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As individuals approach the age of 65 and become eligible for Medicare, the decisions can become overwhelming - when to enroll? What are all of these choices available to me? Options are plentiful and understanding the differences is important.
Listen to an overview of considerations for Medicare open enrollment. Our discussion will cover:
- An overview of what traditional Medicare does and does not cover.
- The differences between Parts A, B, C, D and Medicare Supplement (Medigap) Plans.
- Financial implications and considerations for health insurance and Medicare if you are considering retiring early.
- Practical tips when discussing Medicare options with your financial advisor.
Kathleen Kenealy, CFP®, CPWA®, Managing Director, Director of Financial Planning, SVB Private, an SVB company
Dianne Savastano, BSN, MBA, President, Healthassist
Kathleen: Hello, everybody. It is nice to have you with us today. My name is Kathleen Kenealy, and I'm the director of financial planning here at Boston Private. I would like to welcome you and thank you for joining our Medicare webinar today.
Today's webinar will provide an overview of considerations for the 2022 Medicare open enrollment season. I am joined today by Dianne Savastano who is the founder and president of Healthassist. Dianne has many years of experience in the healthcare industry. She began her career as a nurse before moving into roles in outpatient settings at a for-profit rehabilitation program, a consulting firm, an insurance company, and an employee benefits firm. With her leadership experience, her in-depth clinical knowledge, her understanding of the mechanics of the healthcare system, and her interest in helping others manage complex healthcare situations, she founded Healthassist in 2004.
During our conversation today, we will cover a variety of topics, including an overview of what traditional Medicare does and does not cover, the differences between parts A, B, C, D, and Medicare supplemental plans, the financial implications and considerations for health insurance and Medicare if you're considering retiring early, as well as practical tips when discussing Medicare options with your financial advisor. We are going to be covering a lot of material today. So in order to help you follow along, you will find a copy of today's presentation available in the handout section on the side of your screen. You will also find a separate glossary of some of the terms you are going to hear during the presentation. The webinar will be recorded and sent out with the handouts to all attendees in a few days. So, if you do miss something today, you will be able to go back for a second listen.
We're happy to take any questions you may think of. Feel free to submit them throughout our discussion today using the Q&A feature on the side of your screen, and we will answer them at the end of the presentation. And with that, I will turn the presentation over to Dianne. Dianne, take it away.
Dianne: Thank you, Kathleen. It's such a pleasure to be with all of you today. We are going to talk about Medicare today. And, what I just wanted to say is that my objective is to really take something that can be a very complex topic, that topic of Medicare. And, my goal is to, really, to simplify it for you to the best of my ability. And, my hope is that when you walk away from this presentation, if you have to enroll in Medicare for yourself, or if you have to reconsider your options considering that it's open enrollment season, or if you're helping someone else, that you've got some new tools in your toolbox that will assist you with all of that.
In terms of our agenda, we are going to just go backwards a little bit and talk about the history of Medicare. We'll specifically discuss enrollment and when you should enroll. We, certainly, will talk about what Medicare covers, and also what the cost is. There are lots of options under Medicare, and so, we'll discuss what they might be. But then, how do you actually choose from those options by identifying your own preferences? I've got some examples of some cost estimates for you. We will touch on what's something called the coverage gap. We've got tips, we've got a glossary, we've got resources, and a summary. And, as Kathleen said, you've got some handouts with regards to the glossary in the resources.
So, to just take a step back, Medicare is the federal health insurance program that began way back in 1965. And it was designed for people who are 65 and older, and then, also over the years, certain younger people with disabilities, and then people with end-stage renal disease. Next slide, please.
This slide just gives you an indication of the timing of things. I mentioned 1965. In 1972 is when end-stage renal disease was covered. In the 1990s, if you think back to that time, those of us who were employed were experiencing... Well, excuse me. In the early 1990s, Medigap plans or supplement plans were devised to cover the things that Medicare doesn't cover, because Medicare does not cover everything. Also, during the 1990s, we were all experiencing, sort of, the movement in our employer-sponsored plans towards managed care plans in the form of HMOs and PPOs. And, a similar thing was happening in the Medicare world. So, there were plans that were devised called Medicare-plus choice plans. And, they evolved to be called Medicare Advantage Plans in around 2003. And then, during all of that time, prescription drugs were not covered under traditional Medicare. So, it wasn't until 2006 that legislation was enacted. It was passed in 2003 but didn't start till 2006, to begin to cover prescription-drug plans. And then, in 2010, with the Affordable Care Act, there were several changes that were made to Medicare at that time. So, that's really been the history of Medicare.
Now, one of the most confusing things to people is about enrollment, and when they should enroll, and how they should enroll. And, let me just say too, that the reason we prepared that glossary for you is because I'm going to be using a lot of terminology throughout this presentation, and we didn't want you to have to sit there and take notes. And so, many of the things I'm going to talk about are summarized in that glossary with just a short, sort of, definition of some of these things that we'll be discussing.
So, back to enrollment. So, when people ask me enrollment, or even just about Medicare in general, I'll say...when I go to answer a question, they'll ask me a question, I'll say, "Well, it depends." There is a lot of variation to the rules of Medicare. And, the enrollment rules were devised, I think, during a much simpler time, which is that, when people turn 65, they generally retired. So, a lot of the rules were devised for that time. And then, they needed to get added on to, because people worked beyond the age of 65. So, enrollments, in one part, could be decoupled from another part.
The other thing that I've been seeing, especially during the pandemic, are some sort of creative exit packages that are happening for people, that impacts enrollment. And so, you always have to evaluate your own situation in terms of when you should enroll. But the general rules are that there is an initial enrollment period surrounding the period of time that you turned 65. And it's a seven-month period, and it begins three months before. It includes the month of, and three months after you turn 65. And that, again, is when a lot of people enroll. Now, interestingly, if you enroll the three months before, Medicare becomes effective for you, the first of the month that you turn 65. If you enroll the month you turn 65, there's a delay. And, if you enroll within the three months after, there are further delays. So, all of those things need to be taken into consideration.
Now, we have many clients who work beyond the age of 65, and so you don't have to enroll in that initial enrollment period. You can actually defer enrollment until such time as, maybe, you retire. Because, at that point, you become eligible for what's called a special enrollment period. And that's a specific amount of time surrounding your retirement date within which you need to enroll. And if you do it appropriately, you would not have any penalties assessed.
If you didn't enroll during your initial enrollment period, or during your special enrollment period because you just didn't think of it, well, you do still have an opportunity to enroll in Medicare. But you can only do it during what's called a general enrollment period. And, that is between the 1st of January and the 31st of March in a given year. But when you do it then, Medicare will not become effective until the following July 1st. So, the message here is to really figure out when you're supposed to enroll, and do it when you should. Because, you could find yourself completely uninsured for a period of time if you don't do it quite right.
In terms of where you enroll, you actually enroll in Medicare via Social Security. So, you're dealing with two federal agencies here, but enrollment does go through Social Security. And you can do it quite simply online. There are different ways you could do it, you can do it online, you can do it via a phone call. You used to be able to walk into a Social Security office and enroll. But because of the pandemic, all those offices have been closed. You can do it by mail. But I suggest the online mechanism. It's pretty clean and easy. But, in order to do that, you actually have to set up what's called a My Social Security account, which is a portal into the Social Security system. And that portal, actually, is very helpful to look at future benefits and a whole host of things, but it also allows you to execute an online enrollment into Medicare.
Now, we are just approaching open enrollment season. So, open enrollment season is when you have an opportunity to make changes in your Medicare plans. So, it is approaching on October 15th, and extends through December 7th. So, any changes you might make then, during that period of time, will become effective January 1st the following year. For this year, it'll be 2022.
This is just a screenshot of what it looks like on your Social Security website once you go on. If you put in your username and password for your My Social Security account, this is where you would start a new application.
When I talk about Medicare, I like to make it a little bit more real. And so, I wanted to introduce you to Mary. Mary is a client of ours that we worked with a while back. So just to give you a frame, Mary is 69, she lives in Boston, and she's married to Bob who is a bit younger than she is. And she is employed right now. She has a gross income of $85,000. But combined with Bob's income, her what's called modified adjusted gross income, we'll get to that definition in a second, is $165,000. She receives her care at MGH, her outpatient primary care. And she is currently insured under the Tufts Health Plan.
Coverage and cost options in Boston (02114) for 2021 (11:00)
So what I'm going to do if Mary was getting ready to enroll, and what we really like to do first with clients is help them to appreciate what all the components are. Some people call it the alphabet soup of Medicare. Now, up top, you'll see that I outline coverage in costs for options in Boston, and I put Mary's zip code because what you are eligible for, in terms of some of the parts of Medicare, is all driven by your zip code in your county. So, that's an important thing to keep in mind, because not all plans are available to all people in all counties. But the original components of Medicare include Medicare Part A. And Medicare Part A is the component that pays for inpatient care in an acute care hospital. So in the Boston market, Massachusetts General Hospital would fall into that category. It also pays for acute inpatient rehabilitation. Think of a Spaulding in Charlestown. It pays for skilled nursing care in a skilled nursing facility. Again, this is short-term rehabilitation. That is paid for under Part A. Also pays for hospice care and some home care. And because most of us have paid our Medicare taxes over the years for the appropriate number of quarters, by the time we enroll in Medicare Part A, there's no cost or premium associated with it. Now, if you didn't work those requisite quarters, it doesn't mean you still can't participate in Part A. You can, however, you do have a cost associated with it.
Part B is the component that pays for outpatient care. And this is the care most of us use most of the time. This is seeing our physicians, obtaining a diagnostic test, blood work, x-rays. This might mean outpatient surgery, it could mean outpatient... So, I'm thinking of chemotherapy. So, some expensive items, but all delivered in an outpatient setting. And, when you enroll in Medicare Part B, there is a premium associated with it. And for 2021, that number is $148.50. The 2022 information hasn't quite been released yet, so this number is subject to change for 2022. But, usually, it changes by just a couple of dollars. There are some years it doesn't change at all. It's a very complicated economic calculation that goes into this particular number. So, A and B are the original components of Medicare, and on average Parts A and B cover approximately 80% of your healthcare costs. So just keep that in mind.
I'm going to skip over Part C for a second, and I'm going to go down to Part D. Remember I said that in 2006 was the first time we had access to any form of Medicare prescription drug coverage? And those plans that you purchase from private insurance companies based on your zip code are called Medicare Part D prescription drug plans. So, for Mary in her zip code, 02114, she was actually eligible. She is eligible to enroll in 1 of 27 plans. And they range anywhere in premium price from $7.20 a month to $135 a month. So you might ask, "How do I figure out, of these 27 plans, what is the most appropriate for me?" And so, the way that we figure that out is, there is an algorithm on the Medicare website that we use. And, this algorithm, you put in your zip code first, and then you put in the drugs that you take, and the dosages at which you take them, and how often you take them. You also put in your preferred pharmacy. And I often suggest you put in competing pharmacies because you get different pricing based on pharmacy. And the algorithm will sort these plans in order of least expensive to most expensive. But you have to take into consideration a few different items, which we'll get to when we get to our spreadsheets.
So, I mentioned A and B covers approximately 80% of costs. We've got our Part D plan. But what about that 20% that's not covered by Medicare? Many people purchase what's called a Medigap plan or a Medicare Supplement plan. And these plans are purchased from private insurance companies. And in Massachusetts, in Mary's area, there are seven companies offering three different plans. And they range in price anywhere from $108 to $215 per month. And the way that these plans work is that they're federally regulated. And so, whether she buys the lower level or the higher level plan from one company over another doesn't really matter, the benefits are all the same. But the way that this works is, Medicare would pay first, and then the Medigap coverage would come in and pay the balance. And just to give you an example, if Mary had $100,000 worth of care that she received, a combination of inpatient and outpatient, and Medicare paid 80% of that, that other 20%, if Mary didn't have a Medigap policy, she'd be responsible for that $20,000. But that $20,000 is not capped at all, so she's got quite a bit of risk there if, indeed, she's ill and seeks a lot of care. If she has a Medigap policy, Medicare will pay $80,000. That other $20,000, if she buys the higher level Medigap plan, would be completely covered except for a yearly Part B deductible of $203. Now, there's a lower level Medigap Plan which she'd have some few other out-of-pocket costs, but it just gives you a sense as to how A, B, D, and Medigap all work together.
The reason I like to do it in this order is that I go back to the Part C plan. Because, remember I mentioned that in the 1990s, Medicare managed care plans evolved. And they went from being called Medicare Plus Choice plans to Medicare Advantage plans. And you've probably seen a lot of ads on TV for these. These operate a bit differently. And if you choose one of these plans, you're actually choosing it in lieu of traditional A, B supplement, and D. You can choose just a Part C plan. But they are different in that they're HMO plans or PPO plans. Some of them have a premium associated with them, some of them do not. In Mary's zip code, she's got 34 plans she can choose from in this suite of products, and ranging anywhere in price from no extra premium to up to $267 a month. But, if Mary chooses one of these Part C plans, she always has to pay her Part B premium of $148.50. So, again, a little bit of an alphabet soup here.
Definitions used in Medicare (18:17)
Now, one of the other considerations. Remember I mentioned that Mary's modified adjusted gross income was $165,000, and I also mentioned that Medicare Part B costs $148.50 in 2021? However, there are some Medicare recipients who are required to pay more for their Medicare Part B and D. What happens is, when you enroll in Medicare via Social Security, Social Security obtains your tax returns from two years earlier. So if you're enrolling for 2022, they'll look at your 2020 tax returns. And, in the event that your modified adjusted gross income falls into certain thresholds, you will be required to pay more. Your modified adjusted gross income is, generally, the total of your household's adjusted gross income plus some tax-exempt interest income. So, if you do have to pay more, what that sort of surcharge is called, is called an income-related monthly adjustment amount also known as an IRMAA. And, again, it's, if you fall into these higher-income beneficiary categories, and it's calculated based on your taxes from two years earlier, and it gets recalculated every year.
What I'm showing you here... And, again, new data has not come out for 2022 yet. So, pretend you're enrolling for November 1st start date of 2021. Depending on whether you file as an individual or file a joint tax return, let's say you make, as a joint filer, your modified adjusted gross income is $176,000. Well, you will not have to pay anything extra on top of that Part B premium, it'll be $148.50. But, let's use the example, what if Mary and her husband fell into a category where she...in 2019, their modified adjusted gross income was above $276,000 and between $276,000 and $330,000? Well, Mary would have to pay an extra $237.60 a month. So, her total Part B premium, instead of being $148, would be $386. And then, on top of her Part D premium, she'd have to pay an extra $51.20. Again, this gets recalculated every year, so, oftentimes, I have clients who have these IRMAAs in the beginning of their retirement, but as their income goes down and it gets recalculated, while their IRMAA might go down in subsequent years, and sometimes their IRMAA goes away completely, sometimes their IRMAA goes up, because, maybe, they've had a capital gains, or maybe something else has happened in their life. So, it gets looked at every year, but they're looking at your tax returns from two years earlier.
There is an opportunity to appeal this IRMAA. And, in this slide here, you'll see that there's a forum. If you wanted to read more about this, I would suggest you go right to the forum because there's a lot of information on that forum. But you can appeal for what's called a life-changing event. And, work reduction and work stoppage is a life-changing event. So, if you are interested in learning more about this, again, I, kind of, ask you to go to the forum. And then, maybe, talk this over with your financial advisor or your tax advisor, because you'll see that you have to submit quite a bit of information if, indeed, you're going to appeal this IRMAA. But you do have an ability to do so.
Analysis on Medicare website (22:11)
Okay. So now, we need to get enrolled in Medicare. And, really, all this is, is a screenshot of when you go onto the Medicare website, what it looks like in order to start enrolling. And so, if you want to start finding plans, you'd start clicking here. And this would help you, actually... I'm sorry. This is if you're wanting to look at what Medicare options you have with regards to whether or not you want to enroll in a Medicare Advantage plan, or do you want to enroll in a Medicare Supplement plan, and a Part D plan? A lot of the information is on the Medicare website. And so, this is how you get started.
Remember I said that if you remained working, you might want to defer your enrollment into Medicare? Some people remain working, but they enroll in Medicare Part A only. Remember I said, A pays for hospital care, and Part A, you don't pay anything for. So, sometimes, people maintain their employer-sponsored health insurance as primary. But they still enroll in Medicare Part A, and that becomes secondary coverage. And, sometimes, if, God forbid, you had a huge in-patient expense and your employer plan didn't fully pay for all of it, well, you could use that Medicare Part A as secondary insurance. So, what that means is that people...I do have a lot of clients where they have enrolled in Medicare Part A, they don't enroll in B appropriately because they have their employer-sponsored plan. But, when the time comes for them to retire, they've now decoupled A from B. We've got to get them enrolled in B. And so, again, even on this website, this is how you, kind of, get rolling with all of that.
If you have Medicare Part A and/or B, you're able to create, what's called a my Medicare account. And so, when it says, "Log in or create account," we do have clients who already have a my Medicare account. And, when we do the analysis, we, kind of, use that, because the data gets stored in the Medicare system. Okay.
So, this is the system you use. But, remember, I mentioned that Mary has got 27 different Part D plans she could enroll in? And if she wanted to enroll in a Medigap plan, she's got 21 to choose from, if she wanted to enroll in Medicare Advantage plans, she's got 34 to choose from. And there's even an option that there are some Medicare Advantage plans that decouple the Part D coverage. So there's eight of those plans. Then she'd have to choose the Part D plan, so there's 27 there. So, again, how do you make sense of all of this? Next slide, please.
Identifying preferences (25:07)
I just wanted to provide, again, a little bit of definitions, because the options that you have under Medicare fall into these categories. If Mary were to choose A, B, supplement, and D, what Mary would be enrolling in is something that mimics what we call a traditional indemnity plan. And, in these plans, these are like what we had 40 years ago. Many of us, when we first began our careers where we had our employer paid for all of our premium, we had complete choice, we could go to any doctor we wanted, and we didn't have to get referrals, we didn't have to define a primary care physician, we didn't have to contend with networks. That's what a traditional indemnity plan mimics. That's Part A and B supplemented by a supplement plan. So you've got complete choice. The provider gets paid as expenses are incurred as you access care. Lots of choice, no referrals.
The Medicare Advantage plans, again, fall into two categories, they're either PPO or HMO plans. So, a PPO plan, coverage is provided to participants to a network of providers. So, for enrollees, it’s desired that you go to an in-network provider because you have greater reimbursement. If indeed, you go outside of the network, you still have coverage, but you incur greater costs. And, sometimes, referrals are required, sometimes they're not. So, you've got a little less choice. And referrals are, sometimes, required, so a different way of accessing your health care.
The third form of Medicare Advantage plan is an HMO. Now, an HMO, providers participate in an HMO. And they share in risk, so how they get paid is different than in the other two options we talked about. Enrollees enroll, they do have to designate a primary care physician, you do have to get referrals, and you do have to stay in the network in order to have coverage. So, again, a little less choice in this option.
So, how do you decide amongst all of this, right? So, when we are working with clients, one of the first things we do is, we ask them about what their current experience is like. Because, many clients will say to me, "Oh, yeah. Well, I have an HMO plan now, or I have a PPO plan." Sometimes, they'll say, "I love my PPO plan, because I want to know that if I want to go to the Cleveland Clinic, I, at least, will have out-of-network coverage." Other people will say, "I'm in an HMO plan, and I hate it because I find that there aren't enough specialists for what I need in my geography and it's really a hassle." So, everybody has had different experiences based on their employer plan, so we ask about that. We want to know how satisfied they were with it. We ask about the current cost that they're contributing to their premium. Now, often, your employer plans are subsidized by your insurance company. So when we're doing our analysis, one of the things we get to at the end, which is helpful to someone like Kathleen when she's working with you, is that we're able to anticipate what your cost is going to be when you transition to Medicare. And, indeed, for some people, it could be much less, because, maybe, their employer is not subsidizing their plan with a great percentage. For others, they might be paying more on Medicare, because it is heavily subsidized. So these are the things we look at.
Not only do we ask how much you're contributing to your premium, we also want to know what your out-of-pocket costs are. Because those are the hidden costs that really are where the rubber hits the road. And, we want to be a futurist to predict, not only your premium, but those out-of-pocket costs, so we ask you about that. We also ask about what your current out-of-pocket maximum is. And the reason we do that is, I consider your out-of-pocket maximum your, kind of, maximum liability under a given insurance plan, whether it's employer-sponsored or Medicare. And, that means, the maximum amount you would have to dish out before a plan would kick in and pay at 100%. So, all important things to know about.
Another question we ask is whether or not, through an individual or a spouse's current or previous employment, do you have access to any form of retiree medical benefit? These are few and far between. These days, they do still exist. They exist often when people are working for a town, or a city, or teachers, federal employees, they might have access to a retiree medical plan. So we have to have information about that, because that too is a new thing we have to put in the mix as an option.
We want to know about the status of health. I began my career as a nurse. And so when I am guiding people surrounding their insurance, my clinical hat goes on. I'm really trying to predict based on someone's health status, how much they're going to use the healthcare system going forward? Because, if you're going to make a purchase, I want to be sure you're aware of that. And, again, those hidden costs often come from utilization. So, we want to know about the status of your health, we need to know about your medication so we can use the algorithm on the website. We also want to know where your providers are, your primary care and specialists. What your preferred hospital and pharmacy is, again, makes a difference in our decision-making and recommendations.
I mentioned utilization levels. We might recommend something different for someone who is perfectly healthy and sees their primary care physician once a year, and participates in preventive care, as opposed to someone who might have a chronic condition like cancer and is receiving chemotherapy. Totally different scenarios, totally different utilization, so different recommendations. We also ask about your travel plans, and whether or not you're planning to live in another part of the country for part of the year. Again, if that's the case, we would not be recommending an HMO plan, because you'd be out-of-network if you were accessing care in a different part of the country and you wouldn't have any coverage. We discuss preventive care, because Medicare has evolved to cover more and more preventive care. But there's a few things that it still doesn't cover. And we want to know preferences. Some people will say, "You know what? I've lived in an HMO my whole life. I'm happy with it. As long as my doctors are in, I'm good." Other people are like, "No, I hate that HMO. I want as much choice as possible. I want to be able to go anywhere." Different scenarios.
Again, when we are dealing with individuals who are transitioning to Medicare, we have to be concerned about other people in their family. Remember, I mentioned that Mary was retiring. She was 69. But, Bob, her husband, was only 63. Bob is on Mary's plan. What are we going to do with Bob? I have a lot of clients who still have dependent children, some who even have some dependent grandchildren. So when we are out doing our project like this, we have to keep everyone in consideration, and we have to make a plan for everyone. And, sometimes, all those plans are different depending on the ages of children, and when a spouse might be reverting to Medicare. So, there's a whole lot of considerations here.
Cost considerations (32:52)
So, remember I mentioned that out-of-pocket costs are the hidden thing that you have to think about? So, for Mary, if we just looked at premiums, you could see that if Mary chose an HMO plan, it looks like no premium added, she would just be paying her Part B premium. It looks like it would cost her about $1,800 a year. But if she chose a PPO plan, still a Medicare Advantage plan, her range in cost, just for premium, could be anywhere from about $1,800 to about $5,000. If Mary chose A, B, supplement, and D, her cost, again, just based on premiums, would be about $4,000. So, interesting. So, how do you get to what the real cost is?
I use a spreadsheet when we talk things over with clients because it is only when you do the analysis, that you can truly predict what their out-of-pocket costs might be. And, again, these are the hidden variables. So as it turns out with Mary, Mary wanted choice, she wanted to be able to go anywhere. She also spends a few months out of the year in Arizona. So, what made sense for Mary was that we would choose Medicare Part A and B. She enrolled in what's called a Medex Bronze Plan with Blue Cross of Massachusetts. We also had to do the analysis with regards to the appropriate Medicare Part D plan for her. And that premium was, kind of, high, $40.90. She didn't have any IRMAAs. Her out-of-pocket expenses with this suite of products was very predictable. Because she chose A, B, and a supplement, the only thing that she was going to have to pay for was for a yearly outpatient deductible of $203. That's where that $1,692 a month comes in. But, her out-of-pocket expenses for prescription drugs was going to be $47 a month. So, instead of it costing around $4,000, it was really going to cost more like around $4,000. So, you can see that the analysis is important here.
So, other things, you need to take into consideration, as we did for Mary, were the actual prescription drugs that she takes, and at the dosages at which she takes them, and how often. We wanted to see whether Mary was going to hit what's called a coverage gap. And I'll get into that in a second. And, that's something that you run into in your Medicare Part D prescription drug plans. It was formally known as the donut hole. We have to look at, when we are looking at the Medicare Advantage plans, some of them have deductibles. Many of the Part D prescription drug plans also have deductibles. So, again, this contributes to out-of-pocket costs. Are there co-pays or co-insurance amounts that will be assessed as you access care? And, in the Medicare advantage plans, there definitely are. I call them more pay-as-you-go plans, were her providers in the networks, what was the out-of-pocket maximums of these Medicare Advantage plans, so all of these things need to be taken into consideration.
Now, I mentioned the coverage gap. When the Medicare Part D prescription drug plan was enacted, there was a gap where you would have no coverage. And, the way that this works is that, as you pick up your prescriptions, there is a retail cost associated with your prescription. And so, that retail cost begins to accrue. And, it's the Part D plan that does all these calculations, you don't have to do it yourself. So, let's say you pick up a prescription that costs...the retail cost is $1. Well, that's what's going towards this accumulation. But, let's say it costs $1,000. Well, once the retail cost of the given drugs that you purchase reaches $4,130, so this is the retail cost, not the co-pays you're paying, once you reach that threshold, you enter what's called the coverage gap. And, now, that number continues to accrue as you pick up new prescriptions. Your next threshold is $6,550. And, once you reach that threshold, you enter what's called catastrophic coverage.
Now, it used to be that in the donut hole, you had no coverage between the $4,130 and $6,550. You had to pay the full cost of your drugs. But with changes in the Affordable Care Act happened, this donut hole or this coverage gap is closed over time, such that you do still have coverage in the coverage gap, but it's not as good as before you hit that threshold. And then, when you get into catastrophic coverage, you actually still have coverage and you have even better coverage. So, your out-of-pocket costs go up when you're in the coverage gap, and they come back down when you are in catastrophic coverage. So that's what the donut hole is about. Again, that needs to be taken into consideration in our analysis, because it translates into out-of-pocket costs.
So, my only point with this slide is that, when we really did the analysis for Mary, what she thought was going to be the least expensive, that HMO, just looking at premiums, based on her utilization, her HMO plan that she was first looking at was, actually...ended up being the most expensive. The PPO plan, a little less. But, what I call the Cadillac of coverage, A, B, supplement, and D, because you have complete choice, turned out to be the best option for her. And it's what she wanted anyway. So, the point here is that the analysis is very important.
I just wanted to walk through another scenario. Let's say we have a 75-year-old gentleman, his wife, 74, is also on his plan. They've got some options at work. But he was curious to know how he has the option, even though he has an employer-sponsored plan, to transition to Medicare if he wants to. An analysis is really important to decide because it really depends on, again, your utilization, but how much your employer is subsidizing the plan as to whether or not it's a good idea to transition to Medicare even pre-retirement, versus waiting until you retire. They fell into a higher-income beneficiary category.
So, what you'll see here is a spreadsheet that we put together for John on one side, and Jane on the other side and we walked through all that Medicare would cost them. And you see that, for John, approximately almost $9,000, for Jane, almost $9,500. So, the next slide shows us that when I put the two of them together on the left-hand side of the spreadsheet when they transition to Medicare, it's going be about $18,000 total including their out-of-pocket costs. However, the particular employer-sponsored plan, they didn't subsidize John's plan. So he was currently paying about $19,500 just for premium. And then, we added in their out-of-pocket costs. Well, now you're up to about $22,000. And then, we added in... Well, they had two different types of out-of-pocket costs. So, the bottom line is, when we looked at it, they were paying approximately $30,000. Where, if they transitioned to Medicare, it would've been around $18,000. So, again, the analysis is important.
So, I just wanted to mention some tips that, hopefully, you've taken away from this. Again, enrolling at the right time is important. You don't want to enroll in Medicare Part B when you don't need to. Especially, because there's a premium, and especially if you have an IRMAA. Medicare, if, indeed, you are leaving an employer-sponsored plan, you're offered COBRA. I would say, if you're over 65, that is not a good option for you. You will find yourself, actually, underinsured, because Medicare becomes primary for you once you're over 65. If you're participating in a health savings account, that is not congruent with being in Medicare. It's because you could suffer some tax implications. So, another consideration. Consider other members of the family, consider your utilization, consider all your costs, not just your premiums.
And one last slide before I hand it over, I believe. Understand your IRMAAs, make sure your prior insurance is terminated once you transition. Once you do transition, you have to talk to your providers about the fact that you have transitioned. And, again, be cognizant of open enrollment period as a time when things can change.
I did want to mention that Medicare does not cover long-term care needs. Long-term care is when you end up, sort of, living your life in, maybe, a traditional nursing home, and you're receiving what's called custodial care, which is care that supports you to perform your activities of daily living. That is not covered under traditional Medicare.
Lastly, just other things to consider as you're transitioning to Medicare is vision. Ophthalmology care is covered under Medicare, but routine eye exams and glasses are not. Dental is not covered, but is under some Medicare Advantage plans. Again, my point about long-term care. And, again, I just wanted you to be aware that new changes for Medicare in 2022 are still coming about right now during the beginning of this open enrollment season. So, now, I'm going to turn it over to Kathleen.
Planning for health care costs (43:30)
Kathleen: Thank you, Dianne. That was all so helpful. So, as you heard from Dianne, there are a lot of things to evaluate and consider as you choose your healthcare coverage. And, because it's so complicated, that's really why we leave it to the experts like Dianne to help our clients really figure out what makes sense for you. But, as you've seen, clearly, healthcare is expensive, and Medicare is not free despite what some people might think. So, it's really important to include healthcare costs as part of your overall financial and retirement plan, particularly if you're thinking about retiring early before you're actually eligible for Medicare. So, I included this slide, because this was recently... JP Morgan publishes a guide to retirement each year, and they do an analysis of the average monthly plan cost depending on the type of plan and the highs and the lows so that you can really see how the different costs for the different plans can vary. And I recently did an analysis using, here in Massachusetts, the health exchange for a couple that was considering thinking...they were considering retiring early before they were eligible for Medicare, so we looked at the different bronze plans available in Massachusetts. They also had two children who were still going to be covered under their plan. And the costs were pretty striking. It was going to cost them about $14,000 in annual premiums with a deductible of about $6,000, and an average maximum out-of-pocket cost of about $16,000. So, you know, if they had an expensive year for healthcare costs, they could be looking at spending over $30,000 for the year between premiums, and deductibles, and out-of-pocket costs. So, it's really important if you're thinking about retiring early, to think through if you have enough money saved to be able to afford that.
So, when we do our retirement planning for our clients, I really like to separate healthcare expenses out as its own line item as we talk about what your financial goals are in retirement, and we plan for those goals over the course of your lifetime. And, because I tend to be very conservative in our long-term plans, I use an inflation rate for healthcare expenses between 5% and 6%, which is much higher than the base inflation rate we use for other general living expenses like utilities and dining out, that sort of thing because historically, the cost of healthcare has been rising more rapidly than other expenses.
And, because the costs can and do change from year to year, and the cost can be different between spouses, or if you decide to move to another state, we can analyze and include all of the different components of your healthcare costs and our planning, particularly, if we partner with someone like Dianne so that we are including all of the premiums for private at insurance prior to Medicare, the Part B premiums, those IRMAAs that Dianne talked about, Part D premiums, the cost of supplemental policy and other out-of-pocket costs. So one of the things that it's also important to keep in mind is that your health status is likely to change over time, so it's really prudent to build in some cushion for extra out-of-pocket costs that might unexpectedly arise. You know, Dianne mentioned that Medicare does not cover dental insurance. And so, I'd like to take this time to make a public service announcement that I hope you are all flossing because I cannot count the number of times that my clients have called me to say, "Hey, I'm having some dental work done. Can you send me $10,000 for my account?" You know, your teeth are an important part of staying healthy, but these unexpected surprises can happen. And they, certainly can add up.
So, again, it's always important to reiterate that Medicare does not pay for long-term care, even though I think it's a common misconception for a lot of people that it will. Medicare Part A covers inpatient hospitalization costs and while there's no premium to Part A, there's still a cost to you in the form of deductibles and co-insurance. So you can see here what those costs are. And so, while a full discussion on the importance of planning for long-term care expenses is outside of the scope of today's presentation, this is something that is just important to keep in mind and talk to your Boston Private wealth advisor about so that you can factor this into your financial plan as well.
Another friendly reminder that you should take a moment to complete your vital inventory manager, which we will send out with the recording of today's webinar in the copies of today's slides, the vital inventory manager that we provide for our clients is a great way to keep track of all of your important health information. You know, if you had a health scare of some sort and your child had to step in and make sure that you got to you doctor okay or were taking care of yourself, this is a great workbook to give to your emergency contacts so that they know exactly who your doctors are, what your insurance coverage is, what medications you are on, etc. And it's also a really good idea to make sure your estate planning documents are in place and updated recently, that you have healthcare proxies on file, that the people who are going to be making healthcare decisions for you know what your wishes are, so that if they do need to be stepping into those shoes to make those decisions for you, they're not doing it in a vacuum with no information. Next slide, please.
So, I think, Dianne, you're just going to cover the resources. And then, I know we have a number of questions that have come in, so we will tackle those as soon as you wrap this up.
Resources and summary (50:17)
Dianne: Great. This is just a couple of websites. You know, the information is out there on the Medicare website, and all of you who are on Medicare receive a new booklet every year, "Medicare & You." And, again, a good resource. This is just a Social Security resource if, indeed, you need to enroll in Medicare. And, I think we have, maybe, a couple of more resources. Oh, I did put the PDF on here for the rules for those higher-income beneficiaries, because people are interested in that. And, I just wanted to mention that when the affordable care...excuse me. When Part D came about, there was money in that legislation to train some people. They're called SHINE counselors in Massachusetts, they're called something else in other states. But these people have been trained, they're often in councils on aging, to, sort of, help people with making some of these selections and choices. What they know how to do is use the algorithms on the Medicare website, so they can be a good resource for individuals. They won't do the degree of in-depth analysis that we do. But, I think that their work is vitally important to our society, because this was made a bit confusing.
In summary, like in all of healthcare, you have to be an active consumer, not only in your healthcare setting, but in your insurance, and/or your Medicare settings, so you can understand your preferences and decide when it's best for you to enroll and do that analysis, so you know what it is best to enroll in. And then, again, consider all the costs when you're planning, and know that if you make a choice for this year, you can reassess it at the end of the year and make a different choice for next year. So that's reassuring. So, yeah, I'm all set if we want to take some questions.
Q & A (52:06)
Kathleen: Perfect. Thank you so much. So, just one quick question I will answer, yes, everyone will receive a copy of the slides, and the copy of the slides as well as the glossary are currently available in the handout section on the side of your screen. So you can download them now if you would like. Or you can wait, we'll be sending them out with the recording in a few days. So we do have a number of questions, Dianne. So, are the Medicare different part premiums per person or per family?
Dianne: They're per person. That's a really good question. Unlike your employer-sponsored plans where you have family coverage, once you transition to Medicare, everyone is an individual so you have to look at it. That's why I have the two sides of the spreadsheet. And then I put a couple together in the bottom left-hand quadrant of that spreadsheet, because we do have to look at everyone as individuals.
Kathleen: Perfect. Thank you. And what about deductibles in Medicare Advantage plans?
Dianne: Some have deductibles and some don't, so you do have to pay attention to that. I would say that the deductibles for the actual healthcare component have become less and less over time, and many don't have deductibles at all. There's almost always a deductible for the Part D component of that Medicare advantage plan. Because, remember, I said, it gets bundled in, but you will often see a deductible for the prescription drug component? And, again, those deductibles, they just raised it for 2022 where the maximum deductible that a plan can have is $480. It used to be $420. It used to be less than that. So, that deductible amount has gone up. Some of the Part D plans don't have any deductibles at all, but those premiums tend to be much higher.
Kathleen: Great. We have a couple of questions regarding living out of...or having two residences and spending part of the time in one zip code for, maybe, seven months of the year and spending time in another zip code for five months out of the year, and then, also, just traveling abroad for a couple of months. Can you talk about that?
Dianne: Sure. So, when... Remember, I emphasized zip code. What's important is what's considered your permanent residence. So, the residents that Social Security has on file for you is what drives what you enroll in. So, I have clients who live, say, seven months out of the year in Florida, five months in Massachusetts. But we have to choose plans based on their Florida zip code, and/or the reverse. When I have clients in Massachusetts, if their permanent residence is here, then I would say, "Well, it doesn't matter where their permanent residence is, we just have to make choices based on where that permanent residence is." But if they have multiple residences, then I almost always go down the path of suggesting Medicare Part A, B, supplement, and D because, that way, they have the same coverage no matter where they are across the country, right? They don't have to contend with a network of whether it's in or out of network, they can go to any doctor they want. You do want to ask the physicians whether or not they participate with Medicare. Most do. And if they don't, it doesn't mean you can't see them, there's just some extra steps you have to go through. So, again, generally, if you're living in different parts of the country, I'm suggesting A, B, supplement, and D.
Now, traveling abroad. Some of the supplement, Medicare doesn't pay for coverage abroad. However, some of the supplement plans will kick in and pay as if you were in the United States. Often, you do have to pay those bills directly if you are accessing care out of the country and you come back. And you can submit those bills to your Medicare Supplement carrier, okay? And, again, the amount of reimbursement depends on the plan you buy, and the company you buy, and what state you're in.
Kathleen: Perfect. Thank you. I think we have time for just one more question, unfortunately. We will try to follow up with people afterwards to answer the other few questions we won't get around to. But, to wrap this up, "My husband turned 65 in December and is self-employed. I am still working with an employer medical plan. Can my [husband’s plan] be primary, Medicare be secondary?”
Dianne: I think I missed a little bit of that because of the freezing. So, it sounds like husband is turning 65 in December. She has an employer-sponsored plan. "Can my husband be on my employer-sponsored plan until such time as I retire," is that the question? I can't hear you, Kathleen, so I'll just address it. So, yes, your husband who is 65 can be on your employer-sponsored plan as long as you work for an employer that has more than 20 employees. If you work for an employer that has less than 20 employees, then both your husband needs to transition to Medicare, and you, actually, need to transition to Medicare. Even though your employer might offer coverage, the 20-employee threshold is an important thing to know about.
Kathleen: Perfect. Sorry if I was freezing at the end there. Apologies. We were doing so well with technology. I will not push my luck any further, and I will wrap up here. So, I'd like to just say thank you to Dianne for joining us today, and for sharing your time and expertise on this complicated topic. And, thank you to everyone who tuned in today to learn more about Medicare and the choices available to you. We hope you found the presentation to be helpful and informative. Just a reminder, don't forget to download the slides and the glossary of terms from the handout section. And make sure to keep an eye out for the replay which will be sent out to everyone in a few days. If you need additional guidance deciphering your Medicare options, please don't hesitate to reach out to your Boston Private wealth advisor or to Dianne. And, as always, the team here at Boston Private is committed to providing you with all the guidance and support you need to navigate your personal financial situation. So, if there are topics you would like to learn more about, please complete our post-webinar survey, because we would love to hear from you. So, until next time, I wish you and your families all good health. Enjoy the rest of your day. Thank you.
Dianne: Thank you. Bye-bye, everyone.