By Mary Johnson,
When Paula D. retired from her faculty position at a Virginia state community college and enrolled in Medicare at age 65, she qualified for supplemental Medicare coverage as a retiree benefit. Paula, like any other Medicare beneficiaries, still felt very confused about what to do.
She had a very tempting decision. If she “opted out” and decided not to take supplemental coverage through her former employer, she could join a new Medicare Advantage plan and pay $0 premiums for her hospitalization, doctors’ and outpatient coverage. In addition, the plan also offered hearing, vision, dental and Part D drug coverage.
The coverage offered through the state of Virginia, however, didn’t offer the same additional benefits, and would cost Paula a monthly premium of $260 in 2007. If she chose to “opt out,” Paula would not be able to receive Medicare supplemental coverage or drug coverage through her former employer in the future.
Before recommending the zero premiums, I helped Paula estimate potential costs. New managed care Medicare Advantage plans differ from traditional Medicare supplements by charging co-payments that can be substantial for each hospitalization, visit to the doctor, or other service received. Supplements tend to charge high premiums, but cover most, or all, of the co-insurance costs, leaving beneficiaries to pay little or nothing when they receive a service. If Paula had to be hospitalized or developed a serious illness, the co-payments charged by the Medicare Advantage plan could quickly add up to be just as much, possibly more, than what she would pay in premiums for her state retiree Medicare supplement.
Zero premiums are also likely to end very soon. If Congress should cut reimbursements to plans as has happened in the past, some plans may respond by no longer offering coverage at all. Should Paula enroll in a Medicare Advantage plan and her plan ceases to offer coverage in the future, Paula could have problems finding something comparable that she could afford.
The state of Virginia, however, offers retirees a chance to retain certain parts of coverage but “opt out” of others. If Paula “opted out” of Part D drug coverage, for example, and took medical, dental, and vision coverage alone, she would pay $146 per month. The portion of the premium for the drug coverage through the state of Virginia was a whopping $114 per month.
For $114 per month the state of Virginia retirees should be able to purchase the most comprehensive drug coverage available nationally. But that was not the case. In fact, the drug benefits offered for $114 per month were almost identical to what Paula could purchase directly on her own for just $36.70 per month. The cost is so much lower because the federal government pays subsidies that cover an average of 75% of the cost of the Part D premium. Paula could not enjoy that savings if she received her Part D coverage through the state of Virginia retiree plan. If Paula chose to “opt out,” she could find an even less costly plan that provided better coverage for the drugs she currently took.
Paula chose to take the employer-provided Medicare supplement, dental and vision coverage at $146 per month, but “opted out” of the expensive Part D. Instead we found more reasonably priced drug coverage at $26.90 per month, and covering the prescriptions she currently took with no deductible, using the Medicare Drug Plan Finder at www.medicare.gov.
Paula’s total premium costs came to $172.90 per month for the rest of 2007 rather than $260 per month, a savings of $87.10 per month in premiums alone. In addition, because she found a more appropriate drug plan, she will save an estimated additional $37.25 per month in drug costs in 2007.
“Opting out” of a former employer’s coverage on occasion might be able to save you money, but it requires careful cost comparisons and sound guidance. Never make any change without first getting the unbiased advice from a trained Medicare benefits counselor. The service is provided free of charge through your State Health Insurance Program and is available at many local Agencies on Aging. Check your local yellow pages.