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Planning For Medicare Benefits

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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.

Beneficiaries who file individual tax returns with income:

Beneficiaries who file joint tax returns with income:

Income-related monthly adjustment amount

Total monthly premium amount

Less than or equal to $85,000

Less than or equal to $170,000

$0.00

$135.50

Greater than $85,000 and less than or equal to $107,000

Greater than $170,000 and less than or equal to $214,000

$54.10

$189.60

Greater than $107,000 and less than or equal to $133,500

Greater than $214,000 and less than or equal to $267,000

$135.40

$270.90

Greater than  $133,500 and less than or equal to $160,000

Greater than $267,000 and less than or equal to $320,000

$216.70

$352.20

Greater than $160,000 and less than $500,000

Greater than $320,000 and less than $750,000

$297.90

$433.40

Greater than or equal to $500,000

Greater than or equal to $750,000

$325.00

$460.50

Beneficiaries who are married and lived with their spouses at any time during the year, but who file separate tax returns from their spouses:

Income-related monthly adjustment amount

Total monthly premium amount

Less than or equal to $85,000

$0.00

$135.50

Greater than $85,000 and less than $415,000

$297.90

$433.40

Greater than or equal to $415,000

$325.00

$460.50

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

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