Rube Goldberg the American inventor and cartoonist was famous for drawing complicated gadgets performing simple tasks. Our health care system is very Rube Goldbergesque. Medicare has not gotten any simpler; in fact it has gotten a lot more complex since its founding in 1965.
Medicare does not as of yet include every letter in the alphabet but it is trying. First you have Part A which covers hospital care and is paid for out of your FICA deduction. You know FICA, 7.65% out of every paycheck, 6.2% of which goes for Social Security and 1.45% for Medicare and Medicaid. Then you have Part B which covers doctor visits and which involves a premium every month. Next year the basic monthly fee will be $152 but it can go much higher depending on income.
But wait, there’s more. Medicare does not cover prescription drugs so you need to buy Part D which averages $30 a month (or higher depending on your prescription regimen). There are many ‘holes’ in Medicare, things not paid for. To cover these costs there are Medigap policies offered by private insurers. These policies range from $70 to $270 a month.
If your eyes glaze over trying to figure out all these A, B, D and Medigap policy issues, private insurers working with Medicare have ridden to the rescue. You want an all-in-one policy covering hospital, doctor and drug costs? We have it – Part C – or Medicare Advantage. For one monthly fee these policies bundle everything together and often include extra services not offered by Medicare like dental, eye care and foot care.
Medicare Advantage plans now cover about 40% of all Medicare recipients. What’s not to like here? You only pay a simple monthly fee but – and here’s the fine print – – Advantage plans limit the network of doctors you can access, and often require that your primary care doctor make a referral to a specialist. You have less flexibility here than with traditional Medicare. Also Advantage plans may limit health services both at home and when travelling and have a high out-of-pocket cost for participants. Some experts say the healthier you are the more attractive Advantage plans are. Those with chronic health issues may do better under traditional Medicare.
Deciding on traditional Medicare or an Advantage plan is a first key decision for Medicare. If you choose an Advantage plan and then switch back to Traditional Medicare with Medigap later, insurers in some states may require medical underwriting which could be difficult if you have a chronic illness. Another important key is to not miss your initial enrollment date. You have a window of three months before your 65th birth month, to three months after your birth month (seven months total) to sign up. Miss this window and you may have to pay more and this penalty could last for life.
What does the future of Medicare look like? The country is getting older and medical care is getting more pricey. Medicare already accounts for 15% of the Federal budget and this is expected to go up to 18% by 2029. The Trust fund which supports Part A and which in turn is funded by the FICA tax is expected to be depleted by 2026. Congress needs to either control Medicare costs (but remember, 90% of recipients like Medicare just as it is) or raise taxes (ugh, don’t even mention this third rail). A real Catch-22. Politicians can’t kick this can down the road much further.