Time for Medicare Open Enrollment

Review your options for Medicare Part D prescription-drug plans and Medicare Advantage to see if you can get a better deal.

When it comes to Medicare open-enrollment season, you could be thinking, "Been there, done that." But as tempted as you may be to stick with your existing Part D prescription-drug policy or private Medicare Advantage plan, it's never a good idea to go on cruise control.

Sure, it's a headache to plow through the fine print, but you could save money in the end—and improve your coverage. With a careful review, you may discover that your current plan is boosting co-payments, dropping one of your drugs or limiting certain services. It's particularly important to check all options if you have developed health issues or have been prescribed new medications since last year. You can choose a plan for 2014 from October 15 to December 7.

A warning: You do not have to make any changes because of the new health care law. Ignore scam artists who may try to persuade you that the Affordable Care Act requires Medicare beneficiaries to buy a new health care policy or get a new Medicare card. It doesn't. For the most part, the new law is directed toward people under age 65 who will buy individual coverage in 2014. "They are taking advantage of people's fears and anxieties and lack of information," says Elaine Wong Eakin, executive director for California Health Advocates.

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At the start of the New Year, you will have something to celebrate: Under the health care law, Uncle Sam is continuing to shrink the Part D "doughnut hole," which is the period in which you pay out of pocket for your drugs. In 2014, you'll get a 52.5% discount on brand-name drugs that you purchase while you're in the coverage gap. The federal subsidy for generic drugs in the doughnut hole rises to 28% in 2014, from 21% in 2013.

Look for changes to your current Part D or Advantage plan on your "annual notice of change," which you should have received in late September. Details on 2014 plans will go online by October 15. Then go to Medicare.gov's Plan Finder online tool (www.medicare.gov/find-a-plan). It can take a bit of patience—or perhaps require help from a computer-savvy friend—but you will be able to compare prices, co-payments, deductibles and drug tiers for all Part D and Advantage plans. You can also get help over the phone or in person from your State Health Insurance Assistance Program (www.shiptalk.org; 800-633-4227).

Another tool: eHealthMedicare.com. You can compare Part D plans, Advantage plans and Medigap supplemental insurance policies at the site and enroll.

Selecting a Part D plan. Average premiums for Part D plans will rise slightly in 2014—by just one dollar, to $31 a month, according to the Centers for Medicare & Medicaid Services. But your out-of-pocket costs can still vary from plan to plan. The policy with the lowest premiums might end up costing you more if it charges higher co-payments for your drugs. And make sure all of your drugs are on the plan's formulary.

It's particularly important to watch out for two big trends. One is the change in the way plans are using tiers to boost drug prices. The other is the rise in plans' use of preferred pharmacies.

Insurance companies typically use four or five tiers of prescription-drug prices. The lowest co-payments—some $5 or less—are offered for preferred generics, while there is higher cost-sharing for nonpreferred generics. Preferred and nonpreferred brand-name drugs have even higher out-of-pocket costs. Topping the cost list are specialty drugs. Part D plans differ on how they define preferred and nonpreferred drugs.

Co-payments are continuing to increase, and many insurers are switching to co-insurance, in which your share of the costs is based on a percentage of the total price of the medications (such as 25% of the cost of specialty drugs). If your insurer is imposing co-insurance on your brand-name drugs, ask your doctor if you can switch to lower-cost drugs before you choose your plan for 2014. The plan with the best deals on brand-name drugs may be different from the one with the best deals for generics. And keep in mind that several big-name drugs are scheduled to go generic in 2014, including Nexium, Lunesta and Celebrex.

Even if co-payments increase only slightly, your costs could rise significantly if your insurer switches your medications from one tier to another. Before covering certain drugs, many insurers are adding preauthorization, which requires your doctor to prove certain clinical criteria. Another hurdle is step therapy, in which the plan will not cover a drug unless you try another, cheaper drug first or your doctor shows why you can't take that other drug.

Beneficiaries also should take a close look at various plans' preferred pharmacy networks. "They have to shop at certain pharmacies to get the lowest prices," says Ross Blair, senior vice-president of eHealth Medicare, a division of eHealth Inc. "It can be complicated. They may think the co-pay is $15, but it could actually be $35 unless they shop at a particular pharmacy."

The 2013 Humana Walmart-Preferred Rx Plan, for example, charges a monthly premium of $18.50 and co-payments of as low as $1 for preferred generic drugs and up to $5 for other generics at Walmart and Sam’s Club. It doesn’t charge a co-payment for either tier of generic drugs at RightSourceRx mail-order pharmacy.

But prices can be much higher if you buy drugs elsewhere. The co-payment is $6 to $10 for preferred generics at nonpreferred network pharmacies. You have to pay 20% co-insurance for preferred brand-name drugs at Walmart and Sam's Club but 25% co-insurance for the same drugs at nonpreferred pharmacies.

With Medicare's Plan Finder, you enter your zip code, drugs and dosages. The Plan Finder estimates your monthly drug costs for each plan and when you're likely to reach the doughnut hole.

The doughnut hole is not as big a problem as it used to be. Many big-name drugs have gone generic over the past few years. An analysis by eHealth Medicare found that 91% of people who used the site in 2012 would not reach the coverage gap in 2013 if they continued to use the same drugs.

Finding an Advantage plan. For one-stop shopping, you can get a private Advantage plan to cover all your drugs and medical expenses under one private plan. You won't have to buy a separate Part D or Medigap policy. You can switch from traditional Medicare to Advantage—or from one Advantage plan to another—during open-enrollment season.

Enrollees in Advantage pay Part B premiums. And they could pay additional premiums to the Advantage plan—still usually a good deal compared with premiums for Part D and Medigap plans.

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Average premiums for Advantage plans are about $35 a month in 2013, but some popular plans with preferred-provider organizations are expected to boost their premiums significantly, even doubling the cost, Blair says. "There will be some sticker shock for people in PPO plans," he says. A PPO is a health plan that has contracts with a network of providers.

Meanwhile, some Advantage HMO plans with limited networks will continue to charge zero premiums to attract customers, Blair says. But, he says, "they are going to increase their co-pays and co-insurance rates, in some cases significantly—sometimes from $15 to $30 for doctor's visits." Blair says seniors will "get their annual notices and they'll see their premium stays at zero and they probably won't read further. Then they'll be surprised when the co-pays are higher."

Because of these changes, review all co-payments and co-insurance for your typical medical and drug costs. "The zero-premium option is probably a good bet for generally healthy beneficiaries," says Alan Mittermaier, president of HealthMetrix Research, which rates Advantage plans based on best value. His 2014 CostShare Report will be available after October 15 at www.medicarenewswatch.com.

Also focus on each plan's limit on out-of-pocket costs, Mittermaier says. The new health care law requires Advantage plans to limit out-of-pocket costs to $6,700. But some have a much lower limit: The Kaiser Family Foundation found that 42% of Advantage plans had limits of $2,501 to $3,400 in 2013.

Also factor in any personal changes that could affect costs. "Do you have new medications or a different doctor? Have you moved or are considering moving, and did you have some unexpected medical expenses?" says Paula Muschler, manager of Allsup Medicare Advisor Service, which helps people choose plans.

On Medicare's Plan Finder tool (choose "Medicare Health Plans"), type in your drugs, dosages and general health condition. You'll see estimated out-of-pocket costs for plans in your area. Make sure your doctors, hospitals and pharmacies are covered. Also see if the plan offers additional coverage, such as dental, vision or hearing care, that you plan to use, says Tom Paul, chief consumer officer for UnitedHealthcare. Look into a Medicare Advantage Special Needs Plan if you have a chronic medical condition such as diabetes or high blood pressure. "These plans are specially designed to help members more effectively manage their condition," Paul says.

And check the government's quality star ratings for each plan. The highest rating is five stars. "There are only a few five-star plans now, but if you can find a plan that has four stars or more, you're in great shape," Blair says. You can switch to a five-star plan outside of the open-enrollment period if one becomes available in your area. If you're thinking of switching from traditional Medicare to Advantage, you'll also need to compare out-of-pocket costs for your typical medical expenses. (For more on Advantage plans, read Advantage Plans Can Cut Costs and Hassle.)

Switch to a lower-cost Medigap policy. If you're sticking with traditional Medicare, it could be a good time to assess your Medigap plan. These private insurance plans do not have the same open-enrollment period as Part D and Advantage. Medigap plans generally fill in the gaps of traditional Medicare.

Going with Part B and a Medigap plan is a good option if you want to be able to use any doctor who accepts Medicare, especially if you travel in the U.S. often. The premiums tend to be higher than those of Advantage plans, but you usually have fewer other out-of-pocket costs. Medigap policies do not cover prescription drugs, so you will need to buy Part D coverage.

Under federal law, all Medigap policies with the same letter designation must provide the same coverage, even though prices can vary by insurer. A 65-year-old woman in Miami could buy Plan F, the most popular plan, for less than $260 per month, according to eHealthMedicare.com, but several companies charge more than $300 a month for the same coverage.

Healthy beneficiaries should consider Plan N or the high-deductible Plan F, which have a good balance of low premiums and cost-sharing, says Allsup's Muschler. "More people as they retire are comfortable with high-deductible plans or cost-sharing because they had that with their insurance while working," she says.

Plan F comes with two options. The high-deductible Plan F provides the same coverage as the regular Plan F, but you must pay the deductible of $2,110 in 2013 before the policy pays anything. You can save a lot of money if you end up with few medical expenses. The 65-year-old Miami woman we mentioned earlier can pay less than $85 a month for a high-deductible Plan F—saving about $2,100 a year in premiums compared with the traditional Plan F in her area. Plan N provides most of the same coverage as regular Plan F, but it has higher co-payments and deductibles.

You're best off enrolling in Medigap when you sign up for Part B. At that point, you can buy any policy regardless of your health. But if you switch later, an insurer can reject you because of a medical condition or charge you more. Some insurers may let you switch, without medical underwriting, to one of the newer Medigap policies, such as Plan N or the high-deductible Plan F.

Because every plan with the same letter designation has the same coverage, it's easy to compare plans. Many state insurance departments list prices for all of the insurers selling Medigap policies in their area. You can find a link to your state's department at the Web site of the National Association of Insurance Commissioners (www.naic.org). You also can compare many insurers' plans at eHealthMedicare.com.

Beware scams. The Federal Trade Commission has received many complaints about scam artists claiming to be from Medicare and asking consumers for personal or financial information. They often tell beneficiaries that the new health law requires them to provide the information.

For example, a woman in San Diego recently received a call from a person claiming to be from Medicare. He told her that she needed a new Medicare card because of the health care law and asked for her bank-account number. He told her that her benefits would stop if she didn't provide the information.

The woman called the California Senior Medicare Patrol before providing the bank information. "People don't know if the calls are legitimate, but they're afraid they'll lose their benefits if they don't give the information," says Micki Nozaki, case specialist for the California Senior Medicare Patrol, which is one of 54 programs working with the U.S. Department of Health and Human Services to fight Medicare-related fraud.

Nozaki says, "Medicare will never, ever call you." You can call Medicare at 800-633-4227 or contact the Senior Medicare Patrol in your state (find your local group at www.smpresource.org).

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.