Medicare: Why you need more than Parts A and B

Medicare costs jumped 3.4 percent last year. Drug prices gained a whopping 11 percent. Medicare parts A and B do not cover prescriptions, and the gap between what it does cover and your out-of-pocket expenses could break you.

Last week, while walking Titus, our chocolate Lab, I bumped into a fellow dog walker. I’ll call him Abe. Abe is retired and on a tight budget. In an effort to save money, he elected not to acquire the prescription-drug insurance called Medicare Part D.

“After all,” he explained, “I’m in my late 70s and, aside from aspirin and the occasional antibiotic for the flu, I’ve been drug-free for as far back as I can remember.” 

Until now — Abe has just been diagnosed with diabetes and is required to take self-injected drugs several times a week in his stomach for the illness. That works out to $39.95 a day for the rest of his life.  

It could happen to you when you least expect it and can’t afford it. Medicare Part D is offered by private insurance companies that are approved by Medicare. Every plan has what is called a “formulary.” A formulary is simply a list of drugs each plan will cover. The insurer will charge you a premium per month, and most have an annual deductible you must meet before the insurance kicks in.

You need to do your research because what drugs are available and how much you pay for them will vary from plan to plan. It’s called a “tier” system, where some insurers don’t carry a specific drug or only the generic version of it. Others may reimburse you differently, depending on what tier your drug, or drugs, of choice fall into. If you are already taking a prescription drug, you need to check for the best deal you can get among insurers. 

There’s also the infamous “doughnut hole” that you must consider. Medicare drug coverage plays a portion of your drug costs, and you pay the rest. As your drug costs add up, you may have to pay more and more of the costs (the doughnut hole) up to a certain level ($4,950 in 2017). After that, you pay only 5 percent of your drug cost for the rest of the year, and then it starts all over again.  

As you might expect, people with higher incomes pay an extra amount every month for Medicare Part D. If you earn $85,000 or less ($170,000 for a couple), you pay whatever basic premium your plan charges. Over that, you could pay as low as $53.50 a month to as much as $294.60 a month, depending on your income level.

In most cases, if you owe this extra amount, Social Security will deduct it from your Social Security check. To determine your 2017 Medicare premiums, Social Security will normally look at your federal income tax return you filed in 2016 (for tax year 2015). If your income has gone down since then, which usually happens when one retires, you can request a new decision from Social Security.

In our next column we will examine two additional forms of insurance that you should consider: Medigap insurance plans and Medicare Advantage. Both can assist you in covering the gap between what Medicare pays for and what you do.

Bill Schmick is registered as an investment advisor representative with Berkshire Money Management.  Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM.  Direct inquires to Bill at 1-888-232-6072 (toll free) or e-mail him at Bill@afewdollarsmore.com.