Eight Biggest Mistakes Consumers Make with Their Medicare Coverage

Medicare coverage as of 2020, over 62 million Americans receive their medical insurance through Medicare.  While most of these recipients enter the Medicare system when they turn 65, about 5 million get on Medicare due to disability. 

Medicare coverage is in 2 parts, Part A, which covers the cost of hospital care, and Part B which covers Physicians, Surgeons, Lab Work, etc.

Part A is generally free, provided the recipient or their spouse paid employment taxes for at least 10 years. Part A has a deductible of $1484 per 60-daytimeframe. Part B has a monthly premium based on income and as a rule of thumb covers 80% of medical costs while the consumer pays 20%.  Most Americans will pay $148.50 per month (in 2021) for their Part B coverage.

While on the surface this sounds straight forward, complexities begin to rise when we consider supplemental coverage to cover the deductibles and co-pays in basic Medicare, as well as coverage for prescription drugs (not included in basic Medicare Part A or B).

In general, there are 2 ways to cover the out-of-pocket Medicare expenses.  Both are offered by insurance companies and not the federal government. 

First a Medicare Supplement (Medigap) policy covers most out of pocket expenses after Medicare has covered its portion of the medical costs.  In this scenario, ultimate coverage decisions are made by Medicare.  Usually using this approach will require the beneficiary to obtain a Part D drug plan as well.

The second approach is a Medicare Advantage plan.  In this case all coverage is provided by the insurance company and thus coverage decisions are up to that company and not the government. Technically, beneficiaries using Medicare Advantage plans are not covered under Medicare anymore, but Advantage plans are strictly regulated by the government and must cover at least as much as basic Medicare. In practice, however, Medicare Advantage plans usually cover far more than the basic Medicare and include things like drug coverage, hearing, vision and fitness benefits to name a few.

It is in this critical area that the mistakes listed below are made.  These mistakes can cost hundreds or thousands of dollars.  It is urgent that each beneficiary make the best possible choice for their situation.

The 8 Mistakes:

1. They do not obtain any supplemental coverage

Surprisingly, many Medicare Recipients choose not to get either a Medigap, or Medicare Advantage policy.  The issue here is that original Medicare does not have a maximum out of pocket expense, so the beneficiary is responsible for all costs incurred.  If a particularly costly illness occurs, you will have to pay the full 20% of the part B charges.  Even if that charge is in excess of $100,000.00, each recipient would have to pay $20,000.00 out of pocket.  The simple solution here is to get at least a Medicare Advantage plan.  Many are premium free, and they set a Maximum Out-of-Pocket Expense at usually less than $7,000 and many as low as $3,000.

2. They do whatever their spouse (or neighbor) did

Although this is not necessarily a bad idea, each person has their own medical needs and desires.  Choosing the same policy that works well for one person, may be a poor choice for another.  Besides price, such things as current health, family medical history, liquid cash available, etc. should all be considered when deciding on the perfect plan.

3. They get their coverage from their existing property insurance agent

While it is tempting and convenient to work with an agent that is familiar, P&C agents generally are not Medicare specialists and usually do not offer much choice in the plans they sell.  The cost alone is a significant consideration that should be taken into account.

4. They do not price compare Medicare Supplement policies

Medicare supplements (or Medigap) policies are controlled by the federal government and must conform to coverage standards dictated to each insurance company.  In other words, one companies Plan G is identical in coverage to another companies Plan G.  For that reason, many people think it does not make a difference which company they use for their supplement policy.  Nothing could be further from the truth!  Two main factors are in play.  First, the monthly premium.  The price can vary by as much as 80% across companies.  Secondly, all companies raise rates as time goes on, but some raise far more than others, so price history is a valid comparison tool as well.

5. They do not review their plan as time goes on.

Each year, insurance companies make changes to their plans and what they offer.  New plans come on the market and competition has driven them to include new features and benefits.  In particular, Medicare Advantage plans have gotten more and more robust and certainly bear an evaluation as time goes on.  By not checking for price and features Medicare recipients could be costing themselves a lot of money or missing out extra perks that they currently do not enjoy.

6. They purchase their supplemental coverage through a captive agent

There are 2 models when it comes to selling Medicare insurance policies.  The first is an independent broker, who can access policies from many different companies.  They have feature and pricing information and are able to match each client with the best solution available.

Captive agents, on the other hand are employed by or contracted with a single company and are limited in the number of different policies they can sell.  That, of course, makes it difficult to provide the best policy for the best premium.

7. Assume Medicare Advantage Plans are the Same

This is simply not true.  The government does impose minimum standards for medical coverage In the Medicare Advantage arena; there are many different companies, each with multiple plans to appeal to specific audiences.  Although some perks within the plans seem universal, such as fitness memberships, dental, vision, etc., each perk can vary wildly by plan.  The amount of coverage and the provider’s network are 2 areas that need special attention.  For example, if you know you will be needing hearing aids in the upcoming year, you may want to find a company with a higher allowance for those, even though their dental benefit may not be as good as some other company’s plan.  As always, it pays to shop around.

8. Remain on Employers insurance because they work beyond 65 without considering Medicare

Many people work well beyond the age of 65 and are sometimes unaware that they can get on Medicare and drop their employers’ coverage.  For those that switch, most save money and gain better coverage than their former policy. 

Sometimes there are good reasons to stay on the existing group policy, such as a spouse is covered that way and it is too cost prohibitive to get them their own policy until they can get on Medicare too.  In some cases, the employer pays 100% of the cost of the insurance so from a cost standpoint staying on the employer sponsored group plan.