[Editor’s note: A healthcare-coverage consultant provides talking points advisors can share with clients.]
Every day, 10,000 people in the U.S. turn 65, which is the age when Medicare eligibility hits. The Medicare enrollment process can be tricky and there are many things to consider when enrolling. Below is a list of five key topics that will help you confidently begin the process of transitioning to Medicare:
1. What Is IRMAA?
IRMAA, or income related monthly adjustment amount, is the surcharge to Medicare Part B and D premiums that is based on your annual income. The Social Security Administration (SSA) uses tax information from a two-year lookback to determine whether you owe an IRMAA. There are five IRMAA income brackets starting at $91,000 for single filers and $182,000 for married filers. Certain situations (such as marriage, cessation of work, death of spouse, etc.) allow for an appeal to the SSA if you can prove that your income situation from two years prior has significantly changed. The premium charged is then based on projected income instead of the two-year lookback. Conversely a one-time event (such as the sale of a home) that generates capital gains will count towards the calculation, which may push you into a higher IRMAA bracket. Educate yourself and plan accordingly. And remember, IRMAA is calculated every year so you are never locked into an income bracket.
2. Selecting Traditional Medicare or Part C.
Traditional Medicare is comprised of Parts A and B. Medicare Advantage is known as Part C. Both options provide the same hospital and medical benefits but there are key differences between the two programs.
Medicare Part A provides hospital coverage and Part B covers medical services coverage. It does not cover prescription drugs and does not provide any extra health benefits such as dental or vision. The program is administered by the federal government. Supplemental policies are needed to cover cost sharing gaps left by traditional Medicare. Enrollees must also choose a Part D prescription plan. Traditional Medicare allows access to any Medicare participating provider nationwide with no gatekeeper or referral requirement.
Over 40% of enrollees choose a Medicare Advantage plan which combines Part A and B under one program. These plans often include prescription drug plans and other benefits like vision, dental or fitness not offered under the traditional option. Although funded by the federal government, Part C plans are administered by private insurance companies and have co-pays and/or deductibles for most services. Part C plans will have network restrictions so If you are someone who spends time in two or more locations, it won’t work for you.
Many baby boomers are used to dealing with managed care plans and find Part C plans desirable for the extra benefits. If you go the Medicare Advantage route, understand your plan and the out-of-pocket expenses you will incur as you utilize the system. Also pay attention to the STAR rating for the plans you consider. STAR ratings, 1-5, are assigned by the Centers for Medicare & Medicaid Services (CMS) to each plan based on various aspects of member outcomes. A good rule of thumb is to focus on plans that score in the 4-5 range. These are plans that perform well and offer a solid product to their members.
3. Know the HSA Rules.
Once you enroll in Medicare, you can no longer contribute to a Health Savings Account (HSA). If you have an existing account, it can be used to cover medical expenses and program premiums, deductibles and co-insurances. HSA funds cannot be used to pay for supplemental policy premiums. If you continue working past age 65, defer Medicare and are covered under an HSA eligible group plan, you may continue to contribute but are required to stop contributions six months prior to becoming Medicare primary. Any funds contributed within the six-month period leading up to the Medicare start date must be paid back and tax penalties will apply.
4. AVOID the GEP.
The annual Medicare general enrollment period (GEP) is January 1 to March 31. Do not confuse this period with your initial enrollment period (IEP) which is the three months before, the month of and the three months after your 65th birthday. GEP is nothing more than a punitive enrollment opportunity for those who missed their initial enrollment or a special enrollment. Individuals enrolling in Medicare for the first time during this period will have coverage effective on July 1. This results in a coverage gap and a lifetime late enrollment penalty. In general, the only people who can safely delay enrolling in Medicare during their IEP are those who are actively employed and covered under a credible health plan (20+ employees). Once those individuals are ready to move to Medicare, they will qualify for a special enrollment period (SEP) and will not incur any penalties.
5. Plan Separately for Long Term Care Expenses.
Although it feels like this point is made frequently in a variety of articles and publications, it’s worth repeating. Medicare makes a clear delineation between coverage for a skilled rehabilitative service and a custodial care service. Skilled rehabilitative services are covered by Medicare Part A and custodial care is not. Skilled care is restorative in nature, such as rehab after a knee replacement. Custodial care is provided by non-skilled personnel and centers primarily around activities of daily living.
The bulk of long-term care needs fall into the custodial category. Don’t be fooled into thinking otherwise. Long-term care costs and planning are best addressed as part of your overall financial planning exercise as they are primarily out-of-pocket expenses. Long-term care insurance policies have come a long way over the years. If this is of interest, find yourself a reputable agent who can explain options in detail.
Barbara Davis is the founder and principal of Health Benefit Advisors LLC, a nationwide advisory service that helps individuals plan for their healthcare needs and become educated healthcare consumers. Over the last 25 years, she has served in executive positions with major health insurance companies. She provides individuals with unbiased advice on pre-Medicare health insurance options and the Medicare enrollment and selection process.