Conscientious Financial Planning and Retirement Income Management | 201-741-9528
from Lonier Financial Advisory LLC, Osprey, FL

Milepost 65 on Thunder Road

Milepost 65 on Thunder Road

So you’re scared and you’re thinking
That maybe we ain’t that young anymore
Show a little faith there’s magic in the night
You ain’t a beauty but hey you’re alright
Oh and that’s alright with me

A big milestone on Thunder Road flashed by last week when Bruce Frederick Joseph Springsteen turned 65. Sixty-five used to be the date when people retired, but this isn’t about that. Bruce won’t retire until the last street light burns out on the Asbury Park boardwalk. Still, sixty-five is one of the key numbers that come along in life after age fifty that we all need to pay attention to: Bruce’s birthday last week made him eligible for Medicare, and he best enroll before his Initial Enrollment Period expires in three months.

I won’t spend a lot of time here on Medicare details, coverages and costs—there are plenty of places to find that information, starting with mymedicare.gov. Besides, though it’s important stuff, it’s really boring.

Getting Covered, Capping Costs, Ensuring Insurability
Instead this is about what you should do and be aware of about this important milestone to ensure that you get properly covered, cap your healthcare costs, and protect your insurability in a program you’ve been paying for your whole working life.

Medicare is the national health insurance program for those age 65 and older who no longer qualify for employer sponsored plans. Since it is just about the only option most of us have for health insurance once we reach age 65, navigating the initial enrollment process and transitioning from prior coverage is critical, even if you may not actually use Medicare until later on because you have employer coverage now or live outside the U.S. but might return later—if you should get sick, for instance, want to come back to the U.S. for treatment, and then need health insurance!

The ABCD Parts of the Puzzle
Medicare has several parts—Part A (hospitalization), Part B (major medical), Part C (Medicare Advantage HMO/PPO Plans that can optionally replace Part A and Part B), and Part D (prescription drug coverage). For those who opt for “original” Medicare (Parts A & B), you should also consider a private Medicare Supplement (Medigap) policy, since A & B alone do not cover everything, and there is no limit on co-pays you may be charged by providers (ouch!). Similarly, everyone needs Part D prescription drug coverage—the uninsured cost for cancer therapy can exceed $100,000 a year!

Medicare coverage is important if you want to remain financially independent during retirement. Without proper coverage, a serious illness could drain your savings and dramatically alter your lifestyle.

Even Bruce, who can surely afford to self-insure and pay for services privately, will likely enroll and take advantage of Medicare for ordinary care and prescription drugs. No one wants to pay the exorbitant non-negotiated rates that the uninsured are charged. You need coverage to avoid that exposure no matter what your net worth.

Getting Covered
The Medicare Initial Enrollment Period starts three months before the month you turn 65, and extends three months after the month you turn 65, so you have seven months to get enrolled. During this period you make the initial choices about the kind of coverage and options that are best for you, choices that can have a long lasting impact on the cost and extent of your coverage.

If you’re already receiving Social Security benefits, you’ll be automatically notified and enrolled in Parts A and B, and the Part B premium will be automatically deducted from your monthly Social Security benefit check. You’ll also have the option to choose a Part D drug plan, a Medigap Plan or to switch to a Medicare Advantage Plan (you’ll still pay for Part B under all these options).

Otherwise, if you don’t plan to file for Social Security until full retirement age at 66 or 67 or are deferring your SS claim through a file and suspend strategy starting at full retirement age, you will need to enroll for Medicare separately during your initial enrollment period at age 65, either online at SocialSecurity.gov or at a local Social Security office.

If you miss your Initial Enrollment Period, you can enroll later in any annual General Enrollment Period (Jan. 1- Mar. 31 each year), but you will likely have to pay a higher premium penalty for Part B for the rest of your life—10% higher for each year you didn’t enroll! Don’t ignore your initial enrollment period.

The main exception to the enrollment penalty is that if at age 65 you are covered under a group plan based on your own or your spouse’s current employment, you can enroll in Part A and Part B anytime in the future that you’re still covered by the plan without penalty or during a Special Enrollment Period that extends for 8 months after the employment or group coverage ends, whichever is first. COBRA coverage after employment doesn’t count as coverage for determining the Special Enrollment Period. Miss the special enrollment period that starts when group coverage ends, and as with missing the initial enrollment period, you will likely be dinged for life with higher Part B premiums.

If you are covered by a group plan at age 65, check with the plan provider to find out if the plan coverage is primary or secondary to Medicare. If it’s secondary, then you must enroll in Part B anyway, or you may be without coverage! Also, if you receive SS disability benefits and have other group coverage at age 65, check with the group plan provider to properly co-ordinate benefits.

Capping Your Healthcare Costs
Original Medicare (Parts A & B) does not cover or cap all the costs you may have if you become seriously ill. The exposure in the case of serious illness can be significant. There are two ways to cap or cover those costs:

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  • Buy a private Medigap policy on top of original Medicare, available with standardized levels of coverage from A to N. The premium for the more comprehensive Medigap coverages in effect prepay co-insurance and deductibles, capping your out-of-pocket costs.
  • Join Medicare Advantage (Part C) HMO/PPO plan instead of original Medicare, which operates with a network of facilities and doctors. Costs are capped within the network, but are higher or may not be capped outside of the network. Advantage plans may have limited availability in some states.

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Medigap policies are typically more costly than Advantage HMO/PPO plans and generally don’t cover vision or dental, but they do clamp a lid on costs, depending on the coverage level purchased, and you can use any provider you want that accepts Medicare. While Advantage plans may have low cost or even no premiums and may cover vision and dental, they do restrict you to the plan’s network of doctors and facilities. If you go outside the network, you may have unlimited exposure to non-network costs, depending on the plan. There is also increasing concern about a worrisome ploy some unscrupulous doctors are using to jack up charges by having an out-of-network associate scrub in as an assistant to a procedure or an in-network hospital uses out of network ER contractors (see here, here, and here), resulting in high bills for out of network services after the fact. With Medigap, your doctors and facilities either accept Medicare or they don’t; in/out of network issues do not apply.

You should consider your finances, your health care needs, and how you want to manage the risk of uncapped costs while deciding between the two approaches. Also note that the window on choosing a Medigap policy without evidence of insurability closes quickly—later on you may be charged a much higher rate or even refused coverage.

Ensuring Your Insurability
The best time to buy a Medigap policy is during the initial Medigap Open Enrollment Period that is the 6-month period beginning with the month of your 65th birthday assuming you are enrolled in Part B. If you have current group coverage, the Medigap Open Enrollment Period works like your Initial Enrollment Period, and begins when you sign up for Parts A & B after your group coverage ends.

You are also guaranteed insurability if you switch back to original Medicare within the one-year “trial” period of your initial election to join a Medicare Advantage plan, or if your Advantage plan, existing Medigap policy, or secondary coverage is cancelled or ends through no fault of your own.

Otherwise, if you don’t opt for Medigap coverage initially, voluntarily let coverage lapse, or decide to switch out of an Advantage plan after the first year trial period, you are subject to health underwriting and may not get coverage, leaving only the Advantage HMO/PPO as a cost control option, which may or may not be suitable to you. This can be a costly predicament when you need it most—when you are seriously ill.

You can opt into a Medicare Advantage plan during your initial enrollment period, or switch from original Medicare to Medicare Advantage during the Annual Open Enrollment period Oct. 15—Dec. 7. You can also switch back from Medicare Advantage to original Medicare Jan. 1—Feb. 14 if you want out. You can also switch to a 5-star rated Advantage plan, if offered in your area, during a Special Enrollment Period from Dec. 8, 2014-Nov. 20, 2015.

However, you must be cognizant that after you’ve been in an Advantage Plan longer than a year, you may lose Medigap insurability if you switch back to original Medicare. Carefully consider the consequences so that you aren’t surprised bu enormous uncovered medical bills.

Attention, Expats
One more thing for you expats. Let’s say you live in Thailand. You’re receiving Social Security benefits, so you are enrolled in Part A automatically, but decline Part B. So you save a hundred bucks a month on the premium. If you plan to return to the United States, your only option for comprehensive coverage then may be Medicare Advantage, since the window on Medigap coverage may close on you if you have health issues. And you will need to enroll in Part B—with a premium penalty—regardless. So if you’re planning on moving back at some point, you should do the math to figure out whether it’s better to pay Uncle Sam for Part B sooner or later, and whether you’ll be happy with an Advantage HMO/PPO then or would rather opt for Medicaid coverage now with foreign travel emergency coverage alongside whatever comprehensive coverage you have locally. Then you’ll have Medicaid coverage in your pocket when you move back home.

Bottom line, get yourself covered promptly, don’t go naked with original Medicare without capping your costs, and ensure your insurability. That goes for you too, Bruce!

— Michael Lonier, RMA℠

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