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The Murky World of Medicare


Are you one of the 3.6 million Americans becoming Medicare eligible this year?


Many people are surprised to find out how complicated the transition to Medicare can be. Each individual situation is a bit different and there is not a clear road map or check list to follow.

Many people find that it is helpful to work with someone who knows the ins-and-outs for the various pieces that need to be put into place and the timing for each of them. Doing so can help you avoid penalties, delays and issues with the IRS.

There are four primary areas of Medicare coverage.

Medicare Part A

Medicare Part A provides coverage for inpatient hospital services as well as short term rehab services. If you have coverage with a large employer health plan, then Medicare will pay secondary making enrollment in Part A additional coverage. If you or your spouse has worked for at least ten years, Medicare Part A is free.

Medicare Part B

Medicare Part B covers services (doctor visits, lab tests, surgeries, etc.) and supplies that are medically necessary to treat a condition. Medicare Part B has a monthly premium. The amount of the premium depends on your income. The 2017 Medicare Part B Premiums chart below shows how your modified adjusted gross income impacts your premium.

2017 Medicare Part B Premiums

 

As you can see, depending on your income, your Part B premium can range from $134.00 to $428.60 per month in 2017.

It is important to note that the Social Security Administration looks back two tax years to determine your premium. For example, your Modified Adjusted Gross Income (MAGI) from your 2015 tax return will be used to determine your 2017 premiums.

If your income is going to be significantly less than it was in 2015 due to a life changing event (retirement, divorce, work reduction, loss of income producing property, etc.), you should alert the Social Security Administration in an attempt to reduce your premiums. Form SSA-44 should be completed and submitted to attempt to reduce your premium due to a life changing event.

There is an annual deductible of $183.00; then Medicare pays 80%. A Medicare Supplement Insurance policy (medigap) can be used to cover the deductible and the 20% coinsurance, regardless of how large the bill is.

For example, if you have a $50,000 outpatient surgery, Medicare will pay $40,000 and a medigap can cover the remaining balance.

You can opt out of Medicare Part B if you have health insurance through a large employer without 
a penalty.


Medicare Part C

These plans are true privatization of Medicare, also known as Medicare Advantage. There are about 20 Medicare Advantage plans available depending on where you live. The U.S. government pays carriers to provide the coverage that Medicare Parts A and B (and sometimes Part D) would have provided. 

These plans do have a network of providers, and you may need a referral. These plans also have deductibles, coinsurance and copays, along with an out-of-pocket maximum.

Some of these plans have no out-of-network coverage; so if you travel this may be a concern. These plans are appealing to many people because some of them have a $0 premium. But there are restrictions and out-of-pocket costs that should be considered.

Prescription drug coverage will either 
be included in the Medicare Advantage plan or you may be able to purchase a separate policy.

Medicare Part D

Medicare Part D provides prescription drug coverage. Like Part B, Medicare Part D has a monthly premium, a deductible and copays. The premium for Part D can range from $17.00 – $149.00 per month. There is also a premium charged by the government for wealthier seniors, in addition to the policy premium.

The best prescription plan will be based on your current medications, because the amount that carriers can charge can vary widely. There are dozens of prescription plans available to you, and the cost difference can be hundreds if not thousands of dollars when you consider more than just the monthly premium.

Resources for a prescription analysis may be your healthcare advisor, a local pharmacist, www.Medicare.gov or 1-800-Medicare.

After your initial enrollment, you can review your coverage options and make changes based on your needs each year during open enrollment.

Options

If you plan on retiring before age 65, when to enroll into Medicare Part A and Part B is pretty straight forward. It is likely your health insurance costs will go down and you will want to enroll as soon as you are eligible.

Options for people not yet Medicare eligible may include COBRA, another employer plan or individual health insurance either through the marketplace or purchased through a broker. There are pitfalls for someone who is Medicare eligible to be enrolled in COBRA, which include late enrollment penalties and a delayed opportunity to enroll in Medicare.  There are also different benefits for dependents who are eligible for COBRA because their spouse or parent is Medicare eligible.

If you have COBRA, a small employer health plan (fewer than 20 employees) or a personal health insurance policy, Medicare will pay primary. These types of policies will pay secondary whether you are enrolled in Medicare or not. It gets a bit more complicated if you or your spouse work past age 65 and you are receiving coverage through an employer. If you decide to stay on your employer plan, you may want to enroll in Medicare Part A and Medicare Part B, depending on your situation. If you, or your spouse, is actively working for a company with at least 20 employees, Medicare will pay secondary to your employer plan.

Another common mistake is making contributions to your health savings account (HSA) after being enrolled in Medicare. It is not permissible to make HSA contributions after you have enrolled in Medicare. This seems straight forward, but the Social Security Administration can make your Medicare coverage effective retroactively back 6 months, potentially making contributions to health savings accounts 6 months before enrolling ineligible.

In addition to identifying possible penalties and enrollment periods for Medicare, you need to consider your “total risk”. This is your total out-of-pocket cost which should include your premium, deductibles, coinsurance and copays. Because your current coverage has a different benefit structure than Medicare does, identifying this “total risk” will allow you to compare the plans on an equal basis. When you compare total risk, or total out-of-pocket expense, you may glean great insight  allowing you to make an educated decision. For example, the premium may be lower on your employer plan, but you may pay more for prescription copays. 

Having Medicare alone will leave you with an unlimited financial risk, specifically for outpatient services including tests, physical therapy, doctor's office visits, etc. Medicare supplements can cover all or part of this risk by covering all or most of the deductibles, coinsurance and copays that Medicare has depending on the plan that you choose. 

Medicare supplements also allow you 
to choose your providers and don’t 
require a referral to see a specialist. The 
cost for a Medicare supplement is often less than the out-of-pocket maximum of a Medicare Advantage plan and doesn’t have some of the restrictions of Medicare Advantage plans.

Because all of these details can be overwhelming, taking advantage of 
the knowledge and guidance of a 
qualified advisor may end up saving you time, headaches and money. However, make sure that the adviser specializes in Medicare, is independent and can offer multiple types of policies from a variety 
of carriers.