My 65th birthday is coming up in February.  That was once considered “the full retirement age” and although that changed, the federal elderly health insurance program called Medicare continues to begin at age 65.

I had once hoped that I could avoid the program watching the rapid increase in its cost while my own insurance premiums increased only modestly.  But, the AfCa Act blew up the insurance market and my costs have exploded, and worse my policy “expires” at the end of the year to be replaced by an even more expensive one.  Oh, well.

Another problem is that the government makes Medicare, in the words of Don Corleone, “an offer he can’t refuse.”  If one does not enroll at age 65, the cost of coverage increases 10% each year after that.  So one should enroll at age 65 if he might ever enroll.  More, the government will not pay Social Security “benefits” to one who is not enrolled in Medicare. 

So, not wanting to walk away from social security payments some time in the future, I registered for Medicare today (November 6, 2014) to become effective on my birthday next February.

I will receive Part A (hospitalization) benefits without paying direct premiums.  That “free benefit” is provided by the “FICA” payments that come out of our paychecks. 

I registered for Part B too and will pay some $1,040 in annual premiums for “medical” coverage. 

Part A and B provide various “benefits” but they are lousy insurance.  They really provide partial coverage of medical services including even every-day medical services and “diagnostic tests.”  That is nice, of course,  but makes the cost of these services much more expensive.  The coverage provides no “caps” on uncovered costs and so does not provide insurance needed for serious unexpected illness or injury.  Medicare is more a pre-payment of medical costs than insurance, sort of a rent-to-buy plan.  We know what a bargain such plans are, but, hey, “I’m from the government and I’m here to help you.”

Having saved, I need insurance.  This is sold by private companies, but the government prescribes what they can sell.  This makes it impossible to obtain a package that fits one’s personal needs.  Instead one must select among Plans A, B, C, D, F, Fhd, G, K, L, M, or N.  That may look easy, but Plan F is better than G is better than C is better than D is better than N is better than M is better than B is better than A is better than L is better than K.  Nothing in the federal guidance tells you this.  Prices are all over the place.  One can pay more for a Plan K than a Plan F!

The most popular plan is Plan F with the most expensive premiums.  The best plan for some are those with the lowest premiums, but agents for the insurance companies don’t want to talk about these policies.  Did I mention that most of these policies are sold by agents or that most of the companies do not put the rates  on their web-sites? 

I called Medicare and the State Insurance Commission to get a list of rates.  They cannot provide them.  They provide only a list of companies.  Most of the companies will provide only the name of their agents.

Medicare and the state say to purchase based on price because the policies are all the same.  There is some truth in that, but quality of administration and resources made available to customers are also of value.  Also, if one selects a Medigap plan, he may best keep it forever, so one wants a company that won’t go out of business over the next twenty-five years.  So, how does one find the best plan for him and the lowest price  for that plan without talking to a few dozen insurance agents?

The good news is that the local insurance counselor at my county Area Agency on Aging says she has a list of rates for companies providing coverage in my zip code.  I don’t know why that list is not made available to the public, but I am waiting for the list in the mail. 

When I get the list I will pick a few companies with the lowest rates and check their ratings, reputations, and web-sites.  I will then call to confirm the rates and make a purchase.

That seems simple, but determining the lowest rate is not as simple as reading the rate offered to you, a non-smoker, in the initial enrollment period.  This is because companies can set rates in one of three different ways.  Most set rates based on “attained age.”  That means that rates will about double by the time you reach 90.  Rates may not increase uniformly among companies, so the lowest rate when you start may not result in the lowest cost over the years.  A few companies base rates on “issue age” or the “community.”  It is very difficult to compare rates among companies that use different rate bases. 

How do most people decide?  They take the advice of the agent who takes a commission from the company.  Does that seem a good way to get the best policy at the best price?  Hardly.  Is it any wonder most people sign up for the most expensive Plan F?  No.   Is it any wonder that most people buy Plans from companies that do not offer the best prices?  No. 

Most people speak to one or a couple of agents, listen, and take a recommendation.  Most seniors have an idea that they can change plans every year.  In fact, after the initial enrollment period one may not be able to simply change Medigap plans.  Insurance companies do not have to offer coverage and may offer coverage only at higher rates once you pass out of the initial enrollment period.  One can change to an Advantage Plan, perhaps, but that might cost significantly more.

When one signs up for Medicare, Medigap, and Prescription Drug coverages at age 65, he will buy these insurances for some twenty-five years at perhaps $1,000 to $2,000 per year.  He will also pay the deductibles, co-pays, and other uncovered costs for some twenty-five years.  The bill for all this could amount to more than $300,000.  One had better look far beyond the “monthly premium” or come to regret a big financial mistake.

Most folks base their decision on the initial rate offered and the percent coverages provided by the Plan, but the total life time cost of premiums and out-of-pocket expenses is what is important.  So, one needs to estimate out-of-pocket costs to evaluate Plans and make a decision on premiums. 

Where can you find estimates of out-of-pocket costs?  Nowhere.  I prepared my own based on experience with our parents.  One also should consider their own state of health.  The insurance companies are not allowed to evaluate your health when you enter Medicare for the first time, but you sure can.  If you are healthy and have no chronic diseases, perhaps a high-deductible plan is good for you.  If you smoke and have diabetes, better buy a Plan F and pay the higher premiums. 

When I started looking I was steered to Plan N policies which offer many of the benefits of the Plan F but at significantly lower rates.  That seemed good, but the premium rates seemed high and there are some holes in Plan N coverage at the high end.  While obtaining prices I found the high deductible Plan (Fhd).  The premiums are very low.  Why?  There is a $2,100 deductible.  Ouch!  Agents point this out and folks go back to Plan F or Plan N.  What they forget is that the deductible is on costs not covered by the Medicare A or B policy.  In the case of doctor visits the Part B deductible is $147.  You pay that before Medicare or the Medigap policy pay anything under Plan N.  Above that Part B pays about 68%.  if you have a Plan N Medigap policy it pays most of the balance.  If you have a high deductible Plan F you pay.  So, with Fhd you take a low premium and a high deductible.  That is not necessarily bad, especially if the folks taking such a policy are a lower risk group.

For me it looks I would have to pay some $800 in out-of-pocket costs to balance the savings in premiums on the high deductible plan.  I’m guessing I will save in most years.  At some point I may reach the deductible each year, then I’ll have full coverage after that.   I’ll make a decision when I obtain the quotes.  An important consideration is that one have enough money in the bank to pay additional out-of-pocket expenses.  If so the additional deductible is a small gamble.  Winning could save me tens of thousands of dollars.  Loosing might cost me as much, but as I mentioned I have insider information on my state of health.  Why not bet on that?

I will buy a prescription drug plan based on price.  I currently do not use drugs but the costs for "Part D" Plans like Medigap plans goes up each year that you do not enroll and drug costs can be very significant.  One can, however, switch Plan D insurance without penalty once each year.  So, if and when I begin to take expensive drugs I will switch policies.

I should close with mention of Medicare Advantage Plans.  There are good ones and the premiums are often low, sometimes zero.  Some Advantage Plans include prescription drug coverage too.  Most are PPO’s and so limit access to a certain set of medical providers.  We are away from home for more than half of each year and so cannot practically limit ourselves to a certain group of doctors and hospitals.  We also want the flexibility to change providers and are willing to pay a bit more for this privilege.  Advantage Plans also tend to provide low premiums by offering high deductibles.  That too is fine, but as mentioned above, one should look at the whole cost and not the cost of the premium before deciding which package of insurance is best for him.   An advantage of the Advantage Plans is that you may deal with only one insurance company.  This company is paid in part by the United States for your coverage.

So, good luck to you baby boomers reading this who soon be following me in dealing with Medicare.