Medicare vs. your old health plan

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Q. I’m almost eligible for Medicare. What do I need to know about how it will be different from my ex-employer’s insurance?
— Confused about coverage

A. It all depends on the type of coverage you have from your ex-employer, and what type of Medicare coverage you choose.

Many employees have experience with health insurance coverage through health maintenance organization (HMO) or preferred provider organization (PPO) models.

In the HMO system, it’s typical that the insured is limited to the doctors and medical facilities within the network of the HMO, said Bryan Smalley, a certified financial planner with RegentAtlantic in Morristown.

In a PPO system, the insured will have had access to health care providers both in and out of their network, but usually with higher premium costs associated with the plan, Smalley said.

Depending on which form of Medicare you sign up for, your experience can be very different or very similar.

For example, he said, individuals who sign up for a Medicare Advantage (Part C) plan will be limited to a network of doctors and medical facilities similar to that of an HMO. Those who sign up for traditional Medicare (Part A, B, and D) can expect a more open network of doctors and medical facilities (as long as Medicare is accepted).

When it comes to the premium costs of employer-sponsored health insurance plans, the costs are typically covered by the employer, employee or a combination of the two, Smalley said. The premium is typically deducted from the employee’s paycheck through their company’s payroll services.

For Medicare, depending on the insured’s coverage, there can be up to three monthly premiums that need to be paid. Typically, two of those premiums are taken out of the insured’s Social Security benefit while the other premiums owed are paid directly to the insurance company providing the coverage, Smalley said.

An important note to make, in terms of premium costs: the employer coverage usually bases the premium on how many family members are covered by the plan and is the same across different pay grades, Smalley said.

“In Medicare, while there is a base premium for a majority of the coverage, there are a few premiums that are influenced by the taxable income of the insured,” he said. “The higher the income, the higher the premium costs for the insured.”

Smalley said for many employees, after premiums were paid, the costs of their employer medical coverage was made up of a combination of co-pays, deductibles, and co-insurance with each plan placing a different threshold or limit on each of these components.

Within Medicare there are also co-pays, deductibles, and co-insurance. But importantly, there are coverage gaps within the traditional parts of Medicare (A, B and D) that the insured needs to cover on their own or by purchasing a Medicare supplement policy (through either Medicare Advantage or a Medigap policy), Smalley said.

“It is important that Medicare recipients are aware of these gaps and are properly insured against them or these hidden costs can sneak up on them,” Smalley said.

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This post was first published in January 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.