How traditional Medicare is different from Advantage plans
Dear Liz: My husband and I always understood that when you begin taking Medicare, you are required to choose a plan such as SCAN or Blue Shield and to follow that plan’s benefits and limits. However, my friend told me that you can elect to have straight Medivice care and have no plan limits. Can you explain this?
Answer: What you’re asking about is known as traditional or original Medicare, which consists of two parts. Part A is usually premiumfree and covers hospitalization. Part B covers doctor visits and has a standard monthly premium of $148.50.
Traditional Medicare is administered by the federal government and is accepted by the vast majority of medical providers but doesn’t cover everything. For example, beneficiaries must pay deductibles, 20% of Part B services and a portion of hospital stays. For that reason, many people with traditional Medicare also buy supplemental or “Medigap” policies from insurers to cover these costs. Most Medigap plans, like traditional Medicare itself, don’t have out-of-pocket limits.
By contract, Medicare Advantage plans, also known as Medicare Part C, do have out-of-pocket limits. Medicare Advantage plans are “all in one” coverage provided by a private insurer. These plans provide everything covered by Parts A and B of traditional Medicare, and may cover other costs such as vision, hearing and dental that traditional Medicare doesn’t. The plans typically have networks of medical providers.
The final part of Medicare is Part D, prescription drug coverage. That’s purchased from private insurers and may be included in Medicare Advantage plans.
You can educate yourself at Medicare.gov and download or request the handbook “Medicare & You” at www.medicare.gov /medicare-and-you.
Financial aid and 529 college accounts
Dear Liz: As a grandparent who has 529 accounts for each of my grandchildren, I was interested in your adto the writer who asked you how to use money that’s left in the 529 account to pay off a loan debt. Why didn’t the niece use all the funds in the 529 account before accruing student loan debt? Am I missing something?
Answer: It’s possible the withdrawals could have reduced the niece’s financial aid, so she opted to take out loans instead.
In the past, the federal financial aid formula heavily penalized withdrawals from 529 college savings accounts held by people other than the beneficiary’s parents. The accounts themselves weren’t counted by the formula, but any withdrawals were treated as untaxed income to the student. The standard advice was to wait until the last financial aid form had been filed to begin taking withdrawals. That’s going to change. The Consolidated Appropriations Act of 2021 required the Free Application for Federal Student Aid, or FAFSA, form to be simplified, removing several questions including one about whether the student got money from people other than parents.
The new FAFSA form will be implemented in time for the 2024-25 award year. Until then, you’d be smart to hold off on tapping the 529s if your grandchildren will need financial aid.
Credit reports vs. credit scores
Dear Liz: My wife’s credit report has much less information than mine. I will probably die before her, so my question is whether you can suggest any ways to be sure she has a good credit rating after I’m gone. Do the credit agencies give any weight to a spouse’s score?
Answer: They do not, unless the spouse is alive and a co-applicant.
The amount of information in a credit report doesn’t dictate someone’s scores. People can have good scores with only a few credit accounts, or bad scores with lots of accounts. Your wife should find out what some of her scores are.
If her scores are less than excellent, she could look for ways to improve them such as making all credit payments on time, using only a small fraction of her available credit and perhaps adding an account or two. Credit builder loans from credit unions can help.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at AskLizWeston.com.