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Basics of Medicare-related insurance decisions

Q: Please give us some information about Medicare Advantage plans. We were switched last year by our insurance company to one and are not sure that it is the best option.

A: Medicare Advantage plans function as a substitute for Medigap insurance. Seniors have three fundamental choices when they turn 65: They must sign up for Medicare and enroll in Medicare Part B and Medicare Part D for medical and prescription coverage, respectively. Medicare, however, doesn’t cover all costs and, more important, does not have a limit on our maximum out-of-pocket expenses.

Medigap policies are standardized insurance policies from private insurers that cover many of the expenses not covered by Medicare and also have an out-of-pocket expense limit, typically $5,000 to $6,700. These policies become more expensive as you age, which means their premiums can become intimidating.

Medicare Advantage plans are private health insurance plans that wrap around Medicare and provide additional benefits and an out-of-pocket limit, much like the Medigap policies. The additional premium for these plans varies from $0 to about $100 a month — in addition to the basic Medicare Part B premium. Some also include prescription drug coverage.

The big decision with these plans is whether you join one that is an HMO (Health Maintenance Organization), PPO (Preferred Provider Organization) or PFFS (Private Fee For Service).

In an HMO or PPO, your choice of doctor will be limited to participating doctors, and you may also have to go through a “gatekeeper” doctor who makes referrals to specialists when needed. In a PFFS, you can go to any doctor you choose, provided he or she has contracted with the insurance company. (Note that this is not the same as going to any doctor you choose.)

The next step would be to see if the doctors you visit participate in the plan you are considering. You will find that many doctors participate in multiple plans, so a PPO may not be as limiting as you’d expect it to be. On the other hand, it may also turn out that the specialist suggested by your internist may not be a participant.

The best way to learn more is to visit the Medicare website (www.medicare.gov) and start exploring. Then check the list of doctors (or ask your doctor) to see if he or she has contracted with the insurance company you are considering.

Our health-care decisions are more important than whether we want whipped cream on our coffee, so you should be patient and devote some real time to learning how the site works. I think all of us suffer from what might be called Acquired Impatience Syndrome these days. This is a good place to take a relax pill.

The Medicare.gov website has a calculator that will consider your location and your list of medications, and sort through the available plans in your area. It will provide a list of plans with an estimate of total annual costs for each. Good luck.

Q: This may sound like a first-grade math problem, but I can’t come up with a logically satisfying answer. I have five utility stocks that were purchased 45 to 50 years ago. The present cost basis is $42,986, with no reinvestment of dividends for the past five years. The current market value is $81,662. The dividends collected this year will total $4,035. Am I earning 9.38 percent based on cost basis, or 4.94 percent based on current market value? One voice says: If you sell today, you are losing a 4.9 percent yield; the other voice says, by not selling you are getting a 9.4 percent yield. How should I think about this?

A: While it is pleasing to see that the dividends have increased, the only thing that really counts is the yield on today’s market value and how it compares to similar investments and alternatives. As a practical matter, you would likely find it difficult to replace your current 4.94 percent yield from the five different utilities.

Here’s why: The yield on the Vanguard Utilities exchange-traded fund (ticker: VPU), for instance, is about 3.73 percent. The iShares U.S. Utilities ETF (ticker: IDU) has a yield of 3.36 percent. Purchase of either would give you ownership of a broadly diversified list of domestic utility companies. But since you also have a significant capital gain that would be realized upon sale of the shares you own, you’d have less money to invest in shares that were yielding less. That’s a good argument for holding unless you have a specific reason for selling.

Questions may be sent by email to scott@scottburns.com.



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