Begin making practical considerations for a graying America

Published 10:12 pm Saturday, February 16, 2008

More and more, responsibility for America’s healthcare price tag is shifting to individuals and families. Medicare faces constant cost pressures, and some people are concerned that the program may eventually become insolvent.

Premiums for employer-sponsored insurance have increased 87 percent cumulatively from 2000-2006, compared to a 20-percent increase in wages and an 18-percent increase in overall inflation. In addition, employers are moving to limit the benefits and coverage they will offer to current and future retirees.

Many Americans are rightfully concerned. In this article I’ll focus on governmental healthcare financing through Medicare and Medigap.

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Medicare: Federal cornerstone of healthcare

Introduced in 1965, Medicare provides health insurance for almost everyone age 65 of older as well as some younger people who have disabilities and people with end-stage renal disease. Typically individuals are eligible if they or their spouse worked for a minimum of 10 years in Medicare-taxed employment (including self-employment), are 65 years of age or older, and are citizens or permanent residents of the United States. Even if you have other insurance, such as retirement continuation of an employer-sponsored program, Medicare automatically covers you at age 65. If you have other insurance, it will complement your Medicare coverage and further reduce your out-of-pocket costs.

Originally, Medicare consisted of two parts: Part A for hospital insurance and Part B for medical insurance. Part A helps pay for care in hospitals as well as some skilled nursing facilities, hospice and some home health care. If you or your spouse contributed to Medicare taxes while working, there are no monthly premiums for Part A. However, there are monthly premiums for Part B, which helps cover doctors’ fees, outpatient hospital care and some other medical services such as physical and occupational therapists.

Part C, added in 1997, gives Medicare beneficiaries the option to receive their Medicare benefits through private health insurance plans. Part D, introduced in 2006, adds general coverage options for many prescription drugs. Private companies are responsible for setting up Part D plans, so each one will be slightly different. Part D is not automatic: You must choose to enroll in one of the many prescription drug plans. These plans vary widely in cost structures and drugs covered, and there is a gap in coverage — known as the “donut hole” — that could prove burdensome. To make your selection easier, Medicare has an interactive online tool called the Prescription Drug Plan Finder, which lets you view and compare program structures and costs in your geographic area based on general attributes or your personalized search criteria. You should also compare the Medicare D plans to drug coverage costs offered under some Medigap policies.

Bill Byrne is a financial advisor with Smith Barney located in Natchez.