If you want to save a bundle on Medicare next year, take some time this summer to prepare.
Open enrollment for Medicare Advantage and Part D prescription drug coverage runs each year from Oct. 15 to Dec.7. It’s a critical period for retirees because this is generally the one time when they may make changes to their coverage.
The options include switching from original Medicare, which is known as Part A hospital insurance and Part B medical coverage, to a private Medicare Advantage plan, which provides additional services.
During open enrollment, you may also join a prescription drug plan, opt to drop coverage for drugs altogether, or swap from one Medicare Advantage plan to another.
Enrollees can also choose to stick with their current selection.
“The plan that was good for you this year, might not be next year,” said Patricia Barry, a Medicare expert and features editor at AARP Publications in Washington, D.C. “The costs may go up precipitously.”
Though open enrollment is nearly two months away, you can save on premiums, copayments and prescription drugs — if you start preparing now.
Determine your medical costs
Analyze your medical expenses for the first six months of the year, plus gather a list of the providers you see regularly and the medications you need.
“People say that they spend too much on health care, but where are you spending?” said Katy Votava, president of Goodcare.com, a Medicare consultancy.
Talk to your doctor about the health insurance plans that are easiest for him or her to work with, said Carolyn McClanahan, a certified financial planner who began her career as a physician and is president of Life Planning Partners in Jacksonville, Florida.
Keep an eye on your mailbox in September. That’s when Medicare participants receive a “Plan Annual Notice of Change,” which will detail any updates to your coverage and expenses that will take effect next January. You only get this notice if you’re already on Medicare, regardless of whether you’re employed.
Everything you need to know about premiums, deductibles and copays will be spelled out in the notice, but recipients often fail to read them, Barry said.
“The plan that was good for you this year, might not be next year.”
If you have a health savings account, which is a tax-advantaged savings account that you can use to pay for qualified medical expenses, using it to manage medical expenses can get tricky.
Once you file for Social Security, you’re automatically enrolled in Medicare Part A and that will bar you from making additional contributions to an HSA.
Even if you can’t make additional contributions, you can still use the balance to pay for Medicare premiums, prescription drugs and other medical costs.
You may not use your HSA to pay for Medigap costs, which is a supplementary Medicare coverage plan (and is different from Advantage plans). The IRS does not consider Medigap policy premiums to be a qualified medical expense.
Use these free research tools
Some of the most essential tools for Medicare shopping are available for free.
Try the Medicare Plan Finder, an online wizard from the government that helps you narrow down your selection of plans. You can also input information on the prescription drugs you’re currently taking.
Take a close look at the data you get back. You’ll see some significant variations in deductibles and copays, as well as the cost of purchasing your drugs at a brick-and-mortar pharmacy versus receiving them in the mail. It isn’t always cheaper to have your medication shipped to you.
“Every year I’ve done an analysis in the fall when the plan information is posted online to see the variations in copays for the same drugs,” said Barry. “An increasing number of plans charge coinsurance, so instead of a flat copay of $30 or $40, you might be paying 40 percent of the cost.”
“This is how it gets expensive,” Barry said.
Another free resource is the State Health Insurance Assistance Program, or SHIP, a site you can use to obtain no-cost local counseling to enroll in Medicare.
Manage your income
Every fall, retirees receive a notice about their Medicare Part B premiums from the Social Security Administration.
How much you pay in Medicare Part B premiums will be based on your modified adjusted gross income, which takes into account your capital gains, Social Security, any required minimum distributions from your IRA and 401(k), and other sources, as well as deductions.
See below for a breakdown of this year’s brackets.
Premiums for coverage in 2017 will be based on your 2015 income. Going forward in retirement, think about your cash flow needs and managing your income sources.
“We try to stress this long before people retire: Create tax flexibility,” McClanahan said. “It’s better to be thoughtful and plan year to year, so that you take advantage of your available tax brackets.”
Keep cash for emergencies so that you don’t tap your retirement accounts and blow through your brackets.
Also, think about which accounts are most tax efficient. For instance, Roth IRAs and reverse mortgages are just a couple of sources that won’t bump you into a higher bracket and subject you to higher Medicare parts B and D premiums.
“The most important thing is, ‘What are your cash flows going to be, and what is your spending plan?'” McClanahan said.