First, Original Medicare (OM) from the Social Security Administration (SSA) only pays for an average of 50% of a retiree’s total medical costs. Premiums, co-pays, deductibles, and especially coinsurance, which is unlimited by the lack of any stop-loss provision in the Original plan, can be far more than any of us anticipate. Coinsurance is one of those market-y terms that our minds tend to skip over without really understanding. Whenever you see it, we suggest you train your brain to convert it instantly to NONinsurance, as in, you have no insurance for it (without a private supplement). Your wallet is the “insurance” company for coinsurance in OM.
Second, private add-ons are an absolute requirement to avoid impoverishment in our later years. Few retirees would be able to painlessly write a check to cover the un-covered part of even a short hospitalization or course of treatment for a common ailment. And OM has virtually no coverage for many of our needed services. Dental, vision, hearing, chiropractic, even basic foot care from a podiatrist receive no contribution from the program.
Third, Private Medicare add-ons exist in two very different models, and rather than integrating the two to find the best solution for each consumer, many so-called experts treat the two as entirely separate universes, never to be spoken of together. This is an artifact of a bizarre licensing and regulatory system which allows many companies and insurance agents to profit from only one model or the other. So if you’re trying to get your education from a source which stands to profit from your decisions, you must first be certain that the source has knowledge of both models, and if an agent, an ability to profit from either. Otherwise, impartial advice will certainly not be what you will find.
The two models are called Medicare Advantage (also known as Medicare Part C), and Medicare Supplements (also known as Medigap insurance).
There is a clear separation, since it is legally not possible to have both forms of coverage at the same time. However, as we age, our medical needs change, and our financial resources tend to change as well. What makes the most sense for a healthy, well-off 65 year old will absolutely not be the best choice for the same person after the loss of much health and the spend down of much money!
We will discuss both systems, and define for you their respective strengths and weaknesses. Once you have enough of the background information to understand the nuances of each, we will give you a simple model for helping you determine which better suits your needs right now. You will also come to understand how your future life events might change your conclusions, so that you can be prepared in advance to make informed changes if the need arises.
There is a further separate part of Medicare, provided by private insurers with enormous financial support from the government. It’s called Part D, Prescription Drug Plans, or a PDP. It can be purchased separately from a Medicare Advantage plan, or included with it, depending on the offerings in your locale. It is never a part of Medicare Supplements (Medigap), and must be purchased separately if you choose Medigap. Not doing so exposes you to great risk.
So with that broad outline, let’s dig into the details.
