There are many health insurance plans, structures, terms, and costs that are often as clear as mud. Below, I have provided you with the most important parts of each plan, relative costs, as well as other important information to help you navigate some of the complexities of the health insurance world.

Health Maintenance Organization (HMO)

HMO plans charge a monthly premium in exchange for access to a network of healthcare providers. In addition to the premium, a copayment ranging from $5-$50 is usually required in order to receive a particular service or see a doctor. 

In order for the HMO plan to cover all or the majority of the costs, the policyholder must go to hospitals and clinics that belong to the HMO network. If the policyholder seeks any care from doctors or facilities that do not belong to the network, the HMO usually will not pay for those services, leaving the insured with possibly high out-of-pocket costs. Some exceptions may be made in the case of emergencies or when the HMO network does not, or cannot, provide certain services.

In-network services are cheaper because the insurance provider has previously negotiated prices and contracted certain service providers in exchange for a flow of patients.

In order to keep medical care costs to a minimum for it’s insured, it is in the best interest of the HMO plan to encourage preventative healthcare and regular doctor visits in order to catch health problems before they become more complex and therefore more expensive.

The majority of HMOs will require policyholders to choose a primary care provider (PCP) upon enrolling in the program. The PCP will be the first contact for the policyholder and will act as the gatekeeper into the network. If the PCP can’t manage a particular health problem or concern, a referral will be made to a specialty doctor that also belongs to the same HMO.

For employers, HMOs are cheap in the long-term and represent the majority of healthcare plans offered through the workplace today. Policyholders generally know exactly how much they will have to pay out-of-pocket, and where to go to receive healthcare services. Also, in order for a doctor or a healthcare facility to belong to an HMO, strict quality standards must be met and maintained otherwise these providers risk losing the contract with the HMO.

Preferred Provider Organizations (PPO)

A PPO is a plan that combines the somewhat older tradition of Fee-For-

Service with certain aspects of an HMO.

Both PPOs and HMOs:

• Have an established network of healthcare providers and facilities
• Require a copayment for each visit

The major differences between the two?

• PPOs are more flexible
• Monthly premiums are more expensive with a PPO
• PPOs usually don’t require a referral from PCP to see a specialist

Most PPOs cover preventive care which usually includes visits to the doctor, well-baby care, immunizations, and mammograms. The higher monthly premiums are due to the fact that unlike HMOs (whose more restricted network allows for a contract with lower costs), PPOs have a comparatively less restricted network. Costs are therefore less predictable and result in higher monthly premiums.

For employers, employer-sponsored PPO plans therefore tend to be more expensive than HMOs for the same reason.

In a PPO, the policyholder can seek specialty care services without having to see the PCP first to receive a referral. Some PPOs may have you choose a preferred PCP but it is not an absolute requirement like with an HMO and the PPO prefers that you see in-network providers (hence the name of the plan).

However, you can use out of network providers and still receive some health insurance coverage. Some people like this option because even if their doctor is not a part of the network, it means they may not have to change doctors to join a PPO.

As you can see, a PPO offers a higher degree of flexibility to the consumer and allows patients to avoid the hassle of making multiple appointments for the purpose of receiving a referral to a specialist provider. A drawback for some, may be higher associated costs.

Always perform due diligence and check to make sure if your insurance will be accepted or not at a given healthcare provider or facility so that you are fully aware of your expected costs.

Point of Service (POS)

A POS plan is yet another plan that shares some of the qualities of HMOs and PPOs. Like an HMO plan, you may be required to designate a primary care physician who will then make referrals to network specialists when needed. Seeking care from doctors that are not part of the POS network will result in higher out-of-pocket costs for the consumer. Depending upon the plan, PCP healthcare services don’t have a deductible and preventive care benefits are usually included.

Exclusive Provider Organization (EPO)

An EPO is also very similar to an HMO or PPO as well and is a health plan that offers a large, national network of doctors and hospitals for you to choose from. This net is exclusive, so seeing out-of-network providers will result in you having to cover the costs. Like a PPO, you don’t have to see your PCP prior to seeking a specialist, just make sure that the specialist belongs to the network

EPOs are often considered to be a hybrid plan between an HMO and a PPO as they offer more flexibility than an HMO (since you don’t need a referral to see a specialist) but are generally cheaper than a PPO.

Catastrophic Plan

Catastrophic health insurance has changed over the years. Today it is a plan that provides a narrow range of healthcare services but enough to meet the minimum coverage mandate stipulated by the Affordable Care Act (ACA). Like the name sounds, the idea behind the plan is to protect plan participants in moments of dire healthcare needs.

Catastrophic plans have lower monthly premiums but high deductibles as well as high out-of-pocket expenses until reaching the plan’s annual deductible, at which point the plan pays for costs.

To be eligible, an individual must be under age 30 or be any age with a “general hardship exemption” and unable to afford the more traditional health plans.

These plans may cover a limited number of primary care visits per year but all “essential health” components such as hospitalization, emergency care, and prescriptions, among others, are covered.

Policyholders may be presented with a copay requirement for care as catastrophic plans can be arranged in an HMO or PPO structure. This plan is best for young and otherwise uninsured individuals.

Cadillac plan

First of all, there is no actual plan for sale that is called a ‘Cadillac plan.’ Rather, a Cadillac plan, also known as a “gold-plated” plan, refers to any expensive healthcare plan. The term was born out of the focus that journalists and politicians have placed on the issue of healthcare costs. Any plan could be considered a Cadillac plan based on cost, regardless of its structure type. In fact, many typical employee-sponsored plans would be considered to be gold-plated.

Technically, a high-cost plan is one whose combined annual employer and employee premiums exceed $11,200 for an individual or $30,150 for a family- these indices are adjusted periodically to account for inflation and rising costs. A ‘Cadillac plan’ is one that has high monthly premiums with low deductibles which is essentially the opposite of catastrophic plans.

Even though the Cadillac makes reference to the luxury car maker, these plans are not reserved for the rich and famous. Many employees have what are technically considered Cadillac plans. Also, many small businesses that have a small number of employees may also have these gold-plated plans since the smaller number of employees means a smaller pool of money with which the company can use to bargain for lower premiums so the name is misleading.

Proposed Tax on Cadillac Plans Set For 2022

Cadillac plans were in the eye of the Obama administration as a possible factor in increasing healthcare costs as well as providing excessive tax advantages for employers. According to The Tax Policy Center (TPC), an excise tax of 40% will be applied starting 2022 (originally set to take place in 2018, but delayed by Congress) to high-cost health plans that exceed the aforementioned high-cost thresholds. The tax would kick in to effect on every dollar that exceeds the annual premium limits not on the entire cost of the plan.

The ‘Cadillac Tax’ is intended to generate more tax revenue to help finance the Affordable Care Act, reduce healthcare spending, and thereby make more expensive plans less appealing. However, the TPC projects that the costs of the tax will be passed along to workers with either a change in wages and/or a change in health plans in the form of less coverage for the same cost or simply charging more expensive premiums.

High Deductible Health Plan (HDHP)

HDHPs come with lower monthly premiums compared to cadillac plans. However, the policyholder has to pay higher out-of-pocket costs, known as the deductible, before the insurance company starts to pay its share. HDHPs can be combined with a Health Savings Account, but not all HDHPs are eligible for one.

The IRS defines an HDHP as a plan with a deductible of at least $1,350 for an individual or $2,700 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,650 for an individual or $13,300 for a family.

Health Savings Accounts (HSA)

A Health Savings Account (HSA) can help patients with HDHPs pay for medical expenses. HSA are treated similar to a bank account and you can contribute money to the account in a similar way to the way you contribute to a retirement account. Plus HSAs have some further unique benefits.

In order to be eligible to use an HSA, you must have a qualified HDHP through work or a spouse. Not all HDHP plans will qualify you for HSA use and the IRS publishes a list of ‘qualifying’ medical and dental expenses that can be recorded as deductions.

Additional eligibility requirements include:

• You can’t be covered by any other insurance plan, including Medicare Parts A and B
• You can’t have used VA medical benefits in the past 90 days if you plan to contribute to an HSA
• You can’t be claimed as a dependent on another person’s tax return
• You must be covered by the qualified HDHP on the first day of the month

Benefits of HSAs include:

• Ownership of the account (you can keep the account even if you change jobs, etc.)
• Money within the HSA can be invested so that the value can grow
• Unused money in the account can be rolled over yearly and interest earned on the principle is not subject to federal taxes
  • Currently California and New Jersey do not provide state tax deductions
  • Tennessee and New Hampshire requires taxpayers to report dividend and interest earnings. Exact amounts differ depending on tax filing status
  • Residents living in states that have no income tax don’t receive additional state tax deduction benefit
• Tax free distributions on qualified medical expenses
• After age 65, use HSA like a retirement account. No tax penalties on non-qualified expenses
• A Way to save for future health related expenses
• Triple tax advantage
  • Contributions are tax deductible
  • HSA assets grow tax free
  • Funds can be used tax free for qualifying medical expense or after age 65

For 2019, the HSA contribution limit for an individual is $3,500 and $7,000 for a family. Those over 55 years of age can contribute an additional $1,000.

Some HSA plans may not allow you to invest the funds. If this is the case, you can rollover the funds in that HSA into another HSA that does allow for investment of funds once per year.

Health Plan Cost Analysis

According to ValuePenguin, a consumer spending research agency, average monthly premiums for a 21 year old are:

• HMO: $230
• POS: $244
• PPO: $251
• EPO: $254

Premiums usually only increase with age and will vary from state to state.

Plans can be further divided into tiers- catastrophic, bronze, silver, gold, and platinum. The catastrophic tier offers the least amount of coverage whereas the platinum offers the most.

Average monthly premiums by tier for a 21 year old look like:

• Catastrophic: $167
• Bronze: $201
• Silver: $247
• Gold: $291
• Platinum: $363

The Kaiser Family Foundation produced the following graph of average costs per plan type for 2018.

How to ace one of your biggest financial decisions

“Social security is the very foundation of retirement security for millions of Americans.” ~ Sue Kelly, Republican Politician

Social security is one of the finest achievements of the US government in the 20th century. It has served and continues to serve as a significant income source for retirees throughout the country. A recent survey indicates that roughly 57% of retired Americans consider social security as a considerable source of income. Additionally, it is estimated that approximately 90% of the current retirees and 83% of non-retirees rely on social security to provide at least some assistance during retirement.

These figures are a clear indication that America relies on social security during retirement; however, there is a huge fundamental problem with this ongoing trend.  According to the Social Security Administration, the average social security amount after the cost-of-living-adjustments was $1,461 in January 2019. Social security was never built to serve as a major source of income; instead, it was supposed to provide financial assistance to the aging population. The growing reliance on social security would leave retirees financially stressed during retirement.

For people ready to retire over the next couple of years, it is critical to understand the intricacies of social security and how they can maximize their monthly benefits. This guide intends to inform the readers about the basics of social security, strategies to boost their payouts, and different factors that affect their benefits.

Understanding the basics of social security

What is it?

Social security is a retirement benefit given to retirees who paid social security taxes during their employment. Ida May Fuller was the first recipient of monthly social security benefits in 1940. An individual should reach at least the qualified retirement age to start receiving benefits, applicable to deductions, and full-retirement age to receive full benefits.

How do you qualify for social security?

In order to qualify for social security benefits, you must earn enough credits throughout your employment history. The good news is that you only require 40 credits or approximately ten years of employment history to qualify for social security benefits.

How do you earn credits for social security?

Your earning should be more than $1,360 in 2019 to receive one social security credit or more than $5,440 to earn four credits annually. It is critical to understand that one can earn a maximum of four credits in any given year irrespective of his income level.

How does the government calculate social security benefits?

The Social Security Administration takes your earnings history into account for calculating your social security benefits. It is a three-step process:

–       The SSA adjusts your earnings in proportion to any historical changes in the US wages. It takes your 35 best or highest-paid years into account for calculation. After that, it identifies your average indexed monthly earnings (AIME).

–       After identifying your AIME, the SSA applies a social security formula to this figure to determine your monthly social security benefits. For 2019, this formula considers 90% of your first $926 out of the AIME; then it takes 32% of the amount between $926 and $5,583 as per your AIME; and lastly, it takes 15% of any remaining amount over $5,583. The SSA adds all of these figures to arrive at your full retirement benefit estimate. This is the amount you are qualified to receive after the full retirement age (FRA).

–       Under the last step, the SSA reduces your full-retirement benefit by up to 25% if you claim social security at age 62, whereas it adds approximately 8% for every year you delay your benefits after the qualified retirement age, 66 or 67 years, up to 70 years.

Note: If a worker has an employment history of fewer than 35 years, the SSA credits the worker with zero earnings for vacant or unemployed years. Additionally, social security benefits are calculated every year and adjusted for inflation as well as the cost of living adjustments.

Disappearing strategies to boost social security

File and suspend strategy

Under the file and suspend strategy, a worker could file for benefits at FRA and then immediately suspend them. This simple action would trigger social security benefits for a spouse or any other qualifying family member. At the same time, the benefits of the worker would continue to accrue until 70 years, growing up to 32%. There is a provision to collect lump sum benefits for the suspended years, although it would forfeit any of their delayed retirement credits.

Restricted claims for spousal benefits

Under the restricted claims for spousal benefits strategy, a married or eligible divorced spouse can collect half of their partner’s benefits after reaching FRA, while their retirement benefits continue to grow until 70 years.

Why these strategies are going away

The Bipartisan Budget Act of 2015 ended or at least limited the benefits of each of these strategies. As per the act, the file and suspend strategy is only applicable to workers who applied the strategy prior to April 29, 2016. Similarly, the restricted claims for spouse benefits strategy is now available for spouses who were born before or on January 1, 1954, provided they have already reached FRA. The regulations for widows/widowers or dependent children under the restricted claims for spouse benefits are different and will be discussed in the coming sections.

Social security rules for married couples, widows/widowers, and disabled beneficiaries

Married couples

Social security regulations favor married couples. A married spouse can file for both spousal benefits and survivor’s benefits. Spousal benefits allow a non-working spouse or one with low earnings history to claim half of their spouse’s social security benefits. A spouse can file these benefits starting at age 62 with some reductions, though they can wait until FRA to receive the full benefit amount. In the case of survivor’s benefits, the surviving spouse can claim benefits as early as 60 years, but there will be reductions as per the SSA guidelines. The other option is to wait until FRA to avoid reductions.

In the case of two-earner married couples, the survivor would receive the higher of either his own benefits or the benefits of the deceased. For couples born before January 1, 1954, restricted claims for spousal benefits is an option.

Tip: In the case of married couples, it makes sense to maximize the benefits of the higher earner by claiming them at age 70. It will ensure that the survivor receives higher social security benefits in case the higher-earning partner passes away.

Widows or widowers

Social security rules for widows or widowers are slightly complicated. They vary depending upon four factors, including the primary insurance amount (PIA) of the deceased at the time of FRA, whether the deceased reached FRA, the age of the survivor, whether the deceased started social security benefits.

Deceased spouse had filed for benefits

If the deceased spouse started benefits at 62 or before reaching FRA, the surviving spouse would get the higher of the benefits received by the deceased spouse or 82.5% of their net benefits. The survivor can start receiving reduced benefits starting at age 60 or wait until FRA to receive full benefits. If the deceased spouse claimed benefits after reaching FRA, the survivor would receive the same benefits as that of the deceased.

Note: If both spouses receive benefits, the survivor would get the higher of his or the deceased spouse’s benefits.

Deceased spouse hadn’t filed for benefits

In the case that the deceased spouse didn’t reach FRA, the survivor would receive 100% of the PIA of the deceased spouse, provided they reached FRA. If the survivor claims spousal benefits before FRA, the benefits will be reduced as per the social security reduction rules. If the deceased passed away after reaching FRA or older age, the survivor would receive 100% of the benefits of their former spouse, along with any additional delayed retirement credits, subject to reduction if the survivor didn’t reach FRA.

Disability benefits

Social security disability (SSDI) benefits are designed for workers who can no longer work or perform the work they did prior to their disability. It is critical to understand that the SSA has strict eligibility criteria for disability benefits. The average disability benefits as of January 1, 2019, stood at $1,234 per month.

Impact of divorce on social security

If you got a divorce but didn’t remarry until age 60, the chances are that you might qualify for spousal benefits on your ex’s record. However, don’t celebrate just now as you still need to meet the SSA’s eligibility criteria. Let’s go over the list:

• You must have been married to your previous spouse for at least ten years.
• You should reach age 62 to collect spousal benefits if your ex-spouse is alive. However, if you were born before January 1, 1954, you can wait until you reach FRA, and then file a restricted application for spousal benefits. In the meanwhile, you can let your own retirement benefits grow until you reach 70, thereby accruing delayed retirement credits of up to 32%.
• In case your ex-spouse has reached retirement age but hasn’t applied for benefits, you can still apply for spousal benefits, provided you qualify other criteria. You must be divorced for at least two years to claim spousal benefits.
• If your ex-spouse is deceased, you can apply for spousal benefits once you reach the qualified retirement age. However, if you’re taking care of a child you had with your ex-spouse who is under 16 years of age or is disabled, you can start receiving benefits earlier.
• If your previous spouse is deceased and you remarry after age 60, you might qualify for spousal benefits.

Public employees and social security norms

If you worked in the public sector- city administration, state government or federal government- and receive retirement benefits in addition to social security benefits, your benefits, as well as spousal benefits, are subjected to the Windfall Elimination Provision and Government Pension Offset rule.

Windfall Elimination Provision

Under the Windfall Elimination Provision, WEP, the SSA will reduce your social security benefits by half of your other non-covered government pension. So, if your net social security benefits were $2,000, and you received $800 through a non-covered public pension system, your net social security benefits will be $1,600. The total reduction cannot exceed $463 in 2019.

If you are someone who has worked in a private capacity, before or after your government service, for at least 30 years (earning more than “Substantial income”) and has paid social security taxes, you might be able to avoid this provision.

Government Pension Offset

The Government Pension Offset (GPO) rule applies to the primary recipients, spousal benefits, survivor benefits, or the benefits received by ex-spouses. Under the GPO rule, the SSA reduces the social security benefits of the filer by up to two-thirds of the government income received by the individual. For instance, if you receive $1,200 through your non-covered public pension system, your social security benefits will be reduced by $800. For someone qualifying for social security benefits worth $1,000, they’ll receive only $200 after the GPO deduction.

Note: The WEP and GPO apply differently to active-duty or inactive-duty military personnel. Read more about it here.

How kids receive social security benefits

The Social Security Administration distributed $2.6 billion every month in social security benefits to more than 4.2 million children during 2017. Social security is a critical source of nourishment for the most vulnerable segment of the society, children. The SSA provides social security benefits to children in case of death, disability, or retirement of their parents/guardians. In order to receive social security benefits, a child must satisfy the following criteria.

• The child must have a retired or disabled parent who is eligible for social security benefits. Social security benefits are provided to children whose parents/guardians passed away after working long enough in a job to receive social security benefits.
• The child must be unmarried and below 18 years of age; 19 years if the child is a full-time high school student.
• Social security benefits are extended to disabled children over the age of 18 years provided the disability began before attaining 22 years of age.

New do-over strategy to maximize benefits

Social security rules are confusing, and it’s quite often that people regret drawing their benefits early, especially those who claim reduced benefits before reaching FRA. The good news is that the SSA allows such individuals to opt for a do-over strategy, provided they satisfy certain conditions.

If you are planning for a do-over for your social security benefits, you must:

• Withdraw your claim application within the first 12 months of claiming benefits.
• Repay the benefits you or your spouse or family received during this period.

In case you claimed benefits before reaching FRA but want to stop benefits until age 70, the SSA allows you to suspend benefits without making any repayments. Your benefits will accrue the 8% annual delayed retirement credits, though your base for calculation would be lower because of early distributions. You can reinstate benefits at any time before reaching age 70 or wait for automatic reinstatement once you reach 70 years.

For instance, if you applied for benefits at age 62 but would like to stop them at FRA, between the age of 66 and 67, you can apply for a suspension and let your retirement benefits grow 8% annually. If your benefits were 75% at FRA because of an early withdrawal, your benefits could still grow up to 99% of your full-retirement benefits through this strategy.

It is critical to understand that if you suspend your benefits, any spousal benefits you receive, along with the benefits of your spouse or dependent children will stop as well, apart from the benefits of a divorced spouse. Additionally, you’ll be responsible for the Part B premiums of Medicare. Make sure that you have sufficient supplemental income to go through these suspended years.

Note: You must file Form 521 for practicing this strategy.

How to file social security benefits online

While there are multiple options for filing your social security benefits, applying online is the easiest one. Here are the steps you must follow to apply for social security benefits.

• Create an account on the official social security website using this URL. https://secure.ssa.gov/RIL/SiView.action
• Some key details that you must have when filing the application are employment information, self-employment activity, any foreign employment information or credits/pension details, military service details, additional income, previous SSI records/applications, Medicare or other social security benefits, and some critical information about your spouse. The application will ask for the date when you want your benefits to begin.
• Once you have filled all the details, sign it electronically, and submit the application. In some cases, the SSA might require you to send backup documents, so it’s best to have a copy ready. In case of any questions, you can call the SSA directly at 1-800-772-1213.

The link between social security and Medicare

Social security and Medicare share a direct relation, which means higher benefits lead to higher premiums. However, the SSA has a “hold harmless” provision under which it prevents any reduction in social security benefits when cost-of-living adjustments are lower than the scheduled increase in Medicare premiums.

It is critical to understand that individuals with higher gross incomes ($85,000 if single and $170,000 if married) have to pay higher Medicare premiums. Individuals who are above this threshold receive notice from the SSA concerning their higher premiums and the reason behind it.

You can read more about different premium brackets and the SSA guidelines at the end of this article.

Understanding the new rules and strategies around social security

The modern social security rules demand new strategies, especially with the end of the file-and-suspend strategy and the phasing out restricted spousal benefits strategy in 2019. Here is a list of the most suitable social security strategies for couples, widows/widowers, divorcees, individuals, and children.

Married Couples

• Married couples should delay the social security benefits of the spouse with higher benefits until age 70, allowing the accumulation of delayed retirement credits. It will enable the couple to maximize their retirement benefits while both are alive. Additionally, it will ensure that the survivor gets the highest possible benefits when the other spouse passes away. The spouse with lower benefits should file for benefits at FRA or earlier if none of the spouses are working.
• If one spouse has no social security benefits, the working spouse must file for benefits to trigger spousal payments. If the spouse with social security benefits waits until FRA to claim PIA payments, it will maximize the survivor benefit for the other spouse in the event of a death.

Divorced Spouses

With the restricted claim strategy phasing out, divorced spouses should make a decision based on their current financial circumstances. The SSA will automatically choose the highest amount out of the individual’s own benefits and spousal benefits.

Individual Filers

Individual filers should wait until FRA to file for social security benefits, ensuring they receive 100% qualified benefits. In case the single filer is employed, it might make sense to delay distributions until age 70; however, the primary reason behind delaying retirement benefits is to maximize survivor benefits, so weigh your options and choose accordingly.

Children

If the family is seeking benefits for children, it is essential to consider different options. Some strategies include:

• If the primary social security beneficiary was born before January 1, 1954, it is possible to implement the file-and-suspend strategy to trigger spousal and independent benefits.
• In the case of a single mother with a child younger than 18 years and low or zero individual benefits, it makes sense to file for benefits at age 62, triggering the benefits for the dependent children.

The Bottom Line

Social security filing is one of the most important financial decisions of your life, so it is crucial to analyze all of your options and choose the most suitable one. If you’re in doubt, make sure to consult a financial expert. You don’t want to regret making a financial mistake that could lower your net social security benefits by thousands of dollars.

If you have any questions regarding Social Security and how it relates to your financial future, please contact me now for assistance. You don’t have to navigate tricky financial topics alone!

Medicare Premium Chart

Sources:

https://news.gallup.com/poll/1693/social-security.aspx

Maximizing Social security retirement benefits, Mary Beth Franklin, CFP

https://www.ssa.gov/news/press/factsheets/colafacts2019.pdf

https://www.ssa.gov/OACT/COLA/QC.html

https://www.ssa.gov/pubs/EN-05-10045.pdf

https://www.wiserwomen.org/index.php%3Fid%3D219%26page%3DSocial_Security_and_Divorce:_What_You_Need_to_Know

https://bottomlineinc.com/money/social-security/social-security-traps-one-false-move-and-you-could-lose-thousands-of-dollars

https://www.disabilitysecrets.com/resources/disability/filing-disability/benefits-for-spouse.htm

https://money.usnews.com/money/retirement/social-security/articles/how-to-maximize-social-security-with-spousal-benefits

https://www.thebalance.com/social-security-benefits-after-divorce-2388943

Below is a general breakdown of Medicare benefits, programs, and costs as well as an array of issues that need to be addressed in order to successfully plan for retirement and your health care needs.

Why is this important?

Knowing what medical coverage you will have and when to sign up is extremely important so that you don’t end up with massive out-of-pocket costs for medical care. Failing to sign-up correctly for Medicare can also result in penalties. What’s more important than your health? Nothing is and your finances are an important part of your health and wellbeing so it pays to understand these subjects.

For a more comprehensive view of Medicare visit medicare.org the official government webpage that will give you personalized and specific information regarding healthcare benefits. A lot of the following summarized information comes from the official government sources on Medicare and Medicaid. However, there are too many individual factors to cover here that could greatly change the way you approach Medicare which is why it is important for you to further research this topic and allow me to help you build a plan. This is a complicated and multi-faceted subject and it’s too important to not understand so use your resources.

As your financial advisor, I am here to help you navigate all of the issues and include you in forming the best possible plan and strategy for a successful financial future. Also consult your tax specialist, former or current Human Resources department, internet web pages, and medicare.gov to help you with this complex subject.

What Exactly Is Medicare?

In short, it is the federal health insurance program for:

• People who are 65 or older
  • Or younger with certain disabilities
• People with End-Stage Renal Disease (ESRD)

Medicare is overseen by The Center for Medicare & Medicaid Services (CMS) and works in conjunction with Social Security.

The government suggests that you take the following steps to familiarize yourself with Medicare:

• Learn about the different elements and ‘Parts’ of Medicare
• Learn when you will be eligible for Medicare and whether or not you will get Medicare automatically or if you will need to actively enroll
• Decide if you want both Part A and Part B (or Part C)
• Learn how to establish the health coverage that best fits your needs (Similar to deciding on what Medicare Parts you want, or don’t want)
• Learn about necessary actions to take for your first year of Medicare

Medicare Is Offered In Different ‘Parts’

• Part A (Hospital Insurance): Generally covers inpatient hospital, skilled nursing care, hospice, and some home health services
• Part B (Medical Insurance): Usually covers outpatient care such as doctor visits, medical supplies, and some preventative care
• Part C (aka Medicare Advantage): Is a bundled alternative to Medicare Parts A and B plus D
• Part D (Prescription drug coverage): Part D adds prescription coverage to :
  • Original Medicare
  • Some Medicare Cost Plans
  • Some Medicare Private-Fee-for-Service Plans
  • Medicare Medical Savings Account Plans

There are two main ways of getting and using Medicare:

• Enrolling in Original Medicare (enrolling in Parts A & B)
• Enrolling in Medicare Advantage Plan (Part C)

Original Medicare is health insurance provided by Medicare and allows you to choose the providers and services that accept Medicare. You will pay the Part A and B premiums (for most, Part A has no monthly cost) and you can choose to purchase supplemental insurance that may help cover those premiums. You would also have to choose a prescription drug plan as well- these are provided by private insurers.

The Medicare Advantage Plan is provided by private insurers and includes Medicare Parts A & B, and usually consists of a prescription drug plan. The private company will have its own network of providers, much like an HMO or a PPO, and you will have associated monthly premiums. The private companies usually bundle a prescription drug plan into the plan as well.

According to the official Medicare website, the Medicare Advantage Plan is estimated to have lower out-of-pocket expenses compared to Original Medicare (see below for more details).

Sometimes supplemental insurance (which would be an additional insurance policy) is cost effective for those that choose Original Medicare. Supplemental insurance can help with the costs of premiums, copayments, and coinsurance costs.

Will you get Medicare automatically?

In most cases yes, you’ll automatically get Part A and Part B starting the first day of the month that you turn 65 but it depends on your Social Security benefits and a few other qualifying factors.

Who gets Medicare Parts A & B automatically?

• If you are going to receive Social Security or receiving Railroad Retirement Board (RRB) at least 4 months prior to turning 65
• If younger than 65 and disabled and after having received Social Security or RRB benefits for greater than 24 months
• Those with ALS will automatically get Parts A & B on the first month of disability benefits
• Those with ESRD and choose to enroll in Medicare. When exactly you receive Medicare benefits will depend on what type, if any, of additional health insurance you have and the completion of certain training programs

When do you need to sign-up for Medicare?

When eligible for Medicare, you have a 7-month Initial Enrollment Period to sign up for Part A and/or Part B starting from 3 months prior to turning 65 and ending 3 months after the month in which you turn 65 (a total of 7 months).

Waiting until your birthday month or longer could cause a gap in health care coverage and a possible penalty.

You can sign up for Part A and/or Part B during the General Enrollment Period between January 1–March 31:

• You didn’t sign up when you were first eligible
• You aren’t eligible for a Special Enrollment Period (SEP)

You qualify for a SEP to sign up for Part A and/or B at any time if:

• You or your spouse (or family member if you’re disabled) is working
• You’re covered by a group health plan through the employer

You will have an 8-month SEP to sign up for Part A and/or B that starts at if one of the following occurs:

• The month after the employment ends
• The month after group health plan insurance based on current employment ends

Usually, as long as you qualify for a SEP, a late enrollment penalty won’t be applied.

Consequence of failing to sign up for Part B on time

Delaying signing up for Part B can lead to a late enrollment penalty, which can have long term consequences for your wallet.

The late enrollment penalty can result in a Part B monthly premium that is increased by an additional  “10% of the standard premium for each full 12-month period that you could have had Part B, but didn’t sign up for it.” You may not be eligible to enroll in Part B for several months, further delaying Part B coverage.

If 24 months go by before enrolling and receiving Part B, which equates to two 12-month periods, the monthly premium would increase by 20%

The real kicker? That 10%, 20%, or worse penalty, remains in effect for the life of Part B coverage.

A similar late enrollment penalty is applied to Part A as well, however, the penalty is not paid for over the lifetime of Part A coverage as with the Part B penalty.

Delaying Enrollment

Some people may choose to delay enrolling in Medicare Part A and B, but this requires careful planning and knowledge of the rules.

Those over 65 and continuing to work may choose to delay enrollment to continue to take advantage of an HSA while using a High Deductible Health Plan or if they have adequate insurance through their employer (or a spouse).

A major determining factor in delaying enrollment will be the size of the employer. If the employer has fewer than 20 employees, your insurance will pay secondary to Medicare. In this case, you would want primary insurance in the form of Medicare. If your employer has more than 20 employers, Medicare would be secondary insurance and pay after your primary insurance offered at work.

Some people may not need Part B

Delaying Part B Medicare coverage is mainly dependent on other available health care coverage. People seeking to avoid the cost of Part B may want to delay enrolling. Several exceptions exist and require an individualized assessment that I can help you with.

2019 Medicare Costs

Part A

Many people, if not most, will have “premium-free Part A” if:

• You already get retirement benefits from Social Security or the Railroad Retirement Board
• You’re eligible to get Social Security or Railroad benefits but haven’t filed for them yet
• You or your spouse had Medicare-covered government employment
• If under 65:
  • You got Social Security or Railroad Retirement Board disability benefits for 24 months
  • You have End-Stage Renal Disease (ESRD)

If you have to purchase Part A, the cost will depend on the length of time that you (or a spouse) paid Medicare taxes

• If you paid these taxes for more than 30 quarters, the monthly premium can be up to $240
• Paying for less than 30 quarters, the monthly premium would be up to $437

The deductible for in-patient hospital admission is $1,364. Depending on the length of stay, coinsurance charges are applied and are scaled up as length of stay increases.

• 0-60 days: $0
• 61-90 days: $341 per day
• Over 91 days: $682 per day for each “lifetime reserve day” (up to 60 days over Part A lifetime)
• Beyond lifetime reserve days: Full cost

The way you set up your particular insurance plan will greatly affect the actual premium amount as well as other out-of-pocket costs.

Part B

Monthly Part B premiums are income & tax-filing status dependent.

The following table is from The Centers for Medicare & Medicaid Services, updated for 2019. The premiums were raised slightly from 2018, however, there was also a protection clause included that does not raise the premium to anything “greater than the increase in…social security benefits.”

In addition to the premiums below, you may have to pay an additional amount if you are a high-income earner, which I will discuss below.

Part C and D costs are less straightforward and are plan specific.

The Income-Related Monthly Adjustment Amount (IRMAA)

IRMAA refers to an additional surcharge that is applied to high-income earners. IRMAA will be applied to you if you have a modified adjusted gross income that:

• Exceeds $85,000 if single
• Exceeds $170,000 if married and filing jointly

This surcharge is in addition to the Part B monthly premiums boosting it from the standard of $135.50/mo to anywhere from $189.50 to $460.50. It may also increase Part D premiums as well.

You Are Probably Wondering: How Can I Save Money On Medicare?

First, if you have been paying the IRMAA surcharge and your income has dropped recently due to marriage, divorce, or death of a spouse, you can fill out form SSA-44 to petition a review and possible cancelation of the IRMAA.

Search for a new plan arrangement, but be careful to analyze the benefit of having lower premiums but higher deductibles and other out-of-pocket expenses. This would negate the cost-effectiveness in the long run. Medicare plans to roll out a “Find A Plan” feature on its page around October 2019 that should aid in searching for a new plan.

Lower your taxable income by contributing to pre-tax accounts such as a traditional 401(k) (or other similar plans such as a 401(a), 403(b), etc.), a traditional IRA, or HSA. Also, HSA funds can be used to pay for Medicare premiums and won’t be calculated in the IRMAA surcharge (Yet another reason to take advantage of the services of expert financial planners and tax preparers).

Charitable donations from a tax-advantaged account made after age 70 ½ which will count as a mandatory distribution but won’t be part of your adjusted income.

Speak with me about all of your options for reducing taxable income so that we can make an individualized plan for your success.

Health Savings Account and Medicare

If you enroll in Medicare and also have an HSA, there are some important rules that you must know.

If you enroll in Part A and/or B, you will not be able to contribute pre-tax dollars to a Health Savings Account (HSA) anymore. Recall that in order to be eligible for an HSA, you have to have a High Deductible Health Plan and no other insurance coverage. Medicare counts as qualified health coverage and therefore disallows you to contribute money to an HSA. If you are going to enroll in Medicare, stop contributing to your HSA at least 6 months prior to Medical enrollment because Medicare benefits are retroactive. If you were to contribute to your HSA up until starting with Medicare benefits, you would be rewarded with a tax penalty from the IRS.

You will be able to keep the HSA and withdraw money from the account to pay for medical expenses after enrolling in Medicare. Only contributions to an HSA are affected.

Choosing to delay Medicare enrollment would be one way that you could continue to take advantage of HSA contributions. However, depending on your situation, this may not be possible or could leave you very vulnerable to having little health coverage with huge out-of-pocket expenses. If you choose to delay Medicare enrollment, you would also have to delay receiving Social Security benefits. Receiving Social Security benefits automatically enrolls many people into Medicare and you cannot receive those benefits and at the same time delay Medicare.

Remember that we discussed some of the reasons that people may delay enrolling in Medicare Parts A and B above. Choosing to delay Medicare enrollment will be largely based on whether or not Medicare is the primary or secondary insurer (which is dependent on employer size). If it is primary, as is the case if your employer has fewer than 20 employees, it would be smarter to enroll in Medicare even if means losing the ability to contribute to an HSA.

What Medicare Doesn’t Cover

It’s great to know what Medicare pays for, but maybe more important is to know what’s not covered so that you can appropriately plan.

According to Medicare, typical expenses not paid for by Medicare include:

• Long-term care
• Most dental care
• Eye exams related to prescribing glasses
• Dentures
• Cosmetic surgery
• Acupuncture
• Hearing aids and exams for fitting them
• Routine foot care

Unfortunately, some of those services can cause extreme financial and emotional strain.

So what can you do about it?

Plan ahead because this is a common area that is missed in many people’s financial and retirement plans.

Look into purchasing Long Term Care (LTC) and Dental insurance. The longer you wait to secure LTC insurance, the more you’ll pay for premiums.

According to the official government authority on LTC, monthly costs in a LTC facility can reach almost $7,000, and that’s not even for a private room! Hiring an in-home health aide goes for about $20.00 an hour, and higher level care, such as nursing care, costs even more. Usually, LTC stays aren’t short lasting either so don’t put yourself in the position of having to find a way to cover such exorbitant expenses.

Additional ways to pay for LTC, pending eligibility:

• Add a rider to an existing life insurance policy
• Health Savings Account
• Veteran benefits
• Medicaid

Medicaid will pay for a very limited, and probably a disappointing portion of LTC. Medicaid will pay for some LTC, for a maximum of 100 days, and only after nearly all other avenues of paying for LTC have been exhausted. Furthermore, not every facility even accepts Medicaid.

Qualifying for Medicaid is not very straightforward either. Eligibility is based on several factors including income levels that are scaled to family size and medical needs. Medicaid should be viewed as a last resort for paying for LTC as it was intended to provide basic needs to the people of our society with the fewest assets and ability to pay.

This really is just an introduction into Medicare. There are many more pieces to it and successfully planning for and transitioning into Medicare requires substantial previous planning. You have worked too hard to not adequately plan for healthcare coverage in retirement.

I am always here to help you navigate these complex topics and prepare a holistic financial plan for your future. Contact me today to schedule a time to talk about all of your financial needs.

Sources

https://blog.commonwealth.com/the-financial-advisors-guide-to-medicare-planning

https://www.kiplinger.com/article/retirement/T039-C001-S003-how-changes-in-income-affect-medicare-premiums.html

https://money.usnews.com/money/personal-finance/saving-and-budgeting/articles/2018-04-13/6-ways-to-pay-for-long-term-care-if-you-cant-afford-insurance

https://www.cnbc.com/2019/03/20/medicare-wont-cover-this-key-expense-that-eats-into-retirees-wallets.html

https://www.cms.gov/newsroom/fact-sheets/2019-medicare-parts-b-premiums-and-deductibles

https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html