Retiree Coverage or Medicare Primary: Which is Better?

Every year thousands of people turn 65 and face choices for their healthcare insurance. Figuring out Medicare alone is hard enough, but when you have retiree options to consider from an employer as well, things can get tricky.

Should you accept that employer coverage or go with Medicare and a Medigap plan? Which route is the best way to go?

Here are some things to consider:

Medicare is Primary Either Way                                                      

Original Medicare Parts A and B will usually be primary to a group health plan from a former employer. In this case, whether you choose to stick with that employer coverage or find your own Medicare Supplement coverage, you’ll need to enroll in both Medicare Parts A and B.

While Part A is paid up for most people at age 65, you will pay premiums for Medicare Part B. New enrollees in 2018 pay $134/month, and some people with high incomes pay more.

Since Medicare already foots about 80% of your healthcare costs, retiree plans that help cover some of the other 20% are generally affordable. After all, they are only covering what’s left over after Medicare pays most of the bill.

Your former employer often foots the bill for some or all your monthly premiums too, making retiree coverage an attractive option.

 

Retiree Plans Often Have Better Drug Coverage

Retiree group health plans generally have built in drug coverage. This coverage may provide all of your medications to you at minimal copays. Be sure to get a copy of the plan’s drug formulary, and look up your medications to see how much you might spend on your copays.

Part D drug plans, on the other hand, often have deductibles. Medicare drug plans also have the coverage gap, or donut hole, in the middle. This is a phase that kicks in if your drug spending goes beyond a certain limit each year. In 2018, that limit is $3750.

People on Medicare Part D begin to pay 35% of the cost of their brand name drugs when they reach the gap. They pay 44% of the cost of generics. If you are someone taking several brand name medications, you may find that this puts you into the gap sometime during that calendar year.

People who have heavy expenses during the coverage gap will often find that the drug coverage under the retiree plan is more attractive. That coverage doesn’t have the same kind of gap that Part D does.

You can easily estimate what your annual drug expenses will be on Part D by using Medicare’s Plan Finder Tool. Compare this annual cost to what you would spend annually on your drug copays under the employer plan. This comparison may help you begin to lean toward one route or the other.

If you decide to keep your retiree coverage, find out whether that coverage is creditable for Part D. This means: is it as good as or better than Part D benefits. Most drug coverage under retiree plans is creditable. Later on, if you ever leave that plan and decide to go with Part D instead, you won’t owe a late penalty as long as the employer coverage was creditable.

Retiree Plans May Have Extras that Medicare Does Not

It’s a shame that Congress didn’t include routine dental, vision and hearing coverage in Medicare’s original benefits. After all, this is often a time of life when we need these benefits the most.

While Medicare doesn’t cover these things, some retiree group health plans include routine dental, hearing or vision coverage.  Check your plan’s summary to see if you can get benefits through the retiree plan for these things. If your plan has benefits for these things, that may be a savings over you having to purchase it for yourself to go along with your Medicare.

 

Danielle Kunkle Roberts is the co-founder of Boomer Benefits, an insurance agency that helps baby boomers navigate their entry into Medicare.