Your Medicare moment has arrived
As executives plan for retirement and Medicare, what should they know?
This is a look at what aging professionals need to know about Medicare, the federal health care insurance program for seniors that was never intended to cover all costs of health care, but given the correct choices, it can cover most.
Medicare is a complicated web of benefits, and anyone looking for information is advised to speak with an expert before making any decisions, due to the many alternatives, rules, premiums, and deductibles involved.
Helping to sort things out, we spoke with Maureen Binning and her son, Martin, senior services specialists at Binning Insurance. They help explain Medicare options and sell Medicare supplements, Advantage plans, and drug plans; Angela Vinson, an individual account executive who sells Quartz Health Solutions’ Medicare Advantage plan; and Craig “C.J.” Klaas, president and investment advisor representative for Klaas Financial Asset Advisors LLC.
Medicare is the U.S. government’s program designed to provide medical insurance coverage for Americans age 65 and older. It is a voluntary program that also covers many people with disabilities and includes four parts, cleverly named A, B, C, and D.
Parts A and B are referred to as Original Medicare and work together.
Part A covers inpatient hospitalization including skilled nursing care and hospice. It is premium-free but comes with a $1,484 deductible in 2021.
Part B is medical insurance for outpatient expenses such as doctor visits, laboratory services, urgent care, emergency room services, and durable medical equipment. Part B pays about 80% of costs after a deductible of $203 per year. In 2021, the monthly premium is $148.50, which is taken from Social Security benefits, but higher earners will pay more.
Part C, or Medicare Advantage, is an alternative to Medicare coverage through private insurance companies with a health maintenance organization (HMO) or a preferred provider organization (PPO). [A third, private-pay option also exists but is not discussed here.]
Most Medicare Advantage plans have restrictions as to where an individual can go for health care. These plans may or may not include additional benefits such as vision, dental, or prescription drug coverage. Copays and coinsurance vary.
Monthly premiums are in addition to the Medicare Part B premium.
Quartz, Dean Health Plan, Humana, and WPS Health Solutions are among those groups offering Medicare Advantage in Dane County.
Part D is private insurance for prescription drugs. Each plan differs by coverage, drug formularies (a list of which drugs are covered), and copays. Medicare Parts A or B are required to enroll in a Part D plan.
Enrollment in Medicare can be handled through any number of resources — an independent Medicare consultant such as Binning Insurance; online at the Wisconsin Office of the Commissioner of Insurance website, www.OCI.wi.gov; www.socialsecurity.gov or www.medicare.gov; or by calling Social Security at 1-800-772-1213.
In Dane County, people also can visit the local Social Security office at 6011 Odana Road in Madison.
Medicare Supplement, or Medigap Insurance, works with Medicare Part A and B to pay deductibles and cover the remaining 20% of out-of-pocket expenses on Part B claims.
Policyholders can go to any doctor that accepts Medicare patients. As long as monthly premiums are paid on time, the coverage is guaranteed for life and can be used in any U.S. state. Optional riders can be purchased for additional benefits, like international travel emergencies.
Medicare supplements do not cover prescription drug plans.
Medicare Advantage plans replace Medicare benefits with private insurance. Advantage plans often include prescription drug plans and other additional benefits. Service is limited to network providers, usually local or regional. Copays and coinsurance costs vary.
Medicare Advantage insurance companies must be approved by Medicare every year and may alter some benefits from year to year. Enrollees have the option to switch plans during annual enrollment periods each fall.
Company size matters
Medicare considers any company with more than 20 employees a large company. If a large company employee continues to work beyond age 65, they can postpone Medicare as long as they are covered either by their group plan or their spouse’s group plan.
That policy changes for small businesses with 20 or fewer employees, however.
If a small-company employee continues to work past age 65, Medicare takes effect and becomes their primary payer (80%) and the employer’s group policy becomes secondary (20%).
However, if a working employee delays joining Medicare Part B when they first become eligible, the group plan can only pay 20% and the employee will be required to foot the remaining 80%. The government knows that as people age, they become more expensive, and this is its way of protecting the small employer, notes Maureen Binning. She and her son Martin travel around the state explaining both Medicare and Medicare Advantage plans.
Says Martin: “If you’re already collecting Social Security, you’re automatically enrolled into Medicare. If not, you have to initiate it yourself, and we think the easiest way to enroll is online.” Once enrolled, though, you have to play by the rules or penalties may apply.
Anyone approaching age 65 should begin planning at least three months ahead of their anticipated retirement date. Employers can help by making Medicare enrollment forms available to help begin that transition, but that doesn’t always happen.
“In our experience, HR departments don’t deal a lot with Medicare,” Martin says. “They get very involved in onboarding and current employees, but once someone separates from a company, they don’t want the liability.”
Employers are required to inform the federal government if any current employees are over the age of 65.
There’s another wrinkle, notes Maureen, around health savings accounts (HSAs). “If someone has an HSA and wants to keep working, we don’t advise them to automatically take Part A out because neither the employer nor the employee can contribute to that HSA once they are enrolled in Medicare Part A. A potential tax ramification could result.”
In fact, the Wisconsin Office of the Commissioner of Insurance advises employees to stop contributing to their HSA at least six months before applying for Medicare to avoid a tax penalty. Once they’re enrolled, they can use HSA distributions to pay Medicare deductibles, premiums, coinsurance or copayments, but the distributions cannot be used to pay for supplement premiums.
After enrolling in Medicare they have two options: select either a Medicare supplement (Medigap policy) or a Medicare Advantage plan.
Wisconsin residents are fortunate, the Binnings note. Years ago, three states — Wisconsin, Minnesota, and Massachusetts — won a Supreme Court decision that formalized their Medicare coverage nationwide. As a result, “Wisconsin Mandated Benefits” include additional coverage — for example, skilled nursing, home health care, or treatment for diabetes — even when Medicare does not.
Wisconsin residents keep those extra benefits even if they later choose to relocate to another U.S. state.
Medicare Advantage plans, because they’re run by private companies, are not required to provide the extra benefits.
The Binnings recommend people visit the Office of the Commissioner of Insurance website (www.OCI.wi.gov) for more information. The “Guide to Health Insurance for People with Medicare in Wisconsin” is updated every year.
“Some things on the government’s website may not apply in Wisconsin,” Martin clarifies.
Advantage plan advantages
As people approach age 65, they will be bombarded by information online or in the mail, warns Angela Vinson of Quartz Health Solutions, who sells Quartz Advantage plans to individuals.
Medicare Advantage plans (Part C) provide a privatized alternative to Original Medicare and combine the benefits of Parts A, B, and D, usually with one monthly payment. Expenses are submitted and paid through the insurance company (e.g., Quartz) rather than the U.S. government.
There are three types of advantage plans: health maintenance organization (HMO), preferred provider organization (PPO); and private fee for service (PFFS).
Most Advantage plan clients still must meet eligibility requirements for Medicare Plans A and B and pay the $148.50 monthly premium. Advantage plan premiums are added to that amount, but many insurance companies, like Quartz, provide plans with zero-dollar premiums and higher.
Advantage plans often include additional benefits such as vision, dental, hearing, or reimbursements toward health club memberships. “For executives, these plans may look and feel a lot more like a group plan in the sense that many things are packaged together,” Vinson states.
“People are often surprised that Original Medicare doesn’t cover yearly physicals, prescription coverage, or vision.” She argues that even zero-premium Medicare Advantage plans can offer a wider variety of options and should be considered when looking into the health care mix.
Medicare Advantage companies are approved by Medicare on an annual basis. Each year, enrollees also can decide
if they wish to stay with their plan.
“We do a passive renewal for those people under contract,” Vinson says. “That means clients will automatically remain in the same plan unless they decide to change during the annual election period, which is Oct. 15–Dec. 7 every year.”
Retirement promised land
Craig “C.J.” Klaas half-jokingly describes Medicare as “the promised land.”
“By far, it is the single greatest component that dictates when someone will retire.” In the past year, he’s also noticed an uptick in the number of people looking to retire even earlier — before age 65.
“There’s a cost to that,” he cautions.
If they can’t join their spouse’s group plan, they may need to opt for a pricey COBRA extension of their work benefits or join the Affordable Care Act public health insurance exchange.
“Ultimately what stops retirement plans at the gate is whether they’re also carrying benefits for a spouse. If they are, they could end up paying $24,000 a year just for health insurance until they qualify for Medicare, and that doesn’t include the deductibles, so it’s a big deal.” At age 65, however, the restrictions are finally lifted.
“As a financial advisor, we educate clients on the front end to help them prepare, but our role is more of a watchdog where Medicare is concerned.”
Klaas strongly recommends that people speak with a Medicare specialist to help them select the best plan.
“In my opinion, specialists are worth their weight in gold,” he says. “They cut through the muck quickly to give guidance and help someone plan for how much money to set aside when the time comes.”
Eligibility at 60?
The Biden administration has floated the idea of lowering the Medicare requirement from age 65 to 60, an idea that has received pushback on many fronts.
Medicare currently covers 60 million people. Reducing the eligibility age would add another 23 million at a time when the annual federal budget deficit has surpassed $3 trillion and the national debt, the sum of all annual deficits, is approaching $30 trillion.
“As retirement planners, we talk very positively about Medicare because it offers
a massively reduced health insurance benefit, but is it a well-funded plan? Absolutely not!” Klaas notes. “In fact, it’s one of the largest unfunded liabilities out there.
“Eventually someone will have to figure out a way to pay for this. Medicare is a weird dichotomy. It’s a massively underfunded, wonderful program.”
Pros and cons of Medicare Advantage plans (Plan C)
Plans must include at least the same level of coverage as Parts A and B, but they often offer additional benefits. Benefits can change from year to year.
Medicare Advantage plans may cost less overall, and they limit out-of-pocket expenses. Original Medicare does not.
Health maintenance organization (HMO) plans provide a network of contracted health care providers working with a primary care physician to coordinate a patient’s health care. This is particularly beneficial if the Medicare Advantage plan also includes prescription drug coverage.
Medicare Advantage plans are more restrictive. Out-of-network provider services may not be covered or applied to out-of-pocket maximums.
To protect against misuse, Advantage plans often require prior authorization for certain services and they may require a primary care physician’s referral to see specialists.
Most plans are regional and require enrollees to reside in the plan’s service area at least six months a year.
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