Understanding Medicare Options: A Financial Guide
The age 65 milestone is one that has often become synonymous with retirement. Why? Because this is the time when individuals are eligible for the United States’ version of universal healthcare - Medicare. In other words, health insurance coverage just got more affordable. Unfortunately, those lower costs come with a tradeoff – more complexity. In this blog series we aim to teach you the basics of Part A, Part B, and Part D, overview what a Medigap supplement plan is, and help you understand the key differences between Original Medicare and Advantage Plans.
Introductory Overview to Medicare
Medicare: The United States’ version of universal healthcare for individuals aged 65 and older. Eligibility is a milestone that many retirees are excited to reach. Why? For those who retired prior to age 65, it often means lower costs or more comprehensive benefits. Unfortunately, regardless of age it’s usually also a rude awakening to the complex world of healthcare choices.
This article represents the first article in a blog series about Medicare. In it, our goal is to provide readers with a high-level understanding of how Medicare works, as well as enough information on each of its parts and pieces to figure out how Medicare may fit them best.
Medicare High-level Overview: Original vs Advantage
Reaching Medicare eligibility is like coming to a fork in the road because you must choose which of its two paths to travel. Once you do, it may not be easy to switch from one path to the other, so it’s best to choose carefully.
One path you may travel is that of Original Medicare, also known as Traditional Medicare. Its subcomponents include Parts A for hospital coverage, Part B for medical insurance that covers things like doctor visits and lab work, Part D for prescription drug coverage, and Medicare supplement policies, also known as Medigap, which addresses things otherwise paid out of pocket.
Alternatively, you can choose the path of Medicare Advantage Plans. An Advantage plan feels more like many employer group health benefits because its various parts and pieces are consolidated into one plan. Most Advantage plans wrap in hospitalization, doctor visits, lab work, and prescription drugs. With Advantage plans, you do not need a supplemental Medigap policy.
How Original vs Advantage Differ
In the next several articles in this blog series, we’ll cover important details about each of the parts and pieces of both Original Medicare, as well as Advantage Plans, so readers can become more familiar with each. Before doing that though, it is helpful to understand the big-picture differences between the two paths of Medicare.
Original Medicare generally offers enrollees the ability to use any medical facility and see any physician who accepts Medicare. There are no networks or preapprovals. Monthly costs are generally predictable year by year, with out-of-pocket costs minimized when an individual has all of 4 pieces of Original Medicare (Parts A, B, D, and a supplement). While these can be positive aspects for enrollees, it’s important to know that monthly costs may be higher under Original Medicare than with Advantage plans. Also, the original Medicare path has no coverage for things seniors often need such as dental work, hearing aids, and eyeglasses.
So, in 1999 Medicare Advantage was designed to give Medicare recipients an alternative to the Original Medicare system. The Advantage plans allow commercial insurance companies to offer plans with some flexibility in terms of design and cost to try and make a win/win for the consumer and the company. The insurance companies are given a set sum of money each year for each enrollee in a plan. The plans might include benefits not found in Original Medicare: things like dental, hearing, vision, and maybe even gym membership. After all, the healthier they can encourage members to be, the lower their overall costs, and the more profit the insurance company retains.
In addition to variations in plans, there are potential financial variations for the consumer as well. To compete for participants, many plans offer very low or even $0 monthly cost plans. Many will offer economical copay plans. Does the fact that it can be free with lots of low cost options sound too good to be true? It’s not, as long as you look for where the costs actually exist. One cost may be high out-of-pocket expenditures in the event of a major illness. There are caps to the maximum out-of-pocket spending, but as we’ll see in future articles, these limits are higher under Advantage plans than original Medicare. Also, most Advantage plans have healthcare professional networks. If in-network providers are used, costs remain low. When going out of network, higher costs are likely to apply.
How to Choose Your Path
Each person enrolling in Medicare ultimately must choose the path they want to follow. One interesting fact is that there is no such thing as a family Medicare plan. A married couple must each choose which version of Medicare to elect. They can choose identical coverages if they like, but each is ultimately enrolled separately.
There are situational differences that may help you make your decision quickly. For example, retirees who reside in more than one location throughout the year, or travel abroad extensively, may not get the coverage needed under an Advantage plan. The limitations of each plan will be explored more in future articles.
If those types of differentiators don’t apply, then it might be best to choose based on whether you prefer predictable monthly costs, even if those are a little higher; or minimize overall cost but know that it’s likely to cost more if there’s an “unhealthy year”. Individuals with chronic conditions, or who are high health care users, may find original Medicare to be more cost effective. Those who rarely see a doctor and who are generally healthy might prefer Advantage plans.
The ”Catch” to Be Aware Of
If you’re like me, you might be thinking there’s a workaround to the system, whereby you enroll in an Advantage plan while healthy, so you save money but then switch to original Medicare if major health issues arise. While this sounds great, under most circumstances it won’t work. Why? Because the ability to obtain the Supplement Policy (aka Medigap insurance) that helps offset out-of-pocket costs under original Medicare is only offered with guaranteed insurability during an individual’s initial Medicare enrollment period.
After that, you must prove that you are insurable. An insurance company can request medical history, and ultimately decline coverage, or exclude pre-existing conditions for a period of time. There are certain circumstances when this can be overcome, which will be discussed further in future blog topics. Otherwise, the first path you choose is likely the one you will follow for the rest of your time on Medicare.
Up Next…
Now that we’ve discussed a high-level overview, stay tuned to our next blog where we will uncover more of the details of the different parts and pieces, starting with Medicare Part A: Hospitalization coverage. Prefer not to wait? Watch our Medicare segment from The Retirement Continuum™ class recorded in 2020, here. The numbers are slightly outdated, but the overview and explanations are still applicable today.
Footnotes:
1 https://www.medicare.gov/supplements-other-insurance/when-can-i-buy-medigap
Medicare Part A – Hospitalization Coverage
With the second installment of our Medicare blog series, this article will be overviewing Medicare Part A, commonly referred to as hospitalization coverage. Note that there are many components to Medicare, and some of those components are intertwined. So, if you are interested in getting the full picture, we suggest you refer to our Medicare blog series page to keep up with the details you need.
How to Get Coverage
For some, getting Part A coverage is easy because it is automatically provided if you are age 65 and already enrolled in Social Security or Railroad Retirement benefits. For those not receiving Social Security or Railroad Retirement benefits, you have a 7-month window to enroll – 3 months before your birth month, your birth month, and 3 months after your birth month. It’s important to be aware that if you miss the 7-month window you could be subject to premiums penalties (more will be covered on this later in our Medicare series with our Medicare Part B article).
The best part is that Medicare Part A has no monthly premiums for most people. If a person has 30 quarters or less of Medicare-covered employment the Part A premium is $499/month. If a person has 30-39 quarters of Medicare-covered employment the Part A premium is $274/month1. However, the “free part” for most comes with a caveat – the coverages offered by Medicare Part A are narrow and limited.
What Does Medicare Part A Cover?
In-patient care in a hospital
Skilled nursing facility care
Home health care
Hospice care
In-Patient Care
In-patient hospital care takes effect after you are formally admitted to a hospital by a physician. You are covered up to 90 days each benefit period and get 60 lifetime reserve days. For example, if you stay in a hospital for 100 days during your first benefit period, you use up 10 of your 60 lifetime reserve days. Therefore, if you have a second and separate benefit period of 160 days, 20 of those days would not be covered (90 each benefit period + 50 lifetime reserve remaining = 140 of days covered). Keep in mind that for the second benefit period to take effect, you must not have received in-patient care for a period covering 60 consecutive days.
In addition, in-patient mental care covers up to 190 days as a lifetime amount. This coverage includes care you get in acute care hospitals, critical access hospitals, in-patient rehab facilities, in-patient psychiatric facilities, and long-term care hospitals.
In situations when your doctor recommends services beyond the scope of what Part A covers, you will have to pay for some or even all the costs. Therefore, it’s wise to ask your doctor questions and double check which parts will be covered by Part A.
Medicare in-patient services include semi-private rooms, meals, general nursing, and other hospital services and supplies as part of your in-patient treatment2. It does not include private rooms (unless medically necessary), private duty nursing, TV or phone in your room when there is a separate charge for these items, and personal care items such as razors.
The following is a breakdown of the cost structure for Medicare Part A as it relates to inpatient care3:
$1,556 Deductible each benefit period
$0 co-insurance for days 1-60
$389 co-insurance per day for days 61-90
$778 co-insurance per day for each day past 90 (up to 60 reserve days)
100% of the costs for each day beyond the lifetime reserve days
Skilled Nursing Facility Care
For skilled nursing care, you are covered up to 100 days each benefit period if you qualify for coverage. Part A requires a 3-night in-patient stay at a hospital prior to being sent to the skilled nursing facility, and that this occur within 30 days of being admitted to the skilled nursing facility.
However, if the patient spent 3-nights at the hospital under observational status, then Original Medicare will not cover the skilled nursing stay. Observational status is often where the confusion lies and when patients are most surprised that they are left paying the bill. Medicare Part A also does not cover long-term care for people who only need assistance with the activities of daily living.
The following is a breakdown of the cost structure for Medicare Part A as it relates to skilled nursing facility care3:
$0 co-insurance for days 1-20
$194.50 per day for days 21-100
100% of the costs for days 101 and beyond
Home Health Care and Hospice Care
In-home services are provided when you are homebound and need skilled care. This coverage is good for 100 days of daily care or an unlimited amount of intermittent care. In order to qualify you must have received at least 3 days of in-patient care at a hospital and must apply within 14 days of receiving home health care.
You qualify for Hospice care when your provider determines you are terminally ill and have a life expectancy of 6 months or less. The care is for comfort purposes only and cannot be used for curing your illness. In most cases, hospice care is provided at home, but it can be provided at other facilities such as a nursing home.
Both in-home and hospice services do not have co-insurance payments like you see with in-patient care and skilled nursing facility care.
Stay Tuned…
Coming up next with our Medicare blog series is Medicare Part B – Medical Insurance. If you care to get more in-depth information about Medicare, we recommend watching our Medicare video segment from The Retirement Continuum™ class recorded in 2020, here. Please note that the numbers are slightly outdated, but the overview and explanations are still applicable today.
REFERENCES:
1 https://www.medicareresources.org/medicare-benefits/medicare-part-a/
2 https://www.medicare.gov/coverage/inpatient-hospital-care
3 https://www.medicare.gov/what-medicare-covers/what-part-a-covers
Medicare Part B: Medical Insurance
Medicare Part B (medical insurance) is part of Traditional Medicare and generally provides outpatient coverage for medical services and doctors’ appointments for those over age 65. There are 2 types of services:
Medically Necessary Services – whatever might be needed to diagnose or treat your condition
Preventative Services
It also covers things like:
Clinical research
Ambulance services
Durable Medical equipment
Mental Health – Inpatient/Outpatient
Some outpatient prescription drugs
A more comprehensive list of what Medicare Part B covers can be found on the Medicare.gov website - https://www.medicare.gov/coverage/is-your-test-item-or-service-covered.
For those who have been covered by group insurance for all their working years, transitioning to Traditional Medicare’s Part B can be a little confusing as there are nuances about Part B enrollments, costs, etc. that should be understood BEFORE you turn 65. We hope to explain some of those nuances here.
ENROLLMENT
When can you sign up for Medicare Part B?
You can sign up for Part B during your Initial Enrollment Period which is a 7-month period starting 3 months before you turn 65, the month you turn 65, and ending 3 months after you turn 65.
Side note: If your birthday falls on the 1st of the month, your Initial Enrollment period is the 7 months surrounding the month prior to the month of your birth. So, if my birthday is November 1st, my enrollment period is July 1 – Jan 1st.
After the Initial Enrollment period, you can sign up during one of these other enrollment periods:
General Enrollment Period – Between January 1 – March 31st each year. Coverage starts July 1.
Special Enrollment Period – these are limited, 8-month periods of time after you or your spouse stops working or you lose group health plan coverage whichever is first.
Let’s look at examples of how this might work.
Example 1: Your spouse is employed, and you are over age 65. You opted NOT to sign up for Part B because you had coverage through your spouse’s group health insurance. Your spouse decides to retire.
You have 8 months from the time your spouse stops working to acquire Part B coverage without incurring a penalty.
Example 2: You retired prior to age 65 and decided to opt for COBRA coverage because you wanted to maintain your current doctors with your old health insurance plan. You turned 65, but because of family challenges, did not sign up for Part B as you knew you had coverage via COBRA. You stayed on COBRA for 18 months and now want to transition to Medicare. You are not in your Initial Enrollment Period (age based) OR the General Enrollment Period (January – March). Now you now will have to pay Part B penalties AND wait for the General Enrollment period in January to enroll in Medicare.
Bottom line, the end of COBRA coverage (or retiree health insurance coverage) DOES NOT QUALIFY YOU for a Special Enrollment window.
The same is true for the end of your Marketplace coverage. This also DOES NOT QUALIFY YOU for a Special Enrollment window.
What about Open Enrollment between October 15 to December 7th? Can I enroll then?
This Enrollment period for Medicare Part A or B can ONLY be used by people with Medicare to sign up for drug coverage or Medicare Advantage coverage or switch the coverage you already have. So, NO, it cannot be used for your initial enrollment.
I’ve heard of Part B penalties if you do not enroll when you are supposed to, how does that work?
If you’ve missed any of the above enrollment windows, you will pay a penalty that equals 10% of the standard monthly premium for EACH 12-month period that you delayed enrollment, AND you will pay that penalty FOR THE REST OF YOUR LIFE!
Here’s the GOOD NEWS, if you enroll in Medicare through the General Enrollment period and if LESS than 12 months have passed, you will not face the Part B penalty. You need a FULL 12-month period to incur a penalty.
Let’s look at an example. Bob is now 66 and had not enrolled in Medicare. His Initial Enrollment period ended in November, and he missed the enrollment window. He does decide to enroll during the General Enrollment period that following January. As a result, his new coverage becomes effective on July 1. Because only 8 months will have passed (November – July), the Part B penalty would not apply.
COST
Do you have to pay for Medicare Part B?
Yes. The monthly premium for Part B in 2022 is $170.10. Remember your Medicare coverage is Individual coverage, so this cost is per person.
The premium will also be adjusted upward if your household income is above a certain amount. This additional premium is called an Income Related Monthly Adjustment Amount (IRMAA) and will be discussed in a later blog post.
Are there Deductibles/Co-Insurance (Copays) for Part B Care?
Yes and Yes.
Annual Deductible in 2022 = $233
Co-Insurance = 20% coinsurance amount for covered services
Medicare Supplements will often cover the costs of both Deductibles and Co-Insurance depending on which supplement you decide to purchase. As you would expect, the more robust coverage for deductibles/co-pays, the more expensive the supplement. Further details on Supplement policies will be covered in a separate blog post.
SOME LOGISTICS…
How do you sign up for Medicare Part B?
If you turn 65 and are already collecting Social Security (either disability or retirement), you will be automatically enrolled.
A couple of side notes:
You can choose to keep or decline Part B (i.e., you are covered by a spouses group insurance)
For our friends from Puerto Rico and those that live outside the U.S. – there is NO automatic enrollment for Medicare Part B. You must sign up for it yourself.
If you are not yet collecting Social Security benefits, you will have to initiate the sign up for Medicare Part B. This can be done through Social Security via ssa.gov (easiest/quickest option), a call to Social Security or visit to your local Social Security office.
To help avoid any gaps in coverage, it is important to note that coverage STARTS based on when you sign up.
How do you pay for Medicare Part B?
If you are already receiving Social Security, your premium will automatically be deducted in your monthly Social Security benefit payment (or Railroad Retirement Board benefit payment).
What if you have delayed filing for Social Security, but have turned 65 and are filing for Medicare?
You will get a premium bill every 3 months for your Part B premiums and can pay online through various online tools, or pay directly from your bank account, or via check.
Helpful Resources
As you can see, there are a number of things to be aware of as you approach that magic age of 65 and sign up for Medicare. Here are some great resources to learn more:
Medicare.gov – This is the official government resource for all things Medicare
https://www.ssa.gov/benefits/medicare/ - If not automatically enrolled, this is where you would sign up for Medicare, but it also has tons of information about Medicare.
The Retirement Continuum Class - Medicare Segment – Our 2020 online course that discusses the various aspects of Medicare. The numbers are slightly outdated, but the overview and explanations are still applicable today.
All of these can give you even more detailed information as well as our other blog articles within the Medicare Series.
Medicare Part D: Prescription Drug Coverage
If you opt to go with Traditional Medicare, you will need to purchase a Part D plan to have coverage for prescription medications. You may not need a Part D plan if you choose to go with Medicare Advantage instead; as most advantage plans include Part D already, but make sure to consider the limitations of Advantage plans before making your choice.
ENROLLMENT
We generally suggest signing up for Medicare Part D coverage during your initial enrollment opportunity, since it is very likely you will need to rely on prescription drug coverage at some point during your retirement – and if you delay signing up – you will be penalized with a late enrollment penalty. You may not need to sign up for Part D if you have “creditable coverage” from other sources i.e., your spouse’s employer’s coverage. If you can prove that you had “creditable coverage” during the period, penalties will not apply.
Enrollment periods for Medicare Part D coverage are no different than for Part A or Part B plans. The initial enrollment period is a 7-month period which consists of 3 months prior to your 65th birthday month, the month of your 65th birthday and 3 months following your 65th birthday. Whereas the annual open enrollment period is from October 15th through December 7th. Finally, there is a special enrollment period that consists of an 8-month window after you or your spouse lose employer coverage after terminating employment.
You will NOT need to enroll in Medicare Part D if you have Federal Employees Health Benefits Program or Tricare-for-Life. In both instances you already have better coverage than Medicare can offer, and you do not need to sign up for Medicare Part D.
COST
Generally, Medicare Part D plan costs will not break your bank – the average estimated cost for 2022 is $33 per month, unless you fall into the “High Income Enrollees” club – in which case you will have to pay extra towards your prescription coverage plan.
Surprisingly, you do not have to earn a tremendous amount of money to be amongst the “lucky few.” Singles are considered high earners if they make over $91,000, and for couples it is $182,000. The actual cost of the plan will depend on what drugs you need, but the high-income enrollee classification increases premiums by $12.40 - $77.90. Keep in mind that your Medicare premiums are based on your income tax returns filed 2 years prior.
To lower costs, many plans place prescription drugs into different “tiers” on their drug list. Each plan can divide its tiers in different ways. Typically drug coverage is divided into 4 different tiers – the higher the tier, the more expensive the plan:
Tier 1—Lowest copayment, most generic prescription drugs.
Tier 2—Medium copayment, preferred, brand-name prescription drugs.
Tier 3—Higher copayment, non-preferred, brand-name prescription drugs.
Specialty Tier—Highest copayment, very high-cost prescription drugs.
You may also have to pay either a copay or co-insurance when you purchase your medicine. A copay is a fixed dollar amount, whereas co-insurance is a percentage of your medication cost.
You should be aware that after you spend $4,430 on covered drugs, you begin to enter a “Coverage Gap.” What this really means is that your out-of-pocket expenses will temporarily increase until you spend a total of $7,050 in 2022. While IN the “Coverage Gap” you will have to cover 25% of all medication costs out of pocket, but once you exceed the $7,050 mark your costs will drop significantly – at which point you will only be responsible for copay or co-insurance amounts. This Coverage Gap is often referred to as the “Donut Hole” to help visualize the decrease in coverage while “in the hole”.
COVERAGE
Medicare Part D plan designs are regulated by the government and are required to have at least 2 medication choices in each therapeutic class; however, these plans are provided by private insurance companies and can vary from one another in terms of what drugs are offered, as well as other nuances.
There are a few helpful tips when selecting a plan that will allow you to get the most bang for your buck. The first step is to go to www.Medicare.Gov and enter all medications you take – including dosage, quantity, and frequency. This Medicare tool will provide you with a list of plans that will cover all or most of your medications. It is important to add ALL of your medications the first time you shop. The reason being is that if you need to add medications afterwards, it can increase the cost of the plan substantially.
The second important step is to find “preferred pharmacies” under the plan and purchase your medications from there. There is a big difference between “preferred” and “in-network” pharmacies. The nice part is that the Medicare tool will show both on one list. You may be accustomed to using “in-network” doctors to make sure your visits are covered by your health insurance plan, but when it comes to pharmacies and Medicare Part D coverage you have to look for “preferred pharmacies”.
Medicare has a rating system whereby they rate their plans from 1 to 5 stars – the latter being the best rating. Make sure to check these ratings prior to signing up for a plan, as it will have an impact on your experience.
Another “useful tip” you might consider if your plan does not cover some of your medications is to use services like www.GoodRX.com. Doing so helps you find coupons for medications not covered under your Part D plan – your savings can be in the hundreds of dollars each year.
ADDITIONAL INFORMATION
To get additional information about your Medicare drug coverage, you can visit www.medicare.gov/plan-compare. In fact, you can enter and save your current drug information to get more detailed cost information.
Another helpful resource is calling 1-800-MEDICARE (1-800-633-4227). This information service line is available 24/7.
One other helpful resource is our online video course about Medicare. If you want to learn about Medicare at a deeper level you can do so by clicking the following link - The Retirement Continuum Class - Medicare Segment. While the numbers are from 2020 and a bit outdate, the lessons and content remain relevant.
SOURCES:
https://www.medicare.gov/drug-coverage-part-d/what-medicare-part-d-drug-plans-cover
https://www.medicareresources.org/medicare-benefits/medicare-part-d/
https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage
What Can You Do About that Aggravating IRMAA Surcharge?
If you are concerned about how much will medicare premiums increase in 2023, you need to understand the different Medicare premium rates and how they are charged. Insurance premiums are generally a straightforward cost, but like most things the government touches, Medicare premiums are a little bit more complicated than they need to be — thanks to this pesky term known as IRMAA.
What is IRMAA?
IRMAA is an acronym that is otherwise known as the Income-Related Monthly Adjusted Amount. This is a surcharge that gets added to your Medicare Part B and Part D base level premiums. Just what you wanted to hear… You have to pay more for the same level of coverage – only because you make more income. Effectively this is means-testing within the Medicare system.
The hard part for retirees with sizable incomes to come to grips with is that they begin paying more in Medicare premiums once their income is over $97,000 for someone who is single, and $194,000 for married couples. In addition, the Social Security Administration (SSA) will increase your premiums in a progressive fashion once your income crosses additional thresholds – refer to the two 2023 tables below for the entire breakdown of IRMAA Medicare surcharge brackets for Parts B and D.
How is IRMAA Calculated?
The most confusing aspect is that the extra cost is calculated based on the modified adjusted gross income (MAGI) that was reported on your tax returns from 2 years prior. To calculate your MAGI and how it applies to your 2023 Medicare premiums, you will need to refer to your 2021 tax return and find your adjusted gross income (line 11 of IRS form 1040) and then add back tax-exempt interest from securities like municipal bonds (line 2a). Any income earned while living abroad also needs to be added back.
The good news is that the SSA has automated the tracking process and is able to pull the data it needs from the IRS. In any given year that you are subject to IRMAA, you will get a pre-determination notice explaining what you owe and how it was calculated. Within that notice, it also provides instructions on what to do if you believe the finding is incorrect or the information used for the finding is no longer applicable, such as a life-changing event.
When it Makes Sense to Appeal the Medicare Surcharge Calculation
According to the SSA, a Life-Changing Event can fall into one or more of the following:
Death of spouse
Marriage
Divorce or annulment
Work reduction
Work stoppage
Loss of income-producing property
Loss of employer pension
Receipt of settlement payment from a current or former employer
A frequent situation that makes sense to appeal is when someone retires. The appeal only makes sense to proceed with when that newly minted retiree experiences a substantial decrease in income during the year that they retire. In other words, the new retiree will need to compare their current income to their income used from the 2-year lookback.
Example: Bob Jones is 65, married to Cindy, and just retired on January 1st, 2023, from his executive-level job at CSX. Back in 2021 Bob and Cindy’s modified adjusted gross income was $450,000. However, in retirement, Bob and Cindy expect their income from Bob’s railroad retirement, Cindy’s social security, and combined pensions to be $250,000/year.
Q: What’s the benefit of appealing?
A: Bob and Cindy save themselves on their Medicare premiums to the tune of nearly $200/month or approximately $2,400 for the year ($527.50/month vs. $329.70/month).
But wait… what will happen in 2024? Unfortunately, the SSA will refer to Bob and Cindy’s income in 2022, when their MAGI was also $450,000. Because there is no Life-Changing Event, Bob and Cindy will be forced to pay the higher IRMAA rate of $527.50.
What if Bob retires halfway through 2023? He may be better off waiting until 2024 to file the adjustment – when he has a full calendar year’s worth of lower income. Regardless of when Bob retires in 2023, by 2025, the Joneses can feel confident that Bob’s higher earnings will no longer come into play.
How to Request an Appeal
There are 2 ways to go about it:
Call your local Social Security office. Especially if you enjoy long hold times!
File and submit Form SSA-44 and include the appropriate documentation.
For inquiries about whether your situation qualifies as a Life-Changing Event, we recommend calling the Social Security hotline at 800-772-1213. In addition, each state has a local State Health Insurance Assistance Program (SHIP) that can help. Use this link to find your local SHIP.
Strategies to Reduce or Avoid IRMAA
For the sake of brevity, this article will not get into the nitty-gritty of each Medicare surcharge reduction strategy. However, we believe it’s important to overview the more common ways to reduce this cost and provide a high-level introduction.
Tax-Deductible Contributions to Retirement Accounts
For those with earned income – part-time jobs, consulting, and business income all qualify – you can make tax-deductible contributions to a retirement account. Accounts that serve this purpose include traditional IRAs, traditional or solo 401(k) plans, traditional 403(b) or 457 plans, SIMPLE IRAs, and SEP IRAs.
Tax-Efficient Withdrawal Sourcing
The source of where you pull your income from your investment and retirement accounts matters. Some examples of this include withdrawing money from a Roth IRA or selling securities from a taxable brokerage account that have minimal gains. More specifically, owners of Roth IRAs that are over the age of 59 1/2 have the ability to pull income tax-free from that account. The tax-free income means that your lifestyle doesn’t have to suffer, and you can substantially lower your income for IRMAA purposes.
Charitable Giving
Giving money to non-profit organizations allows a taxpayer to reduce their MAGI. Even with a higher standard deduction, there are ways to reduce your income via gifting cash, appreciated assets, utilizing a Donor-Advised Fund (DAF), or taking advantage of Qualified Charitable Distributions (QCDs). For those that are charitably inclined it’s in your best interests to consider the nuances involved with each strategy because what’s right for you may not be right for someone else.
Putting it All Together
How you go about reducing your IRMAA surcharges is a combination of both art and science. It’s important to use caution here. Quite frankly, it is easy to fall victim to the allure of saving a few hundred bucks, only to see the domino effects of trying to pull off a particular strategy cost you several thousand more. If you are unsure what the best course to take is because it’s “above your paygrade,” you are better off consulting with a professional who can help you weigh the benefits and costs.
For additional information about IRMAA and Medicare, check out our online course video - The Retirement Continuum Class - Medicare Segment. Note that the numbers are slightly outdated (from 2020), however, the overarching lessons remain applicable today.
Up next in our Medicare series is Medicare Supplements Insurance. In this article, you will learn more about the 10 different plans to choose from, as well as some other useful insights about enrolling in a plan that fits your needs.
Medigap - Medicare Supplement Insurance
We know that government programs – such as Medicare and all the parts that come with it, including Medigap plans – are as straight-forward as a ball of spaghetti. We hope that you find our insights helpful as you plan out your medical expenses during retirement.
What Is Medigap?
You may have heard about Medicare Supplement Insurance and not even realized it, as it is often referred to as “Medigap”. It got this name because it fills coverage gaps between Medicare policies and helps you pay for copayments, coinsurance, deductibles and certain healthcare services or supplies that usually are not covered by Traditional Medicare.
What Do Medicare Supplement Insurance Plans Cover?
There are 10 Medigap plans that are standardized by the government and sold through private companies. The easiest way to see what each Medigap plan covers is to review the table below – the percentages provided (%) indicates how much of your expenses a particular Medigap Plan will cover:
*If you became eligible for Medicare on, or after January 1, 2020 you will no longer be eligible to enroll in Plans C and F. Those who became eligible for Medicare coverage prior to January 1, 2020 may still be able to enroll as long plans are offered in their area.
¹ Plans F and G offer high deductible versions starting in 2022, after deductible of $2,490 is met the plan pays 100% of covered expenses. High Deductible plan F average costs are $51-91 and G costs between $51-$83.
² Plan K annual limit is $6,620 in 2022 – after you pay the limit and Part B deductible, the plan pays 100% of covered expenses.
³ Plan L annual limit is $3,310 in 2022 – after you pay the limit and Part B deductible, the plan pays 100% of covered expenses.
⁴ Plan N pays 100% of the Part B coinsurance.
⁵ 2021 Data provided by www.HealthMarkets.com
Of note, Plan C and Plan F are not available to new enrollees, as they are in the process of being phased out due to their similarities to Plan G. Plan G covers all the same items as Plans C and F, except for the Part B deductible, which is $233 in 2022. If you look at the average premium range of Plan G, it also has lower monthly premiums than C and F.
You may be looking at the number of Medigap plans available and wondering why there are so many and why wouldn’t someone “just pick one that covers everything”. In fact, about 49% of all enrollees had the same idea and signed up for Plan F in years past. However, now that Plans C and F are no longer available to new enrollees – Plan G enrollment spiked 39%.
Do I have to get Medigap?
There is no mandate to sign up for Medigap coverage. Meaning it is entirely one’s preference. Typically it makes sense to sign up if you frequently use medical services, since Medicare Supplement Plans cover things like deductibles and co-insurance charges. Another consideration is travel: if you plan to travel beyond the U.S. borders during your retirement, purchasing Medigap is strongly encouraged. Traditional Medicare does NOT cover medical expenses incurred abroad; however, Plan G would cover 80% if you were to need medical attention while abroad. So, while it is not mandated – it is a good choice for those who travel overseas on a frequent basis. We would encourage you to discuss this with an expert to see if you may benefit from having Medigap Coverage as some benefits/uses may not be immediately apparent.
A situation when Medigap coverage is unnecessary is if you have robust Retiree Group benefits, as this coverage could be used to pay for out-of-pocket costs typically addressed by Medigap coverage. Retiree Group benefits may also cover Vision and Dental expenses which Medicare does not provide.
How Do I Enroll in Medicare Supplement Insurance?
For most, the best time to enroll in a Medigap policy is during your open enrollment period. The “Open Enrollment Period” for Supplement Plans is a 6-month window that starts once you are age 65 or older and have enrolled in a Part B plan.
During this period no insurer can refuse coverage or raise premiums because of pre-existing conditions. If you do not enroll during this window – you would have to qualify under a “Special Enrollment Period” to have those same rights.
So, while you can purchase Medigap coverage at any point in time – it is in your best interest to do so during the Open Enrollment Period or Special Enrollment period in order to know you will qualify. Most states require one to undergo standard “underwriting” if applying outside of either the Open or Special enrollment periods. Unfortunately if applying outside of those enrollment periods, your coverage may be refused or your premiums could be increased due to a pre-existing condition.
What Is a Special Enrollment Window?
There are a few life events that trigger a Special Enrollment window to open. This gives you the ability to make necessary adjustments due to your change in circumstances. Some situations when the Special Enrollment Window opens are:
If you relocate your current plan may not be available. In which case you could sign up for a plan that serves the location you moved to.
If you lose your current coverage due to retirement after you turned age 65, or if your COBRA coverage ran out.
If you signed up for an Advantage Plan as soon as you were Medicare-eligible and are switching to Original Medicare within a year, and it was your first time on a Medicare Advantage plan.
Keep in mind that there are several other situations not covered that could allow you to qualify for the Special Enrollment Window. A lot will depend on your particular set of circumstances. For those that need take advantage of the Special Enrollment Window, the most common duration is 63 days after your other health care coverage ends. However, it is always best to check Medicare’s website for guidance that is more specific to your situation: Special Circumstances Window.
What Does the Medigap Claims Process Look Like?
Your doctor submits a claim to Traditional Medicare first, then to your Medigap plan and may send a bill to you for anything that was not covered by either plan. In some instances, you may need to coordinate benefits and claims between Traditional Medicare and Medigap plan coverage.
Additional Resources & Up Next
If you care to learn more about Medigap plans and Medicare, we suggest watching our video course tailored specifically for retirees, called The Retirement Continuum Class - Medicare Segment. While the numbers are from 2020 and slightly outdated, the content contained within the course remains relevant today.
Stay tuned for our next blog article in our Medicare series, where Jenn King will be overviewing the topic of Medicare Advantage Plans.
Sources:
1 https://www.medicare.gov/supplements-other-insurance/whats-medicare-supplement-insurance-medigap
2 https://www.medicare.gov/supplements-other-insurance
3 https://www.medicare.gov/medigap-supplemental-insurance-plans/#/m?year=2022&lang=en
4 https://www.medicaresupplement.com/articles/medicare-supplement-plans-comparison-chart/
5 https://www.healthmarkets.com/resources/medicare/cost-of-supplemental-health-insurance-for-seniors/
Medicare Advantage: Thank you for the advice Joe Namath, but is this the right plan for me?
How many times have you seen TV commercials with famous actors and sports heroes promoting Medicare Advantage plans that have $0 premiums? Probably a lot.
The ads talk about saving money over Original Medicare and offering benefits that Medicare doesn’t cover. While this is often true, it is rare that those 30 second soundbites give you ALL the information you need. Before any decision is made about your healthcare in retirement, it’s important to understand the total picture – what Medicare Advantage is, what benefits it can provide and some cautions if you decide to choose Medicare Advantage over Traditional Medicare.
While private health insurance plans have been a part of Medicare since the mid 1960’s, they didn’t become what they are today until the Balanced Budget Act of 1997 and the introduction of Medicare+Choice that eventually was named Medicare Advantage in 2003. Medicare Advantage was designed to give recipients an alternative to “Traditional” Medicare. As of 2021, 42% of the Medicare population is enrolled in Medicare Advantage.
What is Medicare Part C and What benefits will I receive?
Medicare Advantage, also known as Medicare Part C, combines Medicare Part A (hospital insurance), Medicare Part B (medical insurance), and sometimes Part D (prescription drug coverage). In fact, this looks a lot like your traditional group HMO/PPO coverage that you had while you were working. As a result, Medicare Advantage is a one stop shop, and for the most part, your benefits are combined in a single policy. Whereas Traditional Medicare requires you to enroll in the four separate elements: Part A, Part B, Part D and a supplemental Medigap policy.
Additional benefits that are traditionally available with Advantage plans are:
Dental Care, vision screening, hearing aids – not covered by Traditional Medicare.
Other quality of life benefits that MAY be available – fitness benefits, home safety devices & modifications, emergency response devices, non-emergency medical transportation, telehealth.
For those that enjoy travel in retirement, especially international travel, most Advantage plans cover worldwide emergency care. However, with Traditional Medicare you are not covered and would likely have to pay for Travel Insurance separately or it may be covered by a Medigap policy.
So what about those costs?
If you start to shop for plans on your own via www.Medicare.gov/find-a-plan, you’ll find MANY plans that are low or no cost. In 2022, the average monthly cost for Medicare Advantage when you include all the no-cost policies purchased, on average is $19 per month. According to the Centers for Medicare & Medicaid Services, 59% of Medicare Advantage plans will charge no premium.
HOW IS THIS POSSIBLE?? Medicare pays the private companies offering the plans to take on your health risk. It’s a competitive market and the insurance carriers create attractive plans for Medicare beneficiaries and Medicare pays the insurance company a fixed amount per month to provide coverage to each enrolled beneficiary. To keep their premiums low, private insurers will make up their costs through higher deductibles, copays, and coinsurance.
So for the consumer, a $0 premium does not mean that it’s FREE. You still need to pay your Part B premiums and your deductibles, copays, and coinsurance. Deductibles may be high to keep your premiums low, you will have copays for various medical services like x-rays, diagnostic tests, and then coinsurances for expensive services things like chemotherapy, dialysis, etc.
Medicare Advantage DOES have an Out-of-Pocket Maximum. In 2022, that is $7550 for in-network services and $11,300 for in-network and out-of-network combined. So costs beyond that amount will be automatically covered by the plan. There is no out-of-pocket maximum for Traditional Medicare, HOWEVER, many beneficiaries will pay for a Medicare supplement policy that will cover those costs.
Some things to consider…
Your network may be limited – Medicare Advantage plans are generally regional and might possibly have a smaller network of doctors. You will have a Primary Care Physician that will require a referral to see a Specialist. With Original Medicare you can go to any doctor that takes Medicare, anywhere in the US.
If you first elect Medicare Advantage and ultimately decide to transition back to Traditional Medicare which often happens as people’s health care needs rise, you will likely want to purchase a Medicare Supplement or Medigap policy to cover the copays, deductibles, etc. HOWEVER, you must now be medically underwritten to purchase this policy. If your health is poor at that point, adding a Medigap policy may be very expensive or even unattainable.
When can I enroll in medicare advantage?
You can enroll when you are first eligible for Medicare. After that you have two opportunities to enroll in Medicare Advantage:
OPEN ENROLLMENT - October 15 – December 7th
Opportunity to switch to a different Medicare Advantage plan or join a new plan or drop a plan and switch to Original Medicare. Coverage then begins on January 1.
Opportunity to switch from Original Medicare to a Medicare Advantage Plan
MEDICARE ADVANTAGE OPEN ENROLLMENT – January 1 – March 31st
If you are already enrolled in Medicare Advantage, you can switch to a different plan
You can also switch to Original Medicare
Coverage starts the first day of the month you ask to join the plan
What can’t you do? Switch from Original Medicare to an Advantage plan
before picking from the list of medicare advantage plans…
It is important to evaluate Medicare Advantage not just from the ads you see on television but by doing your due diligence to evaluate your personal health care needs: your access to doctors, your healthcare usage, etc. to make sure you are selecting Medicare Advantage because it is the best fit for you.
For state-by-state information on Medicare Advantage in 2022, please visit: https://www.cms.gov/files/document/92921-state-state-fact-sheets-2022-medicare-advantage-and-part-d-landscape-final.pdf
For individual assistance, each state has a local State Health Insurance Assistance Program (SHIP) that helps Medicare beneficiaries navigate both Traditional Medicare and Medicare Advantage. They can help you review your choices, answer questions about coverages, costs, etc. http://www.shiptacenter.org/
Want to learn more?
Coming up next in our Medicare series is an article written by Michael Mikonis, where he discusses more specifics about when to enroll in Medicare and the annual updates that you should be aware of. In addition, we created an online course called The Retirement Continuum that delves further into the topic of Medicare. If you would like to get more in-depth information, you can watch our free online course here.
Important Dates in the World of Medicare
You will encounter many important dates and deadlines once you peer into the world of Medicare and you will want to attend to these matters earlier than later – each day 11,000 people turn 65 and “get in line” to sign up for benefits. We hope this article will help you stay on top of things and have a smooth experience signing up for Medicare.
Initial Enrollment Period: When you turn 65 years old you become eligible to sign up for Medicare. This initial enrollment period is 7 months long. 3 months before the month in which you turn 65, the month during which you turn 65 and 3 months after the month during which you turned 65. If you want to make sure you do not go without coverage, you will find following table handy:
An interesting exception to the rule is that if your birthday falls on the first day of the month, Medicare coverage will start on the first day of the month before your birthday. For example, if your birthday falls on October 1st and you sign up during months of June, July, or August – your coverage will start on September 1st.
If you start drawing your Social Security benefits before you turn 65 – Social Security Administration will automatically enroll you into Medicare Part A (Hospitalization insurance) when you turn 65. If you do not qualify for Social Security benefits or have not yet filed for your benefits to begin – you will have to sign up for Part A manually.
General Enrollment Period: If for whatever reason you missed your Initial Enrollment Period you will have a second opportunity to sign up for Part A, Part B (Medical insurance), Part D (Drug coverage) and supplement plans between January 1st and March 31st. If you sign up during this period, your coverage will begin on July 1st.
Open Enrollment Period: Lasts from October 15th through December 7th and during this period you may change to Medicare Advantage or back to Traditional Medicare plans, are also allowed to switch to a different Medicare Advantage plan or change/enroll/drop prescription plans.
Enrolling while covered by employer’s plan: If you are still working and have health insurance when you turn 65, you should sign up for Medicare Part A when you become eligible – this will prevent any penalties for signing up late – given that you are not contributing to a Health Savings Account. If you are still working, contributing to a Health Savings Account (HSA), and would like to continue to do so – then you should delay signing up for Medicare. Medicare does not qualify as a High Deductible Health Plan (HDHP) and enrollees are not eligible for Health Savings Accounts. If you do not qualify for free Medicare Part A, then sign up as soon as you do qualify. You will have 8 months after you terminate your employment to sign up for Medicare Part B.
Medigap Open Enrollment Period: Is a period that lasts 6 months after the first day of the month you turn 65 AND are also enrolled in Part B. Which means that if you have creditable coverage (from spouse, job, etc.) you do not have to sign up for Medigap. If you discontinue your creditable coverage from other sources, your 6-month period will start in the month you sign up for Part B. Some states have continuous open enrollment periods; if you live in Connecticut, Massachusetts, or New York you are not limited to the 6-month period and can sign up year-round.
Medicare Advantage Open Enrollment Period: Dates within this enrollment window coincide with the General Enrollment Period – January 1st through March 31st. During this period, you may enroll in a drug plan, switch to a different Medicare Advantage Plan, or switch back to Traditional Medicare. However, during this period, you cannot switch from Traditional Medicare to Medicare Advantage Plan or sign up for a drug plan under Traditional Medicare.
Special Enrollment Periods: This enrollment window runs each year from October 15th to December 7th and allows you the opportunity to change to another Medicare Part D or Medicare Advantage plan, outside of the annual Open Enrollment period. Special Enrollment Periods are only permitted under special circumstances – such as, moving outside of your plan’s service area or entering a long-term care facility. To find out if your situation qualifies for the Special Enrollment Period, this article will allow you to see the various ways you might be eligible.
5-Star Special Enrollment Period: While it sounds like something from a fantasy football rulebook, it is not nearly as exciting. This is your once-a-year window of opportunity between December 7th and November 30th to switch you’re your current Medicare Advantage plan to a five-star Medicare Advantage plan that is available in your area. Only Medicare Advantage and Medicare Prescription Drug Plans plans are eligible for 5-Star Special Enrollment Period. Plans are rated based on feedback from health care providers and satisfaction surveys from enrollees.
Annual Notice of Change: Each September your plan provider will mail you a notice explaining all changes that will take place within your plan. Changes in doctors, coverage, costs, etc. will be listed in this mailing and it is important to review it so you would know if plans you are currently enrolled in fits your needs – if your doctor will no longer be included in your plan – you will have to find a new plan or switch doctors.
Penalties: If you do NOT sign up for Medicare when you become eligible you may be subject to penalties that could increase your premiums. The worst part is that this penalty applies for the remainder of your life.
If you delay purchasing Part B your monthly premium will go up 10% for each 12-month period that you could have had Part B coverage. Which means that if you delayed purchasing Part B for 2 years your premiums will increase by 20% and in most cases will remain subject to this penalty for as long as you have Part B coverage.
Each delayed month with Part D will increase your future premiums by 1% of what Medicare calls “National Base Beneficiary Premium” which is $33.37 in 2022. So, if you delayed Part D coverage by 5 months, your penalty will be 5% multiplied by $33.27 rounded to nearest 10 cents.
These penalties can also be avoided if you had creditable coverage during the time of delay. In other words, if you are still working and have employer provided coverage, Medicare will not force you to purchase coverage from them too (given that your coverage qualifies as creditable). While Medigap coverage does NOT impose penalties, you should enroll during open enrollment period to receive the best rates.
Other Tips: When you receive your Medicare benefits card – make sure it has the corrected effective date. The same goes for your Part D coverage – check that your enrollment date is correct. Finally, make sure that correct Supplement plan is listed.
Coming up next is the last article in our blog series, Health Savings Accounts (HSAs) and Medicare. In this article you will get a better understanding of how to use your HSA once you go on Medicare. Additionally, if you want further guidance about becoming a better Medicare plan shopper, you can watch our online course video, The Retirement Continuum – Medicare.
Enrolling in Medicare When You Have a Health Savings Account (HSA)
Before we dive into the main components of this article, which is Health Savings Accounts (HSA) and Medicare, let’s do a brief primer on how these types of accounts operate. HSAs are tax deferred savings vehicles that allow contributions to go in tax-free, and for withdrawals to be taken out tax-free – as long as the money is used to pay for qualified medical expenses. Therefore, HSAs are truly the only triple tax savings accounts allowed by the IRS.
The key to qualifying for an HSA is that you must be enrolled in a high-deductible health plan (HDHP). Unfortunately, one of the drawbacks of HDHPs are the large deductibles. In other words, people with HDHPs pay in full for most health care services until they reach their deductible that year. For those with relatively low health care costs, an HDHP type of plan and an HSA is more suitable. A low deductible health plan (if available) is typically a better fit for someone who has a large amount of health care expenses due to a chronic condition.
For a deeper understanding of the main advantages of HSAs and other basics please refer to our article, Could a Health Savings Account (HAS) be THE best account to invest in?
What to Watch Out for with Health Savings Accounts and Medicare
Unfortunately, upon enrolling in Original Medicare (Parts A and B), you are no longer able to contribute pre-tax dollars to your HSA because Medicare is not an HDHP. This means that whenever you begin Medicare, it’s advisable to change your HSA contributions to $0 at least 6 months before you plan to sign up for Medicare. The reason why is that when enrolling in Medicare Part A, you receive up to 6 months of retroactive coverage. Failing to stop your contributions can lead to a tax penalty on any money you contribute while on Medicare. The level of penalty varies depending on the situation, but the most common issues that occur are:
Back taxes are owed on any contributions made after Medicare enrollment, and your contributions will be added back to your taxable income for the year.
Contributions while under Medicare could be considered “excess” by the IRS. What this means is that you will be taxed an additional 6% when you withdraw those contributions.
Back taxes plus a 10% IRS penalty applies if you enroll in Medicare during your HSA testing period. According to IRS Publication 969, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month (for example, December 1, 2021, through December 31, 2022).
The Silver Lining
The good news is that you can continue to withdraw money from your HSA, tax-free, while you are enrolled in Medicare. So, if you have been diligently maxing out your HSA contributions on an annual basis over the years – and didn’t spend much leading up to when you transitioned to Medicare – you have the ability to tap into a sizable pool of funds to pay for medical expenses throughout your retirement. In addition, most HSA accounts offer you the option to invest the proceeds into mutual funds and index funds, thereby allowing you to grow the balance with compound interest. Not bad, eh…
What’s even better is that your Health Savings Account can be used to pay for:
Medicare deductibles
Co-payments and co-insurance associated with Medicare
Medicare Part B premiums
Medicare Part C premiums
Medicare Part D premiums
Dental and vision expenses
Insulin and diabetic supplies
Over-the-counter medicine
However, it’s important to be aware that Health Savings Accounts do not pay for Medicare supplement policies (Medigap). Additionally, if your Medicare premiums are directly paid from your Social Security benefits, you can still withdraw money from your HSA tax-free to reimburse yourself for those expenses.
What About Delaying Medicare Enrollment to Qualify for the Tax Benefits of an HSA?
The decision to delay Medicare in order to qualify for tax-free contributions into an HSA will greatly depend on your personal situation. The important aspect to consider here is knowing which type of employer you work for. If you work for a company with 20 or more employees, your health plan through the employer pays primary to Medicare. Therefore, you have the ability to delay Medicare enrollment and continue making contributions into your Health Savings Account.
On the other hand, if you work for an employer with fewer than 20 employees, you likely will need Medicare in order to have primary insurance. The reason being is that health coverage from employers with less than 20 employees pays secondary to Medicare. The consequence of failing to enroll in Medicare in this type of situation means you may have no health coverage because your health plan does not have to pay until after Medicare pays.
Something else to be aware of is that in either case, you have access to the Part B Special Enrollment Period whenever you lose coverage or retire.
Another nuance to consider, if you intend to delay enrolling in Medicare because you want to continue saving money into an HSA, is that you will need to wait to collect Social Security retirement benefits. Whenever an individual is already receiving Social Security benefits and they become eligible for Medicare, that person is automatically enrolled into Medicare Part A. Regrettably, you cannot decline Part A while receiving social security benefits.
Helpful Medicare Resources
If you didn’t catch the other articles in our Medicare series and care to learn more about how to navigate this important facet of your retirement, you can refer to our Medicare series page. Or if you are a more audio-visual learner, we created a course specifically designed to help you understand the basic elements of Medicare - watch our Medicare segment from The Retirement Continuum™ class recorded in 2020, here. The numbers are slightly outdated, but the overview and explanations are still applicable today.