and skilled-nursing facilities.

Part B covers outpatient medical care such as doctor visits.

Part C, also called the Medicare Advantage Plan (MAP), is an alternate option for receiving Medicare benefits, through a private insurance company that contracts with the government.

Part D provides coverage for prescription drugs. A person can choose to enroll in a stand-alone prescription drug program (PDP) or in a Medicare Advantage plan with a prescription drug program (MA-PD).

Out-of-Pocket Costs

Monthly Premiums

While Part A generally has no monthly premium, Part B does. The premium is determined by income (in 2022, the standard monthly cost is about $170.10). For those receiving Social Security, this premium is deducted from their monthly payment.

People enrolled in a PDP (Part D) also pay a monthly premium (about $20 a month), with the amount dependent on which plan they’re enrolled in. Medicare Advantage Plans generally have either no or very low monthly premiums. 

Co-Pays and Deductibles

Part A benefits are subject to a deductible; extended hospital or skilled-nursing facility stays require co-pays as well. Part B benefits are also subject to a deductible and typically require a 20% co-pay from the patient, and PDPs have co-pays built into the plans as well. And Part C Medicare Advantage Plans, which are cheap or free from a premium perspective can definitely leave seniors with significant bills for copays and deductibles. 

Closing the Gap

As the above list of payments shows, even with Medicare, a retiree’s medical bill can end up being quite large. If you’re paying 20% of the fee for doctor’s visits, co-pays for lab work and diagnostic tests, and co-pays for prescription drugs, your bill can be quite high—even without any medical emergency requiring extended hospital stays. In addition, many medical services are not included in the original Medicare coverage (Parts A and B).

This gap between what Medicare covers and the beneficiary’s actual medical bills is known as the Medicare coverage gap and has given rise to the aforementioned Medicare Advantage program (Part C) as well as the many supplemental Medicare insurances—also known as Medigap insurance—being offered. These offer two different approaches to making sure the cost of the “gap” doesn’t become too expensive to bear.

Medicare Advantage Plan (MAP) vs. Medigap Insurance

What’s the difference between an MAPD plan and supplemental insurance? The main difference is that when you purchase Medigap insurance, you are still enrolled in the original Medicare plan (A and B) but pay an additional premium each month for supplemental insurance that covers the gap in your coverage, whereas when you choose the MAP route, you’re opting out of Parts A and B and working with a private HMO that is completely separate from Medicare to pay those related bills. MAP plans have their own internal network of doctors, labs, hospitals, etc., like any other private health insurance plan.

The Advantages and Disadvantages of Each

The advantage of Medigap insurance is that once you pay the monthly premium to close the gap, you have few other out-of-pocket expenses to worry about. With a MAP, you’re still subject to high deductibles and co-pays, so you run the risk of higher medical bills in certain situations (there’s generally a cap of about $7,500). In addition, being part of the original Medicare plan means that you have access to any doctor or medical facility that accepts Medicare (almost all nationally); you don’t need to worry about finding a medical care provider who’s in your HMO network.

On the other hand, an MAP provider often covers items beyond what Medicare offers, such as vision, hearing, and dental care. And, as mentioned above, it has no or a very low monthly premiums (although you still need to pay your Medicare Part B premium).

How to Choose

What’s the bottom line? For someone whose budget can handle larger monthly insurance premiums of Medigap (typically between $150 and $300 for a supplement plus a Part D PDP) and wants the freedom of choice without being restricted by a network, regular Medicare plus Medigap may be the better option. On the other hand, for someone whose budget is more limited and is also generally healthy, the much lower monthly payments of an MAP may be attractive. Finally, those seniors who are eligible for Medicaid (the medical pay system for those with low incomes) will end up with a combination of mostly free coverage from Medicaid and Medicare.

Entering Retirement with Peace of Mind

Is all this confusing? Yes, indeed. With so many different options and moving parts, it’s a good idea for those approaching age 65 to consult with a Medicare insurance adviser to determine which of these paths is right for them. The brokers are paid by the insurance companies, so there is no cost involved in gaining their advice and assistance with applications. Research and attentiveness are required here. Only Hashem can grant good health and financial security—but it’s up to us to do the best hishtadlus we can.

Thanks to R’ Shaye Berkovits of Valberk Consulting, for his guidance me on the technicalities of this article.