Controlling Your Healthcare Costs in Retirement

One way that retirees can control their healthcare costs is by using Medicare’s annual enrollment period (November 15- December 31) to make needed changes to their medical and drug coverage. Otherwise, in most cases they will have to wait another year before they can switch plans.

The almost 18 million retirees who are enrolled in Medicare Part D stand-alone plans have perhaps the easiest task during the year-end enrollment period. In one telephone call (800-MEDICARE), they can list the drugs that they take and find the lowest-cost plans. And if they want to change from their current plans, they can enroll while on the phone, with their new coverage becoming effective January 1 (in a few cases they may need to get new prescriptions from their physicians for the plans they are switching to).

Even though it’s easy to do, most retirees in stand-alone plans don’t try to find out if lower-cost choices are available. And as a result, many of them pay too much for their prescription drugs, often by substantial amounts.

A 2009 study,  by the Kaiser Family Foundation examined the prescription drug records of 54,000 retirees enrolled in stand-alone drug plans. It found that 93 percent of them were not in the lowest-cost plans for the drugs that they took. Moreover, those who were not in the lowest-cost plans averaged overpaying by $520 a year. And while the study looked only at one year, many retirees go for years without checking to see if there are lower-cost drug plans. As a result, over time they may pay thousands of dollars more for their prescription drugs than they should.

One reason retirees do not look for better drug coverage is that they think they are already enrolled in inexpensive plans – perhaps because their premiums are relatively low.  But low premiums are not a good indicator of whether drug coverage is cost-effective. In fact, stand-alone plans with high premiums sometimes turn out to be the most economical options for a given set of drugs because of their lower co-payments. Except for people who don’t take
any drugs, premiums should not be a consideration.

Another reason retirees may believe they have good coverage is that at some point in the past they chose the lowest-cost plan for their drugs. And they assume that the plan is still a good choice. But stand-alone drug plans change their benefit designs every year, and even plans that were the lowest-cost options when they were selected in the last year or two may have become expensive choices for a particular set of drugs.

When retirees are considering changing to lower-cost plans, they need to be aware of a couple of things. First, they should determine whether their new plans will have any restrictions on their drugs, which they can find out with a phone call to the plan or by reading the plan’s drug coverage summary at the Medicare web site. Second, they should compare costs for mail-order as well as retail (30-day) refills, since they may be able to save money by changing their refill schedule, even in the plans they’re currently enrolled in.

The only way to identify the lowest-cost plans for a specific set of drugs is by using Medicare’s prescription drug plan search program, which includes the pricing details and coverage summaries for all Medicare prescription drug plans. The Medicare search program is used by various government and non-profit agencies that conduct free drug plan searches for individuals.

To request a drug search, retirees can call 800-MEDICARE or contact the local agency for their state health insurance program (SHIP). To locate their nearest agency, they can click on the “Find a Counselor” link at the web site of the National SHIP Resource Center. Before calling, they should have a list of the drugs and dosages that they take. Or, do-it-yourselfers may conduct drug plan searches by following the instructions found here.

About the author

David Armes, CFP®, MBA

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