Medicare Plans

Neil: Hello and welcome to The James Market Clarity podcast. I’m your host, Neil Craft, and today on Episode 27, I’m joined by Certified Financial Planner, Beth Handwerker. Thanks for joining us. How are you today?

Beth: I’m doing great Neil. The weather is amazing. Fall is here!

Neil: We love it, we love it. And speaking of fall, Medicare enrollment is just around the corner, opening up on October 15th, I believe, and we thought it would be a good time to get ahead of the curve a little bit, like talking through some Medicare issues and items with you, Beth.

Beth: Yes, well, hopefully this information will help prep you to know what to look for when you get inundated with mail and email right around this time of year for Medicare, and I want make sure you check out the upcoming article in our newsletter that is going be covering Medicare plans if you want to learn more.

Neil: Yes, well, it’s a timely topic with enrollment about a month away, but how does this tie into wealth management and how you like to address that with your clients?

Beth: That’s a great question. Well, Neil, everything has everything to do with wealth management, we have Medicare premiums that can be as high as $13,000 a year per couple.

Neil: Really… That can eat into the income a little bit.

Beth: Absolutely, a recent study found that a retired person could spend another $67,000 on top of premiums for medical care and retirement… Wow, so the yearly premiums and out of pocket cost can have a huge impact on a retiree’s budget.

Neil: Yeah, I can see that connection. It’s definitely important. I think clients need to understand the Medicare cost and what they are so that they can know what they’re spending and set aside some of the things that they probably a little more fun spending money on during the retirement.

Beth: Yeah. Nobody wants to spend money on Medicare in retirement. That’s not what people want. So one of the things we do is we help create a financial plan, and one of the goals of the financial plan is healthcare, so that we can get an idea and we can forecast what those healthcare costs are going to be, and then we can determine… But then, yes, you can afford this health stuff and all the other fun things that you want to do in retirement, and then we can also do some tax planning to make sure that your Medicare premiums don’t go up because you have too much taxable income.

Neil: Yeah, health is wealth, certainly. And without your health, you can’t enjoy the other parts of retirement, like we mentioned, so what are some ways that people can save money on medical expenses, maybe from your experience or some of the suggestions that you make with your clients.

Beth: Yeah, sure. I’m going to say this a little bit tongue in cheek Neil, but stay healthy, that’s the best way to reduce your medical costs. Certainly, having a good time, staying active goes a long way to help preventing some medical costs, but on a more serious and practical note, understanding the different Medicare options can save you money on premiums.

Neil: What options do you have within Medicare? I think that is a word that a lot of folks just kind of associate one cost too, but there are several options.

Beth: Right. Yeah, we’ve got two different paths, typically, people take… When they’re looking at Medicare. The traditional or original Medicare route is you take part A and B, and then you purchase a supplement for the cost that part A and B don’t cover. So a lot of people don’t realize that Medicare doesn’t pay all your medical cost just because you have Part A and Part B doesn’t mean you’re not going to pay anything out of pocket, as I mentioned before, $67,000 on top of premiums is what people pay during retirement. We still have deductibles, we still have co-pays, and that’s where the supplement comes into play, and so the supplement typically you pay a monthly premium for the supplement, and then that covers all the deductibles and co-pays. Okay, and then another part of the traditional route, or the original Medicare route is you pay for Part D, I call it D for Drugs, your prescription drugs. And so between A, B, a supplant and Part D, you can be looking at over $13,000 for a couple in premiums and retirement.

Neil: Wow, we’re racking up some costs here. So you mentioned that was kind of like the first pathway, how about the second pathway?

Beth: Yeah, so the second path of this becoming way more popular is doing what’s called a Medicare Part C or a Medicare Advantage Plan. So Part C combines part A, part B and the supplement, all together, some plans actually even include part D and so the biggest advantage of the Medicare advantage plan, it’s a lot of advantages, but the biggest advantage is you typically only pay the premium that you would pay for Part D, which is about $170 a month in 2022. So you only pay about $4,000 a year on average, and something to keep in mind though, with these Medicare advantage plans, if we look at $13,000 versus $4,000, that sounds awesome, that’s a huge cost savings or premium savings, but we also want to make sure that you understand that sometimes there are extra co-pays and deductibles, if you do go the Medicare Advantage route, so it could end up being a little bit more than that $4,000 number. That’s a good ballpark.

Neil: Yeah. That’s substantial savings, obviously. Are there any disadvantages or is it just, it feels a little obvious in the selection that most people would take.

Beth: Yeah, and that’s why they’ve been having more and more popular. Neil at first, I thought they were too good to be true, I thought. Oh, there’s a catch somewhere, right? I’m a little bit cynical by nature, but the biggest catch or disadvantages is that you have to see in-network providers on a Medicare Advantage Plan, and so it’s somewhat like an HMO plan, if some of our listeners have those while they were working. So you have a limited network, and that could be a problem if you want to see a specific doctor that isn’t in network or perhaps you’re traveling or you’re a snowbird, then perhaps the Medicare Advantage Plan isn’t the right route for you.

Neil: Okay, so if you want that flexibility, you’re obviously going to have to pay for it within the higher premiums in the traditional route, is that right?

Beth: Yeah, you would want to go the traditional route if you want flexibility.

Neil: Oh, I see, I see. Okay, so there’s pros and cons. How do you choose between the two options and how do you go about advising your clients when making that kind of decision?

Beth: Yeah, it can make your head swim for sure, Neil, and you get inundated every year around this time with mail and email, Oh, check out this Medicare plan, this is the one you should do, no take this one, no take this one, tis the season. It is indeed the season, so one of the things that we help people with is we’ve got these professional resources that you can bring in a list of doctors and medications, and then they tell you what plan is the best one to pick. And so again, the natural cynic and all of us is like, Well, I don’t want to talk to the professional, I don’t know how they get paid. Why are they doing this for free? And so the thing I’d like to point out to clients is that if they’re doing it for free because they make a commission from either the Medicare Advantage Plan that they suggest for the Medicare supplement that you buy, and so that’s how they make their money.

Neil: Right. And obviously, it’s an economy here, but if you have a chance to save money on premiums, it seems like that would be worth it for going that route.

Beth: Absolutely, this is something they do every single day, they know what medications get covered best under which plan, and they know you’re not coming back unless you’re happy with your choice. Yeah.

Neil: That’s a great point; repeat customer. It’s worth it.

Beth: Definitely worth it.

Neil: So you aren’t eligible for Medicare for the most part. Prior to age 65. But I think with the way our current society is trending, a lot of folks are interested in early retirement or at least scaling back in some capacity, what happens then?

Beth: Yeah, we’ve seen a lot of people during this most recent covid drama that said, Hey, you know what, this is working things for the birds, I’m going to try to retire earlier, and so one of the big components about retiring early is considering, well, how do I pay for medical, if I do retire early. So it is a tricky, but it’s a tricky situation to be in, and some jobs, you’re actually lucky enough to have medical benefits that carry forward into retirement, if you’re a government worker, a teacher, first responders, they have that kind of retiree health coverage. So that’s great, you can just keep your existing coverage into retirement no matter your age, and some people even use that coverage that they had from their old job when they reach Medicare age, and that is their supplement, so that premium could be cheaper than the traditional Medicare supplement, we talked about before.

Neil: Okay, what about people who don’t have that option? I suppose that COBRA’s on the table, at least for a temporary time period, after they retire?

Beth: Yeah, you’re absolutely right Neil, and there’s a lot of people who aren’t lucky enough to be a firefighter, a government worker, a teacher, and so there’s a lot of people who fall outside of that category, but yeah, they could use COBRA, it doesn’t last forever, but it could get you through the hump until you turn 65, but something to keep in mind, Neil, with COBRA, is that when you are on COBRA, you pay the entire premium for the health insurance rather than your employer pays for part of it, you pay for part of it. Well, when you’re on COBRA, you pay the whole kit n’ caboodle.

Neil: Mentioning it just a moment ago, but COBRA is only available for a short time or for certain folks, so what happens if that’s not an option?

Beth: Right, right. Yeah, we could have people who want to retire more than 18 months before Medicare kicks in, and so I’ve had people go out to the Affordable Care Act exchange and buy insurance, and sometimes those premiums can be pretty affordable because when you retire, income goes down, a lot of those premiums are income-based and so that is an option. Another option that I’ve had people do is what’s called health sharing. So this is not typical insurance, but you get into a group coverage with people who have some same kind of philosophical beliefs, a lot of these are religious-based. You don’t have to be necessarily a part of that religion to do it, but they’re typically religious-based, but the way these work is the premiums are typically lower, but you have really, really large deductibles, and so from my experience, what I’ve heard from people who do these plans is… They’re great for really catastrophic expenses, you know, if you end up having a terrible accident, have to have surgery or, something like that, but you pay out of pocket for the normal stuff in run-of-the mill medical costs.

Neil: Interesting, okay. Yeah, sort of a cascading effective questions there from from the beginning of October 15th and you 65, so all the way down to those other options, so… Thank you, Beth. If you work beyond 65, I think some folks, whether they scale back, whether they love their work, whatever it may be, what about them, should they take Medicare? And could you speak on any potential penalties as well?

Beth: Yeah, now that’s a real tricky question, we have a flow chart that’s on our website that helps navigate that situation ’cause it is so dependent on what size of employer work at and so many different features, so I really encourage people who have questions about that to go out and take a look at that. But yeah, if you don’t enroll for Medicare when you should have… There is a permanent penalty that you have to pay forever, I had a client who before she talked to me, didn’t enroll for Part D coverage, the drug coverage, and it was like three years late, she ended up having to pay a higher part D premium for the rest of her life because she didn’t enroll at the right time.

Neil: And that goes into perpetuity?

Beth: Yeah, forever. It’s a big deal. But for most people, if they are or if they’re working and they have what Medicare calls creditable coverage, then there’s not a penalty if you don’t take Medicare a 65, but you need to think about it because, well, maybe Medicare is cheaper than what your employer provides you, so it really just depends.

Neil: That’s a lot to consider. Yeah, so if folks have questions, if listeners wanna learn more, they should get in touch with us.

Beth: Absolutely, we’re here and ready to help. That’s the beauty of working with the wealth management team. We’ve been through the situation with dozens of clients, you can take a short cut with our experience.

Neil: Beth, thanks so much for your insights today on Medicare and the value add of wealth management. We really appreciate it.

Beth: Of course Neil, I’m happy to help anytime.

Neil: If you would like to learn more about wealth management at James Investment, please visit our website at www.jamesinvestment.com. James Investment: Planning, Investing, Advice.