Most of us have paid payroll taxes to support the Medicare program and, again, most of us will likely enroll in Medicare when we reach age 65 or perhaps later if we are still employed at that time. As simple as that sounds, Medicare is a very complex and annoyingly inconsistent program which will require some real attention – by you or an adviser or both – to get it working best for you. As you approach age 65 you will be deluged with offers for both Medicare advantage plans and supplemental or Medigap plans from a variety of health insurers and agents. The lucrative nature of this business is made obvious by the sheer volume of mail, calls and advertisements. This underscores the importance of taking your time so that you may make an informed decision.
Some of the main issues with Medicare are well publicized and likely not a real problem as long as one is paying attention. However, there are other twists and turns which are not well addressed and would also benefit from your attention and understanding. Here are some points for you to consider.
Medicare may not start when you think it will begin. You probably already know there is a seven month period for initial enrollment in Medicare at age 65 and that timely enrollment can prevent premium surcharges if you delay beyond that time. However, although you can enroll three months before you turn 65, coverage won’t begin until you are 65 and if you wait until one of the three months after you turn 65 to enroll, you may find coverage won’t begin until months later. Be careful to avoid a gap in your coverage.
Waiting to take Social Security can raise your Medicare costs. Medicare begins at age 65 and full retirement age for Social Security currently starts at a later age and benefits may even be delayed until one’s age 70. Although persons receiving Social Security are protected from increases in Medicare Part B premiums – those premiums cannot increase more than one’s Social Security benefit increases in a given year – those who enroll in Medicare and are not yet receiving Social Security do not enjoy this protection and can see increases in their premiums and a higher overall burden.
High income will raise your Medicare costs. Although premiums for Part B coverage currently start at $134 monthly, those premiums will jump considerably if your income exceeds specified levels. For example, a single person with more than $85,000 but less than $107,000 in annual income for 2016 (which income may include up to 85% of Social Security benefits received) will pay $187.50 monthly in 2018 – almost a forty percent increase over the base rate. The rates and percentage increases go up much faster as income exceeds specified levels and it only gets worse in 2019. However, if and when your income tapers off and drops below the higher thresholds, the premium cost will drop to the appropriate lower level based on decreased income instead of remaining at the previous surcharge amount applied at the higher income level.
Delay in Medicare enrollment will also raise your Medicare costs. Although there is a fairly large window of time in which one may enroll in Medicare upon nearing and attaining age 65, the consequences of missing that window can be expensive. Except in some limited circumstances, waiting beyond the seven month period around your 65th birthday will cause a Part B premium surcharge of 10% for each year (or part of a year) you delay.
Medicare advantage plans: plusses and minuses. These plans operate like PPO or HMO plans and typically require copays as well as imposing an annual deductible you will need to meet. The plans also restrict your choices of doctors, hospitals, treatments and more by covering only in network services or imposing other limitations. Advantage plans guarantee that you will get service in the network while many providers may not provide service to Medicare patients under traditional Medicare. These plans also are generally less expensive that supplemental plans even if you purchase additional coverage including prescriptions, vision, dental and more. Although there are out-of-pocket expenses to cover, there is an annual limit under the advantage plans.
Medicare supplemental (Medigap) plans: plusses and minuses. Any doctor or hospital participating with Medicare is available to you under a supplemental plan. There are a number of different plans – A, B, C, D, F, G, K, L, M, N – each with different levels of coverage and offered a varying prices by insurers . Some may not be available in your area or through some insurance companies. These plans typically are much more expensive than advantage plans. They also require you to separately acquire and pay for drug (prescription) coverage. However, once you have signed up for a Medigap plan, you may also have a renewal guarantee. Medigap plans will pay the coinsurance portion of Medicare’s 80/20 split and most plans cover the deductibles for Part A and Part B as well. The plans also provide some assistance with out-of-pocket costs.
Changing plans may not be as easy as you think. Once you are enrolled in Medicare, there is an open enrollment period each year during which you can choose your plan for the upcoming year. The advantage plans offered in your area may change from year to year in coverage, cost and even availability so you may find yourself going through the effort of plan research and comparison similar (and probably equally frustrating) to the one you went through initially. However, your supplemental or Medigap plan is unlikely to have significant change in benefits and may have a renewal guarantee. Of course, cost is always a factor and, like taxes, is not liable to go down.
Prescription coverage is an additional cost AND may not be complete. Traditional Medicare requires you to purchase Medicare Part D in order to obtain prescription coverage as it is not included in Part A and Part B. If you instead go with a Medicare advantage plan, that plan can include prescription coverage at an additional cost. Medigap plans do NOT include prescription coverage and that must be obtained separately. Amidst these variations, you have a variety of tiers of drugs that may impact your situation heavily, slightly or perhaps not at all. The best place to be in terms of drugs is the preferred generics which typically will not have a copay at all once you’ve acquired some variety of prescription coverage. . Brand name drugs – as opposed to the generics – usually fall in the middle with some additional cost but fairly easy availability. However, particularly if you require a specialty drug, there may be little or no coverage available to you. You will want to review any prescriptions you have currently in force to understand where they fall along the pricing continuum and whether you can afford to continue them.
As you can see from this brief listing of areas of consideration, there is a lot to know or find out about Medicare.
George Chamberln and Mentor RIA Consulting © 2018