Q: I have a retiree medical plan sponsored by my former employer. It is a PPO with a $400 deductible per person and 20% co-insurance. The plan's costs are reasonable, and it covers a wide range of drugs. There's a $1,000 annual out-of-pocket maximum and one month of free maintenance drugs when you buy a 90-day supply from the preferred pharmacy. I will be Medicare eligible in 2016, and I do not think that my former employer will continue to offer a retiree health plan. Is there any insurer that will offer similar drug coverage to what I have now with no penalty for pre-existing conditions? How can I find such a plan, regardless of annual cost? Is there any way to avoid the $5,000 per year out-of-pocket cost that I hear is standard with Medicare Part D plans? Thank you. — Gary, N.Y.
A: Gary’s question is a great opportunity to talk about the challenges that more and more retirees face as they shift from employer-sponsored group health plans to Medicare.
As retiree health benefits have become increasingly expensive, many companies are dropping this coverage. In the best case scenario, the employer gives these retirees a lump sum, which is deposited into a health reimbursement account (HRA). The retiree can use the HRA funds to help buy an individual Medicare policy. But all too often, the employer may simply end the retiree health plan and provide no further support.
Still, there is some good news. Gary won't face pre-existing condition limitations as long as he signs up for Medicare on a timely basis. If he meets the enrollment deadlines, any pre-existing conditions he has will not affect him when purchasing Part D, or when signing up for Original Medicare (Parts A and B) or Medicare Advantage (Part C).
If Gary chooses Original Medicare, he may want to buy a Medicare supplement policy, which also is called Medigap. Original Medicare pays only 80% of insured expenses, after beneficiaries pay annual deductibles and co-pays; policyholders must pay the other 20%. Medigap policies will pay that 20% plus other services that Medicare does not cover. If you purchase Medigap coverage at the time you become eligible for Medicare, you have guaranteed issue rights—you cannot be penalized for pre-existing conditions.
So Gary has two basic options. He can enroll in Original Medicare, with or without a Medigap plan, and then get a stand-alone Part D drug plan. Or he can purchase a Medicare Advantage plan, which will pay for everything that Original Medicare does, including (in most cases) Part D drug coverage and often additional benefits as well.
There are some drawbacks to Medicare Advantage. Unlike fee-for-service Original Medicare, most Medicare Advantage plans are health maintenance organizations (HMOs), which require people to get their care in the plans’ provider network of doctors, hospitals and other providers. So be sure you're comfortable with the health-care network before you sign on.
Now for bad news. Neither Original Medicare or Medicare Advantage is likely to offer Gary Part D coverage that is as good a deal as his employer-sponsored drug plan. Still, the costs may not be as steep as Gary fears. There are ceilings on Part D drug expenses, but they differ by plan. And despite what he heard, out-of-pocket costs for many policies are less than $5,000.
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It may also help Gary that shopping around for affordable drug coverage is getting easier. Medicare now offers an online tool called Plan Finder—just plug in your ZIP code, and you'll see a list of all Part D plans from private insurers that are offered where you live. The list will include the premiums and other rates, as well as out-of-pocket maximums.
The Plan Finder tool also will let you enter your list of prescription medications and compare the costs of these drugs under different plans. If a plan does not include a specific drug in its roster of available drugs (called a “formulary”), you will see this as well. You can connect directly to plans that interest you and ask any additional questions you might have.
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Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at firstname.lastname@example.org or @PhilMoeller on Twitter.