I am writing this article because we make many recommendations to our clients, but until we are put in their situation, it is sometimes difficult to truly understand what we are asking them to do. I learned this two years ago when I turned 65 and had to select a Medicare Plan. There are several levels of options that must be chosen and they can be very confusing. Keep in mind I have my insurance license and it still took me about two weeks to research and make a final decision.
There are several options that must be decided upon when someone becomes eligible for Medicare. The purpose of this article is not to educate you on Medicare in general, but to point out a specific alternative that apparently is all too often overlooked. Not exploring all the options would be like dropping a touchdown pass in the Super Bowl, you wouldn’t be able to guarantee a win. I even used a broker to assist me during the process who has several years of experience (And, no, it wasn’t Joe Namath, William Shatner, George Foreman or Jimmy Walker).
The first choice one is faced with is to select original Medicare or a Medicare Advantage Plan. If an individual chooses original Medicare, the next step is to decide whether they want a Medicare Supplement Plan (sometimes referred to as a Medigap plan) and if so, which one. Medicare provides a matrix of lettered plans – A, B, C, etc. All A plans are the same, all B plans are the same, etc. Insurance companies do not have to offer all of the plans. Quite honestly, evaluating these plans can be like trekking through space in the Starship Enterprise.
For purposes of this article, I would like to discuss two plans in particular: Plans F and G, and their high deductible counterparts. Since Plan F is no longer available for the newly eligible, I will focus on Plan G and its high deductible alternative. The numbers below and the premiums I was quoted are outlined in the next paragraph. The numbers will change in 2023, but the concept remains the same.
The only difference between the two choices is the Medicare Part B deductible of $2,340 for 2022 and the premiums. If one selects the regular G Medigap plan, it will cover the deductible, but the premiums are about $100 per month more, or $1,200 per year. Selecting the high deductible Plan G exposes the insured to a potential maximum of $2,340 for the deductible, but the premiums for this type policy are around $50 per month. For many people there is a knee-jerk reaction to avoid the deductible, just like you would try to avoid a left hook from a heavyweight champion.
What sometimes gets lost in the decision-making process, however, is that one is paying $1,200 per year to cover a maximum potential expense of $2,340. Would you pay a $1,200 annual premium to insure a ring worth $2,340? Probably not. One of the main tenets of insurance is to self-insure the smaller claims and use insurance to cover the potentially catastrophic expenses.
If someone has health issues and is relatively certain they will pay more than $1,200 for medical expenses for the year, then paying the additional premium is probably the right decision. Other reasons one might choose the regular Plan G would be if he/she is very conservative and concerned they may have considerable medical expenses on the horizon, or if they do not have $2,340 in cash reserves. Although these two reasons might help satisfy the “sleep at night factor,” in most cases they are probably not the most financially responsible selections. This may not qualify as a Dyn-O-Mite solution, but it could save one a substantial amount of money in the long term.
If you have questions about your financial situation and how Medicare fits in, feel free to reach out to a member of our McKinley Carter Advisory Team. We are here to help.