Medicare Considerations in Retirement Planning
Medicare Coverage becomes available to qualified benficiaries at age 65, and those under age 65 who have been covered by Social Security Disability benefits or certain disability benefits from the Railroad Retirement Board for two years.
If you are not receiving Social Security Benefits by age 65, you must sign up for Medicare benefits by contacting local Social Security office.
Present Medicare has four (4) Parts, designated by letters of the alphabet: A, B, C, D
1. Part A is you in the hospital as an admitted patient, plus some limited Home Health Services, Blood Transfusions, Skilled Nursing Facility Care, and Hospice Care.
2. Part B is you as an out-patient, covering visits to your doctor's office, out-patients tests and surgeries, Blood Transfusions, and most other health related services your doctor deems necessary.
3. Part C is called Medicare Advantage. If you choose, you may sign up with a quailified Commercial Health Insurance Company which will then provide your Medicare Benefits to you.
4. Part D is your Medicare Prescription Drug benefit. Part D is provided by qualified Commercal Health Insurance Companies via Medicare Prescription Drug insurance policies you purchase through a qualified health insurance agent. You will fill your prescriptions at any of a network of participating pharmacies, and will pay either co-payments or a percentage of the drug's cost each year until you reach a cut-off point based in Medicare formula. Original Part D contains an annual deductible which you must pay. However, most insurers offer alternate Part D insurance policies which do not require that deductible.
In 2016, the calendar year cut-off point is $3,310.00 in "total drug costs". At that point, you begin paying 45% of the cost of most brand-name drugs and 58% of the cost of most generic drugs until your yearly True Out-of-Pocket costs (not including premiums) equal $4,850.00. At that point your coverage gap ends, and you begin paying small copayments for each drug until the end of the calendar year. The period between these cut-off points is often referred to as the "Doughnut Hole". Legislation in 2010 initiated steps to close that gap over a period of time starting with a $250.00 refund check to beneficiaries in the doughnut hole that year.
Medicare is a national program covering you throughout the United States and its territories. Medicare typically does not cover your medical bills for treatments outside the US...with only a few exceptions.
You may sign up for Medicare benefits starting three(3) months before your 65th birthday, and up to three (3) months following your 65th birthday. Sign up early and benefits start on the first of the month in which you reach age 65. Sign up later, and benefits start on the first of the month following your sign-up month. (If your birthday falls on the first day of the month, your Medicare benefits become effective on the first day of the month preceeding your birthday month.)
It is to your advantage to sign up on time, as Medicare charges monthly premium penalties and forces you to wait until specific times of the year before allowing you to enroll late.
Call Medicare at, 1-800-633-4227, or go on line to: www.MEDICARE.gov
What....Medicare Premium Costs:
Most of us pay no premium for Medicare Part A...there are some exceptions based on annual quarters of coverage under Social Security, and Resident non-citizens.
There is a monthly premium for Part B, and it is based on your Yearly Income, and each year Medciare premiums can change to reflect increases in Part B costs.
This year, (2016), new enrollees can expect to pay from $121.80 up to $389.80 each month, based on income, to cover Part B benefits. (Most will pay $121.80.)
Jumping to Part D...Medicare Prescription Drug Benefit: Monthly premiums for Part D insurance range from less than $40 to more than $100, depending upon benefit schedules and insurance companies' offerings.
Part C, Medicare Advantage: Monthly premiums can be as little as zero dollars for Part C health insurance plans; some require a modest premium.
What...Alternative Methods to receive your Medicare benefits:
1. Sign up for Parts A&B, and buy a Part D Rx insurance policy. Pay out-of-pocket for costs Medicare does not pay.
2. If you are retired and covered by an employer-sponsored Group health insurance policy and intend to retain your group health insurance into the future, and if your group plan's prescription drug benefits are as-good-as, or better than Part D benefits, enroll in Parts A&B. You have the option to enroll in Part D later should you eventually drop out of the group health insurance plan. (Why? Chances are strong that your group insurance Rx benefits are better than those offered by Part D.)
Note: In the above case enrolling in Parts A&B typically lowers your group health insurance premiums, as Medicare becomes the "Primary Payer" while your group insurance becomes secondary payer. However, you also have the option to delay enrolling in Part B until your group health insurance coverage ends.
Important: Do not delay enrolling in Medicare Part B if you intend to extend your former group health insurance benefits under COBRA! To avoid delays and avoid paying penalty Part B premiums, sign up for Part B within eight (8) months following the end of your employment.
3. Sign up for Parts A&B, then enroll in a Medicare Advantage Plan to receive your Medicare benefits through a commercial insurance company. Your Medicare Advantage Plan may include Prescription Drug Benefits, if you choose. (If you are a Veteran and fill your 'scripts via the VA, consider discussing your options with your VA representative before taking a decision regarding enrolling in Part D.)
4. Sign up for Parts A&B, and buy a Part D Rx insurance policy. Then apply for a Medicare Supplement (so-called, "Medigap") Insurance policy.
What...Medicare Supplement Plans and Medicare Advantage Plans, what are they?
Medicare Parts A&B provide many health benefits, but also require that you, the Medicare Beneficiary, must pay deductibles, co-insurance and/or co-payments and other amounts not covered by Medicare. These can add up substantially over time.
Medicare Supplement Plans are designed to pay those deductibles, co-insurance, co-payments, and excess charge amounts for you, and are offered by several commercial health insurance companies. There are several such plans to select among, some being more comprehensive than others. All are identified by letters of the alphabet and each lettered plan must provide the same basic set of benefits regardless which insurance company offers it. Some insurers toss in added benefits not covered by Medicare Parts A & B.
Medicare Advantage Plans are also offered by several commercial insurance companies. In effect you hire that insurance company to provide your Medicare Benefits to you. If you choose, you can also include your Medicare Rx Benefits in your Medicare Advantage Plan. Typically, such plans require that its members obtain their medical services from a preferred network of doctors, hospitals, pharmacies and other health providers. (There are some exceptions based on special needs, etc.; however, most commonly, healthcare networks are part of the equation.)
To enroll in a Medicare Advantage Plan or a Medicare Part D Rx Plan, one must be eligible for Medicare Part A and enrolled in Medicare Part B. To apply for a Medicare Supplement Plan one must be enrolled in both Medicare Parts A & B.
Medicare Supplement Plans follow you as you travel or move about the country, and mostly do not require that you seek health services from a network of health providers. To own one of these Plans, you will pay monthly premiums, but generally will not be expected to pay deductibles, co-payments or co-insurance. (Note: A few such plans do include deductibles and/or hospital networks as a device to reduce monthly premiums.)
Medicare Advantage Plans tend to be "area specific", meaning their networks of doctors, hospitals, etc., are located in a specific state or area of a state...and each Plan's members must live in that area and obtain covered health services there. Some provide benefits for services obtained "out-of-network", in exchange for increased out-of-pocket payments from its members. Some Medicare Advantage Plans require no monthly premiums, or only nominal premiums. [Recently a few national insurers have expanded their networks to include selected portions of numerous states, providing services "in-network" to their Medicare Advantage members when they travel about the country. Ask your Medicare Advantage insurer about this benefit.]
Effects from the Affordable Care Act of 2010, "Obamacare"
No more Open Enrollment Period, formerly January 1 to March 31...Replaced by Medicare Advantage Plan Disenrollment Period, January 1 to February 14. Beneficiaries may disenroll from their Medicare Advantage Plans, return to original Medicare and enroll in Part D Rx plan.
Starting in 2011, excise tax on non-qualified distributions from HSA/FSA plans doubles from 10% to 20%.
Starting in 2013 , Schedule A medical expenses must exceed 10% of adjusted gross income, up 2.5% from current 7.5%.
Also starting in 2013, loss of tax free credit for Rx benefits provided to retirees by former employers...think Catapillar, IBM, 3M.
In 2010 those and other corporations had to take this loss into consideration, then restate their earnings as required by the SEC.
Not a part of Obamacare, Medicare Supplement Plans E, H, I, and J are no longer available for sale. New Plans K, L, M, N were introduced in June 2010. Plans K, L, N require coinsurance payments from the insured, in exchange for lower premiums.
For having the most ineffective lobby in Washington, Obamacare imposes a 10% federal excise tax on Tanning Bed Services.
Retirement Planning Considerations
1. Factor in anticipated health costs. Such can be substantial. Medicare Advantage Plans can save on premium dollars, but be prepaired to pay deductibles, co-payments, and/or co-insurance amounts. Medicare Supplement Plans require monthly premiums, but typically no deductibles, co-insurance, or co-payments, (with certain exceptions). Most Medicare Supplement Plans are portable. Most Medicare Advantage Plans are not portable. There is no "Lock In" for Medicare Supplement Plans. There is a "Lock In" for Medicare Advantage.
2. Medicare does not cover Long Term Care expenses. Discuss Long Term Care alternatives with your financial advisor. (See article in this website titled, "Got an Elephant in your room?"
3. If it has been a while since you had an in-depth review with your financial planner, set one up soon.
Medicare & You 2016, Centers for Medicare & Medicaid Services, 7500 Security Blvd., Baltimore, MD 21244-1850
NOTE: Information in this outline is intended for a general audience, is broad in scope, and intended as educational only. Remember, the devil is in the details. Before enrolling in any Medicare-related insurance plan or product, seek the advice of a licensed insurance professional, certified to provide such. If in doubt, ask to see licenses and certification forms.
Copyright © Ken Smith - Insurance Planning Services