Your Guide to a Richer Retirement

Big Changes in
Store for Medicare

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his medicare open-enrollment season is

not a time to go on autopilot. Big changes
are in store for coverage and costs for Medicare Advantage and Part D prescriptiondrug plans. Its essential to reassess your game plan for
choosing health-care coverage.
The new health-care overhaul law has transformed
the landscape for this years open enrollment. Because
the law freezes subsidies to private Advantage plans,
features of many policies will change. The doughnut
hole coverage gap for Part D will gradually be eliminated. And Medigap supplemental policies have been
revamped. Theres more of a burden on consumers
to make savvy decisions about their benefits this year,

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says Fred Karutz, general manager of health-care solutions for SilverLink, a technology company that works
with most major health plans.
Because of these changes, along with rising healthcare costs and new competition, the plan and the
strategy you chose in past years may no longer be your
best option. You have
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The health-care law
freezes government subsidies to Advantage plans at 2010 levels in 2011 and
then reduces the subsidies starting in 2012. As a result,
many plans are hiking premiums and cost sharing and
reducing coverage. Few, however, are dropping popular
extras such as gym memberships and vision care.
At the same time, the new law requires Advantage
plans to boost coverage in several areas. In the past,
some plans charged higher co-payments than traditional
Medicare for services such as chemotherapy. Many
didnt cover the first 20 days in a skilled-nursing facility, which is covered by traditional Medicare. In 2011,

Advantage plans must provide the same coverage in

these areas as traditional Medicare.
John Gorman, chief executive officer of Gorman
Health Group, a consulting firm in Washington, D.C.,
says some Advantage plans are making changes that
wont be apparent to beneficiaries unless they study the
offerings closely. But these changes can end up raising
out-of-pocket costs.
For instance, some plans are revamping the formulary for several of the most-popular drugs. The plan
may continue to charge the same co-payments for various tiers of drugs, say, $5 for some drugs and $20 for
others. But if the drugs you take are moved to a higher
cost tier, your out-of-pocket costs could rise significantly. If youre taking a lot of drugs, look at where the
plan put those drugs on the formulary, Gorman says.
You could end up paying more out-of-pocket with a
zero premium plan than you would with a plan that
charges premiums of $25 per month.
Some Medicare Advantage plans are leaving the
business, primarily private fee-for-service plans that let
you use any doctor or hospital. Youll receive a notice
by October 31 if your plan is folding. Your coverage
will be shifted automatically to traditional Medicare.
If this happens, its particularly important to review
your options. You could elect to get coverage through
another Advantage plan or go with traditional Medicare, a Medigap plan and a Part D drug plan. Enrollment in the Medigap and drug plans is not automatic;
you have to sign up for them. Because of new low-cost
Medigap and Part D options, this may be a better
route than an Advantage plan.
Part D prescription-drug plans. Enrollees in Part D
drug plans will see major changes in coverage, costs
and options. In 2011, there will be a 50% discount
on brand-name drugs in the doughnut hole, and the
coverage gap will gradually shrink each year until 2020.
Medicare beneficiaries will also get a break on generic
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drugs in the doughnut hole: Theyll pay 93% of the

cost rather than the full cost.
In 2011, the doughnut hole kicks in when your drug
expenses total $2,840 for the year (including both
your share and the insurers share of the costs). At that
point, you generally have to pay all of your drug bills
yourself until the total cost of your drugs for the year
reaches $6,448, when the insurer picks up the bill.
With the changes in brand-name and generic drug
coverage, people may find its no longer worth paying
extra for coverage in the doughnut hole. Use Medicares Plan Finder tool (XXXNFEJDBSFHPWOEBQMBO) to
compare premiums and out-of-pocket costs for Part D
plans based on your drugs and dosages.
Average premiums for Part D are rising by just $1
in 2011, to $30 a month, according to the Centers for
Medicare and Medicaid Services. But average premiums for the ten largest Part D plans are rising by 10%
in 2011, according to Avalere Health, a consulting
firm.
As insurers consolidate their offerings, they are
dropping a few popular plans. United Health Groups
AARP Medicare Saver, the second-most popular Part
D plan in 2010, is dissolving, and current beneficiaries
will be moved to other United Health plans. Before
switching, make sure the plan is the best deal for your
medications.
Meanwhile, new low-cost plans are available in
2011. The new Humana Walmart-Preferred Rx plan
costs $14.80 a month, well below the average price for
Part D policies. But the out-of-pocket costs can vary
depending on where you buy your medications.
Beneficiaries who buy drugs at Walmart and Sams
Club will pay $2 for preferred generics and $5 for
other generics. RightSourceRx mail-order pharmacy
has no co-payment for generics. However, beneficiaries who buy generics at a nonpreferred pharmacy will
owe a $10 co-payment. At the preferred pharmacies,

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From the Editor

heads-up for our next issue,

dated December: Some readers will
get their issue earlier than they get
it now, and others may get it a bit
later. And the three holes for easy storage in a
three-ring binder will disappear. I, too, will have
to come up with a new way to save my copies.
I may use a hole puncher.
Were making these changes in our continuing
battle against rising paper, production and mailing costs. A new method for getting Retirement
Report from our printer in Virginia to a post
office near you should speed deliveries in the
Western part of the U.S. and might mean slight
delays along the East Coast. We also concluded
that the holes are a too-expensive extravagance.
One thing were not changing is the quality of
the information we bring you each month.
If you dont want to wait for your print copy,
you can download Kiplingers Retirement Report
from the Internet for no additional charge. To
sign up, go to KiplingerRetirement.com and fill
out the form. You will be able to get access to the
entire issue at about the same time we send it to
the printer. You will also have access to several
years of back issues as well as to annual story
indexes. Many subscribers are already taking
advantage of electronic delivery.
Im sorry for any inconvenience the changes
cause you. And I thank you for being loyal subscribers to Retirement Report.

Susan B. Garland, Editor

theyll pay 20% of the cost of nonpreferred generic
and preferred brand-name drugs, compared with 37%
at nonpreferred pharmacies. And if they buy nonpreferred brand-name drugs from Walmart, theyll pay
35% of the cost, compared with 50% elsewhere.
Rather than increasing premiums, some insurers are
boosting beneficiaries out-of-pocket costs by raising
co-payments. Sue Frisch, 67, believes her costs will rise
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3&1035
November 2010

a lot if she doesnt switch from her current plan. My

premiums actually decreased by a dime, and the $310
deductible stayed the same, says Frisch, who lives in
Salisbury, Md. But my co-pay for my medications
increased by 20% through a mail-order pharmacy and
60% if I buy them at a local pharmacy.
When comparing all of your options, consider premiums, co-payments and co-insurance for your drugs.
Ask your doctor if you can switch to generics or other
lower-cost drugs before you pick a 2011 plan. Check
out Kiplingers calculator (LJQMJOHFSDPNUPPMTEPVHIOVU@
IPMF@DBMDVMBUPS) to find generics and other lower-cost
alternatives.
Also keep in mind that starting in 2011, individuals who pay a higher income-adjusted Part B premium
will also pay a surcharge on their Part D premiums.
Singles with modified adjusted gross income above
$85,000 and married couples above $170,000 will pay
the surcharge. The government has not yet announced
the size of the surcharge or 2011 Part B premiums.
Medigap policies. If youre on traditional Medicare
rather than Medicare Advantage, you should buy
supplemental insurance to pay co-payments and deductibles. Two new Medigap plans (Plans M and N),
which were introduced on June 1, 2010, changed your
options significantly. There isnt an annual open-enrollment season for Medigap policies, but its important
to examine your options and prices when deciding
between an Advantage plan and traditional Medicare.
In the past, total premiums for Part B, a Medigap
policy plus Part D coverage tended to be higher than
Advantage premiums. But the package of these three
policies generally had lower total out-of-pocket costs
than Advantage. With the introduction of new Medigap policies, the equation has changed a bit. Many
of the M and N policies have much lower premiums
while imposing cost sharing. These Medigap policies,
together with traditional Medicare and a Part D plan,
look more like an Advantage plan, but with the option
to use any doctor or hospital.
Until recently, insurers sold 12 standardized Medigap plans, A through L. Each companys Plan A, for example, has the same coverage, although prices can vary
by insurer. Starting in June, insurers could no longer
sell new Plans E, H, I and J, which have benefits that
Medicare now covers. You can keep those plans if you
have them now, but other plans may be better deals.
The two new plans, M and N, are similar to the
most popular Medigap policy, Plan F, with a few costsharing differences. Plan F pays the full Medicare Part

A deductible for hospital care ($1,100 in 2010). Plan

M provides only 50% of the Part A deductible and
pays none of the Part B deductible, which is $155 in
2010. The numbers for 2011 are not yet available.
Plan N is the same as Plan M, except that it covers the Part A deductible, generally making it a better
deal. It also charges a $20 co-payment for doctors office visits and a $50 co-payment for emergency-room
visits. Premiums for Plan N tend to be a lot lower than
they are for Plan F, and even with the extra co-payments, it may still be a cheaper deal than Plan F.
For example, the least-expensive Plan F for a
70-year-old man in Miami costs $211.50 a month,
while Plan N costs $169.20, according to PlanPrescriber.com. Youll still come out ahead with Plan N
even if you paid the Part B $155 deductible in full
(which is covered by Plan F), made the $50 co-payment for two emergency-room visits and visited a doctor 12 times at $20 a visit. However, if your doctors
tend to charge more than Medicare allows, Plan F will
pay those excess charges, but Plan N wont.
Alan Mittermaier, president of HealthMetrix
Research, which provides rankings of Medicare Advantage plans, says Plan N can be a good alternative
to Advantage, especially if you are in a private fee-forservice plan that is leaving the business. You can use
any doctor and your cost sharing will be similar to that
of an Advantage plan.
You can buy a Medigap policy at any time. However, you can avoid medical underwriting if you buy
a policy within six months of first signing up for
Medicare. If you are on Medicare Advantage for more
than six months, you could face underwriting for Medigap if you switch to Part B. At that point, an insurer
can reject you or charge extra because of your age or
health. Some insurance companies will let you sign up
regardless of your health, especially if you now hold
Plans E, H, I or J.
Comparing policies. Donald Wentworth of Tacoma,
Wash., is going through that exercise right now. The
67-year-old enrolled in an Advantage plan two years
ago. But last year his premiums, deductibles and
co-payments increased substantially. He expects that
trend to continue in 2011.
Wentworth and his wife are looking at other Advantage plans, and they are also considering switching
to original Medicare. Sorting through and making
good choices on Medicare coverage has been the most
exasperating process I have been involved in, says
Wentworth, a retired economics professor. We are ac-

customed to comparing data and untangling problems,

but Medicare has just thrown us for a loop.
To ease the burden, Medicare beneficiaries can start
their search by going to Medicare.govs improved Plan
Finder tool to learn about the Medicare Advantage
and Part D plans available in your area. To compare
Medicare Part D plans, type in your drugs and dosages.
Youll see the total out-of-pocket costs for each plan,
including what youll pay in the doughnut hole.
If youre comparing Advantage plans, you can use
the Plan Finder (click on Medicare Health Plans)
to figure out which plan works best for your specific
medications and what the average health-care benefits
will be for someone your age. If you have major health
issues, look carefully at each plans co-payments and
co-insurance for doctor and hospital visits. Youll also
find quality ratings for each plan. Also look at the
Cost Share Report at XXXNFEJDBSFOFXTXBUDIDPN, which
chooses the best Advantage plans in your area for three
health categories (good, fair and poor).
You can check out your Medigap options at XXX

QMBOQSFTDSJCFSDPN. The tool compares monthly premiums for policies in your area. Many state insurance
department Web sites also have Medigap comparisons.
Go to the Web site of the National Association of
Insurance Commissioners (XXXOBJDPSH) to find contact
information for your state department. In addition,
you can find Medigap information with Medicare.govs
Plan Finder tool.
If youre trying to decide whether to go with an Advantage plan or with traditional Medicare (plus Part D
and a Medigap policy), first find the Advantage plan
that best fits your needs. Then choose a Part D plan
and a Medigap plan for comparison. Add the premiums for Part B, Part D and Medigap and figure in your
out-of-pocket costs. Then compare those costs and
coverage to the Advantage plans costs. Also, make sure
the Advantage plan covers your doctors and hospitals.
The findings wont be exact, but youll get a good
idea of the cheapest route. Besides comparing costs,
look at the Plan Ratings at Medicares Plan Finder
for Advantage plans. The ratings will let you know
whether a plan has good customer service and pays
claims smoothly, or if it tends to hassle people when
paying claims.
If you dont use the Internet, ask an adult child or
a friend for help. You can get personalized help with
Medicare decisions from your local State Health Insurance Assistance Program (SHIP). Call 800-633-4227,
or visit XXXTIJQUBMLPSH. / ,*.#&3-:
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November 2010

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