Frankly, my dear... you should "read the fine print" about the planned changes to Medicare

Medicare is the governmental health insurance program which, from 1966, has been a single-payer, national social insurance program providing coverage for most Americans of “retirement age.”¹ It has been estimated that Medicare spending accounts for about fifteen to sixteen percent of the total US Federal spending. On average, Medicare covers about half of the health care charges for those enrolled, with the remaining costs either paid out of the individual’s pocket or with supplemental insurance — sometimes called Medigap policies. While campaigning, most politicians have promised to “not cut Medicare.” There are many ways, however, that these politicians may alter Medicare’s guaranteed benefits while arguing that they have not “cut” Medicare. One such way is by altering the Medicare plans that are available.

A.  Altering the Medicare Plans available

Initially, Medicare provided Part A, which covers hospital stays, and Part B (which requires a premium to be paid by the enrollee) to cover other medical costs such as doctor visits, outpatient procedures, and medical equipment. Later, Medicare Part D was added (which also requires a premium to be paid), to cover many self-administered prescription drugs.

Medicare Part C was added to include individually purchased private Medicare Advantage plans, or so-called Medigap insurance plans, which supplement Parts A, B, and D. In general, these plans may offer lower premiums and reduce the twenty percent co-pays and deductibles associated with original Medicare Part A, B, and D; but, the services covered may be more limited than what you would receive under traditional Medicare Part A, B, or D.

Medicare Plan F² was developed as a Medicare supplement insurance plan to cover costs known as Medicare Part B excess charges. The excess charge is the difference between what a doctor or provider charges and the amount Medicare will pay. Plan F provides “first dollar” coverage for all the “gaps,” meaning that from the first day, Medigap Plan F covers the twenty percent co-pay and your hospital and outpatient deductibles. So, this plan would provide zero “out-of-pocket” expenses for the enrollee at the doctor’s office at the time of service for the services covered.  (Note that services covered may be more limited than under traditional Medicare Parts A, B, and D).

It is reported that about fifty-three percent of people who buy Medigap supplements choose Plan F or Plan C. Plan F is the most popular of the many Medigap insurance plans because it is the most comprehensive.

In 2020, however, the government plans to close Plan F and Plan C to new participants. If you are not already on Plan F or Plan C by 2020, you will not be able to buy it. On the other hand, if you are already on Plan F or Plan C when 2020 rolls around, then you won’t be kicked off your coverage. You’ll be grandfathered into the plan if you choose to keep that plan past 2020.

People eligible for Medicare AFTER 2020 will not have this same right, but they can enroll in Medigap Plans D or G going forward. Plan G will be created as a new high-deductible plan and made available for both newly eligible enrollees and previously eligible applicants who select it. 

Obviously, under such a plan, it will be necessary for the retirees to have financial resources available to cover, “out-of-pocket,” the high deductibles before Medicare will provide coverage. Therefore, it appears that if you are not grandfathered in before 2020, you will not have access to Plan F that was previously available to help with the predictability and controllability of your medical expenses by paying a set premium to cover the deductible and co-pay amounts.

Altering the Medicare plans available may be the same as an invisible benefit reduction to people who do not read the fine print. Frankly, my dear, you should read the fine print.

¹ As well as the disabled and other groups. See subsequent discussion for definition of "full retirement age".

² Please note that Plan F does not cover dental, vision, or prescription medicine, and so enrollees are still responsible for paying those costs out of pocket.

B.  Altering Full Retirement Age

Another way for the government to cut costs is to continue to delay “full retirement age.” Social Security’s version of retirement age, known as the “full retirement age,” is currently 66. The current eligibility date for Medicare is age 65. Benefits claimed prior to “full retirement age” are hit with early retirement or survivor reductions. Studies have proposed that millions of dollars could be saved by the government if the formal retirement dates for Social Security and Medicare were extended by two or perhaps even three years.

Right now, the earliest you can apply for Social Security benefits is age 62; however, a person who begins claiming their retirement benefit at age 62 will receive only seventy-five percent as much money each month as if they had waited until their full retirement age of 66 to begin claiming benefits. A person claiming a spousal benefit at age 62 would receive only seventy percent as much each month as if they’d waited until full retirement age to claim benefits. If you wait until you’re 70, your monthly benefit will be higher.

“Full retirement age” already is set to begin rising in four years for people born in 1955 and later, and it will reach 67 in two-month increments for people born between 1955 and 1961. For instance: If you were born between 1943 and 1954, your full retirement age is 66.

If you were born between 1955 and 1959, your full retirement age is 66 + two months for each year. For example, if you were born in 1959, your retirement age is 66 + 10 months.

If you were born in 1960 or later, your full retirement age is 67.

By simply raising full retirement ages, without adjustments to the percentage of benefits available, the government could experience savings but it would amount to an invisible benefit reduction to people who do not read the fine print. Frankly, my dear, read the fine print.