During my last newsletter, I discussed options and strategies for maximizing social security benefits. This issue will focus on the largest and most costly government entitlement program, Medicare, and ways to effectively utilize its benefits. While the most significant benefits and costs are fairly standard, there are nuances that need to be recognized and addressed in order to take full advantage
Medicare is divided into four parts: A, B, C and D. To be eligible, an individual must be age 65, has resided in the U.S. for at least 5 years and has paid or spouse has paid into Medicare for a least 10 years. If they have met the 10 year payment requirement, they are afforded free coverage for Part A. Benefits include hospital care, 100 days of skilled nursing facility under certain conditions as well as limited nursing home care, hospice and home health care. It is important to note that Part A coverage does not pay for long term care. The monthly premium for those retirees who do not qualify for free coverage is $441/month.
Part B is optional coverage and can be declined. It provides coverage for two types of services – medically necessary and preventative. After satisfying a $147 deductible, some services are covered at 80% while others at 100%. It also provides benefits for clinical research, ambulance services, durable medical equipment, mental health, second opinion before surgery and limited outpatient prescription drugs. Monthly premium for Part B is $104.90.
Many individuals often decline Part B coverage because they continue to work and remain covered on their employer’s plan or spouses plan. If they wish to opt for Part B coverage at a later date, the premium may increase 10% for each 12 month period that it is delayed. However, this increase can be avoided by signing up during the Special Enrollment Period. If you are unable to enroll in Part B during the Special Enrollment Period, you may sign up during the General Enrollment Period from January 1st to March 31st with an effective date of July 1st.
There are three circumstances where the Special Enrollment Period applies.
- Anytime while you are still covered by you or your spouse’s group health plan sponsored by the employer
- 8 months following the month group health benefits end or when employment ends (whichever comes first)
- Disabled and working
Part C or Medicare Advantage are private plans administered through Medicare that provide all of your Part A and Part B benefits. They include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and other networks designed to reduce costs. As is the case with all networks, you must follow plan rules, such as getting a referral, or the cost of benefits may be much higher or not covered at all. These plans are designed to save money because out of pocket costs are generally lower than original Medicare. Each Medicare Advantage plan can charge different out of pocket costs and have different rules for obtaining services.
Part D is the much ballyhooed optional prescription drug coverage. After satisfying a $325 deductible, approximately 75% of total drug costs up to $2,970 are paid by Medicare. After you reach this initial coverage limit of $2,970, there is a so-called “donut hole”, until you spend a total of $4,750. While in the donut hole, enrollers receive a 52.5% discount on brand name drugs and pay a maximum of 79% co-pay on generic drugs. Beyond the $4,750 threshold, the insured’s pay only about 5%. The cost for most insureds is no more than a few hundred dollars per year.
A major consideration for retirees considering Part B and D coverage is the additional premium for high income individuals. High income is defined as $85,000 for a single taxpayer and $170,000 for those filing jointly. Depending upon the level of income, individuals may pay premiums between $146.90 and $335.70 per month for Part B and between $11.60 and $66.40 monthly fort Part D.
While the issues for consideration regarding Medicare are not nearly as complex as Social Security, nevertheless, careful attention must be paid to specified time frames to enroll and possible premium increases resulting from exceeding income thresholds. As the major component of our escalating federal deficit, it is almost certain that more changes will arise as ways to control Medicare costs continue to be debated.
Clifford L. Caplan, CFP®, AIF®
In the News: On February 19th, I was interviewed for an article titled “Six Financial Tips Young Adults Need to Know” on the website www.moneyunder30.com. In the article, I discussed the benefits for young adults of early participation in a 401(k) plan, Roth IRA and 401(k) investments, early purchase of life and disability insurance and the importance of establishing credit.