ABCs of Medicare
Tom Allen, Insurance Consultant & Medicare Expert, breaks down the many letters of Medicare in this webinar. The intention of the ABCs of Medicare is to help people understand what Medicare Parts A & B cover, and more importantly, what they don’t cover and what you need to do about it. You’ll learn how the Medicare Open Enrollment Period actually works, how to find out what prescription drugs are covered under certain plans, what Parts C & D cover, and more.
- White Paper: Making Sense of Medicare (Updated 2021 Numbers)
- The Guided Retirement Show Medicare episodes:
Good day. Barber Financial Group and I welcome you to the ABCs of Medicare. We’re going to be discussing a difficult topic, a confusing topic, and we’re going to try to separate the various pieces of Medicare, so hopefully, it will make more sense to you.
Our goal is for you to have enough information so that when it’s time or if it’s time for you to decide on your Medicare benefits, you’ll have more of an educated standpoint to make those decisions from.
Meet the Presenter
I am Tom Allen; I’ve been in the insurance business for about 38 years, I hate to admit that. For years, I was involved in group health insurance, which sells insurance to employers that provide it to their employees.
What Do I Do About Medicare?
In the last few years, my family and friends have asked me, since I was the insurance guy, “What do I do about Medicare? It’s confusing, and I don’t understand.” And most people in our age group are afraid of two things. We’re worried that we made a poor choice, or maybe worse yet, there was a better choice that we were never aware of.
So the purpose of the educational seminar that we’re doing is to give you the background and information to hopefully help you get to the point where you can make an informed decision.
History of Medicare
The topic of Medicare is not new. Harry Truman, shortly after World War II, wanted to create a widows and orphans fund. We had a lot of widows, and we had many orphans at that time in this country. And shortly after that initiative began, the Korean War became a problem for this country.
And almost anything Harry Truman wanted to push forward received little traction. In 1954, Dwight Eisenhower had an initiative on having a safety net for the seniors in this country. That mantle was picked up by John F. Kennedy, who wanted to make that one of his presidency’s mainstays. Sadly, we all know what happened to John Kennedy. Lyndon Baines Johnson picked up that mantle and, in 1965, passed the Medicare Act.
And a side note, that’s one of the finest gifts that our country has ever given to our age group. It is extraordinarily valuable and security benefit. When Medicare first came out in 1965, there were about 2,000 insurance companies in this country selling insurance.
When Medicare first came out, they recognized that it didn’t cover everything. And they came out with a supplement to Medicare, or they had a tie-in plan for Medicare, or they created a Medigap-type product. The point being, in 1966 or 1967, if you wanted to purchase a Medicare supplement plan, you had your choice of 8 or 10,000 different policies.
We’ve all heard about the blind pig that finds the acorn, but that’s what you would have been experiencing had you picked the best Medicare supplement or tie-in or Medigap policy for your needs at that time.
Medicare Coverage at a Glance
There are two ways to get Medicare coverage, original Medicare and Medicare Advantage Plans. There’s also a Medicare supplement or tie-in or Medigap policies that we’ll discuss in the slides coming up.
With original Medicare, most of us recognize that Medicare doesn’t cover everything. Medicare Part B pays 80% of your expenses, covered Medicare expenses, which means you pay 20%.
If I get a bill for $100, I pay $20. If I get a bill for $886,000, I have a real serious problem with my assets. They’re eroded or completely gone. So for most of us, having original Medicare only is not an acceptable position to be in.
With original Medicare, there’s an opportunity for significant asset erosion. Now, you will have access to good quality healthcare, which is paramount. But it’s also important to have good access to medical care when you need it, and, if you can, also protect your assets.
With original Medicare, it’s not enough. About a third of the Medicare population goes with Medicare only or has a retiree program through the military or a railroad. About a third of the Medicare population has a Medicare supplement plan, and about a third of the population is now in a Medicare Advantage Plan.
What is Covered?
What’s covered? Let’s dissect the various pieces of Medicare. Generally speaking, Medicare covers services like lab tests, surgeries, doctor’s visits, inpatient hospital care, supplies, durable medical equipment like wheelchairs and crutches, things of that nature when it’s considered medically necessary to treat an injury, a disease, or a condition.
Medicare Part A
Medicare Part A, let me stop and say, this is the first opportunity for people to be confused. There’s Medicare Part A, Medicare Part B; what’s the difference? The easy way to remember it is Medicare Part A covers the hospitalization side of healthcare delivery.
If you were going to ask me to cover your hospital bill or your doctor’s bill, you would hope that I would cover the hospital bill. That’s going to be the larger expense generally. And that’s what Medicare Part A covers.
Eligibility for Medicare Part A
To be eligible for Medicare Part A, you have to be a US resident or a legal resident of the United States for five years or more, and you’re qualified to participate in Medicare Part A.
People often will say that Medicare Part A is free; there’s no premium. It may feel that way, but Medicare Part A has a premium, and you and your employer over your working years with your FICA contributions have prepaid your Medicare Part A premium.
So when you go on Medicare, granted there is no expense, there’s no premium for you to pay for Medicare Part A, but you have prepaid Medicare Part A over your working years contribution between you and your employer.
Medicare Part B
Medicare Part B is the outpatient side. It’s services from doctors and other healthcare providers, clinical services, ambulance services, durable medical like crutches and wheelchairs and things of that nature, mental health, inpatient, outpatient, and some partial hospitalization for inpatient.
It covers getting a second surgical opinion, and it has limited outpatient prescription drugs. And they are extremely limited. Some examples would be some of the medications that you would receive for cancer patients.
Coverages would be for some of the more exotic or clinically or hospitalized administered drugs. But for our purposes, for the average person, Medicare doesn’t cover prescriptions. The prescriptions we take on a typical basis are not covered by Medicare.
Eligibility for Medicare Part B
To be eligible for Medicare Part B, you have to attain the age of 65 in most cases. Medicare can be eligible for people that are under age 65. But for most of us, it’s the 65-year-old group and more. To be eligible, you would have five years of legal residence or be a US citizen.
Monthly Premiums for Medicare Part B
Unlike Medicare Part A, which is prepaid, there is a premium for Medicare Part B. The current premium for Medicare Part B threshold is $144.60 per eligible person per month.
The $144.60 is based on your adjusted gross income of two years prior, and it’s means-tested. The threshold is $144.60, but if you and your spouse, if you file jointly, are at a higher income bracket, an additional premium can be added to the $144.60 for the Medicare Part B.
What You Pay with Medicare in 2020
What You Pay with Medicare Part A in 2020*
We’ve talked about Medicare Part A briefly. Medicare Part A, the hospitalization. During a benefit period, you’ll pay the first $1,408. And it’s a 60-day benefit period. Copay for days 61 through 90 is $352 per day. And Medicare gives you an additional lifetime of 91 days to 150 days of hospitalization, and you pay $704 a day.
It is already crystal clear that there is a huge opportunity to have assets erosion with just traditional Medicare. For a skilled nursing facility. For the first 20 days, you pay $1,408 days. Days 21 through 100, you pay $176 per day. Long-term care is not covered.
Skilled nursing facilities that are covered are predicated based on the assumption that there is an improvement in your condition, expected or probable.
If your condition is not a condition you’re going to improve from, you would be in a long-term care facility, and Medicare doesn’t cover long-term care facilities. There are additional insurance products that are available to cover that, just not Medicare.
I also indicate on the slide that the first three pints of blood are covered at 100%. It can be a minor benefit, but it’s also very expensive, and it’s a nice benefit to have covered.
What You Pay with Medicare Part B in 2020*
So Medicare Part B, the outpatient side, there’s a $198 deductible. That’s what you pay before Medicare starts paying what it’s going to pay. Then Medicare pays 80% of covered Medicare expenses, and you pay 20%.
This is an excellent time to point out that under Medicare Part B, the deductible is annual. Under Medicare Part A, the deductible is a benefit period. There’s a major difference here.
Most of us in our working years, when we had group coverage, had an annual deductible. It started January 1st, ended December 31st. And during that period is when we accumulated our deductible.
The Medicare Part A benefit period deductible is significantly different than that. The deductible period begins when you start receiving hospitalization. When you get out of the hospital, that ends that benefit period.
If there are more than 60 days before you go back to the hospital, you again go into a new benefit period, you would pay an additional $1,408. So mathematically, you could pay the $1,408 three times during one single year. Medicare Part B is an annual deductible of $198.
Medicare is Confusing
It’s already clear that Medicare is a confusing benefit. I don’t believe it was ever the intention to make this a confusing benefit for our seniors; it’s just that it has emerged and developed over many administrations.
So the net result is we have a confusing program, although I don’t think any administration intended to make it confusing.
Ways to Find Out if Medicare Covers Your Needs
You can talk to your doctor or other healthcare providers and ask if Medicare covers certain services or supplies. And you can go to the medicare.gov website.
At the top, one of the tabs is, is my service covered? You can type in the benefit of the service that you’re receiving, and Medicare will tell you if it’s covered or not.
I tend to rely on what my medical provider tells me, but I also tend to verify. None of us want to have a surprise bill after hospitalization to determine that something provided was not covered.
Two Factors of Medicare Coverage
Medicare coverage is based on two major factors, two main factors:
- Federal and state laws
- National coverage decisions made by Medicare, whether something is covered.
I put the second point up because I want to point out that Medicare does an excellent job keeping its finger on the pulse of emerging healthcare delivery in this country.
If they see that something is providing the services or the outcome they are looking for, which is best for the patient, they’re quick to begin reviewing it and adding it if appropriate. The point is we’re not receiving five-year-old medical delivery.
What’s current and cutting edge is being looked at by Medicare and will be included and incorporated if it’s appropriate.
So this is an excellent time to stop and say, we have talked about Medicare Part A and Medicare Part B, but it gets more confusing.
Medicare Part C
We now have Medicare Part C. Medicare Part C is frequently referred to as Medicare Advantage programs. Medicare in the late 1990s recognized that they had a significant problem coming down the pipeline, the Baby Boomers. Over 11,000 people will turn 65 in this country today, and we’re not at the peak. The peak will be at over 12,000 a day.
Dealing with the Baby Boomer Problem
Medicare recognized that they could staff an office and computerize for this giant glut of human beings coming in the pipeline. But they knew that there would be an ending and a tapering off of that group of people. And then, they would be overstaffed, over-computerized, over-officed.
They decided to go to the private insurance industry and ask if they could rent or lease or outsource Medicare needs to the private insurance industry for this amount of money a month.
And the private insurance industry said, “Yes, we’re very interested in that. We want to sign the contract today and start seeing patients tomorrow.” This is the Reader’s Digest version of the story.
Medicare said, “Your response was almost too quick; we’re interested in having you do this.”
The private insurance industry said, “This will be very, very profitable for us. We take more risk every day on our private book of business than what you’re offering us to cover a Medicare person. And we recognize that when you outsource to us, we’re replacing Medicare, we’re covering all the steps, ID cards, customer service, adjudicating claims.”
“Everything that Medicare does, you’ll be paying us to do. But what you’re offering to pay us is very profitable to us.”
Medicare said to them, “There is a profit cap.” And the profit cap reportedly is 20%. I’ve not seen that in print, but that’s the general consensus.
The private insurance industry said, “We’re going to make more than 20% profit on this.” And Medicare said, “By statute, you can’t.” And the conversations came to an end.
Coming Up with Medicare Advantage
One major insurance company went back to Medicare and said, “Here’s an idea to stay under the profit cap. What if we offer additional benefits above what Medicare A and Medicare B provide?” Henceforth the phrase Medicare Advantage. Medicare quickly embraced that.
Medicare’s first response was, “We like that. The first thing we’re going to do is require an annual maximum out-of-pocket.” And in our marketplace, the annual maximum out-of-pocket is $6,500 to $6,700.
So that under a worst-case scenario, I’m going to spend out-of-pocket $6,500, $6,700, depending on the policy for any and all services I need during that calendar year.
I like better knowing that less than 1% of the people under Medicare Advantage programs hit their annual maximum out-of-pocket. The point being is that there is a limit to how much you would spend out-of-pocket on a Medicare Advantage Plan.
Medicare Advantage Plans are Monitored
Medicare very closely monitors Medicare Advantage programs. We’ve all heard of the velvet glove and the iron fist. With Medicare, there’s no velvet glove. They are very, very stringent and very tight on Medicare Advantage programs.
They monitor them, and they make sure that the Medicare Advantage program is doing exactly what they agreed to do and what Medicare requires them to do.
What is Medicare Part C?
Going back to the slide, to be eligible to have a Medicare Advantage program, you must live in that Medicare Advantage program’s service area. You must have Medicare Part A and Part B, and you must maintain Medicare Part A and Part B.
The primary reason most people will join a Medicare Part C, Medicare Advantage program is they have low copays and little or no premium, and plans must include a maximum out-of-pocket or maximum exposure.
Medicare Part C plans eliminate the major vulnerabilities found under just Medicare Part A and part B.
The annual open enrollment period for the Medicare Advantage program is October 15th through December 7th each year to reaffirm your choice or move to another plan.
We don’t need to mark the calendar for the annual open enrollment period. Nine out of ten commercials on television are going to be for Medicare Advantage. And it feels like nine out of ten advertisements we receive in the mail are for Medicare Advantage programs.
But remember I mentioned that Medicare Advantage is very, very profitable to the carriers, and that’s why they advertise so hard during that period.
HMO – Health Maintenance Organization
Medicare Advantage programs generally fall into two categories, Medicare Advantage HMO, Health Maintenance Organization, limiting you to the panel of physicians in their network to seek and receive care.
That physician will be considered your primary care physician. And that primary care physician will be the quarterback, if you will, in deciding what services you receive, from whom you receive those services, and if you need to be hospitalized, which hospital you go to. It’s a very controlled, closed panel benefit plan.
For many of us, well, about 17% of the population, statistically, is a perfect candidate for a Medicare HMO type program. I know of a client whose primary care physician and the hospital of their choice are in the HMO program. They’re quite content because there’s no change for them.
The doctor they see and the hospital that they would choose to go to should they need hospitalization is within the HMO plan.
PPO – Preferred Provider Organization
The second choice under a typical Medicare Advantage program is a PPO, Preferred Provider Organization.
It has a panel of in-network providers that you can choose and receive your care. If you need to see a specialist, you are free to choose within their panel of specialists.
In our marketplace, the two largest Medicare Advantage programs have such a large panel of providers. I tongue in cheek almost saying that you deserve a gold star to find a provider who is not within their network.
The point being is that they also have benefits for out-of-network. If you want to gas up the car and drive to the Cleveland Clinic or Mayo Clinic, assuming that they’re not in the panel’s provider base, you may do so at a lesser benefit level.
But you have total freedom of choice on who you receive healthcare from and when you receive healthcare.
Summarizing Medicare Advantage Plans
To summarize, under a Medicare Advantage program, you have two options, an HMO, Health Maintenance Organization, or a PPO, Preferred Provider Organization.
One is an enclosed panel of providers; the second gives you freedom of choice. But as I mentioned, the two largest Medicare Advantage programs in Kansas City have a very vast large quantity of providers. Seldom can you find a provider, a doctor in our marketplace that’s living under their own shingle. For example, “Hi, I’m Dr. Tom Allen, and I’m my own employer.”
Most doctors in today’s environment are employees of a large group, a hospital group, or a large multi-specialty group. Large hospital groups and large multi-specialty groups are very interested in what’s now being referred to as the senior market, our group, our age group.
It’s very profitable for them, and they want to participate in all the programs that are being sold to that age group.
Ways to Receive Medicare Coverage
This slide shows two of the ways that you can receive coverage through Medicare.
The left side shows the original Medicare, Medicare Parts A, and part B. And it also shows that you may need to consider Medicare Part D, the fourth letter in the alphabet that Medicare uses. Medicare Part D is a prescription drug benefit.
Remember, I mentioned that Medicare essentially does not cover prescription drugs for the typical citizen. If you go with just traditional Medicare, you would need to have a Medicare Part D prescription drug plan.
Suppose you want to consider going to a supplement or a Medicare tie-in plan or a Medigap program. In that case, that’s something that you might want to consider adding under traditional Medicare. It would provide you the protection of assets and give you reasonable access to healthcare when you need it.
Medicare Part D and Medicare Advantage Plans
Medicare Part C, Medicare Advantage programs, you continue to have Medicare Part A and part B. In our marketplace, most Medicare Advantage programs include Medicare Part D, prescription drug plans. So you would not need to have, and you could not have a separate Medicare Part D program.
Budgeting for Medicare
In our marketplace, most Medicare Advantage programs have a low or zero premium. A Medicare supplement or a Medicare tie-in or Medigap program, all three mean the same. I tell people emerging into the age 65 group that they should budget about $150 a month for their supplement premium from a budgetary standpoint.
Since they’ll need to have a separate Medicare Part D prescription drug plan, I tell people to budget about $25 a month. In many cases, that’s overstating the actual expense. From a budget standpoint, I would rather budget it a little bit high.
Please recognize as we age each year, the premium for our supplement plan and our Medicare Part D prescription plan can and, in most cases, will increase.
More on Medicare Part D
Medicare Part D, prescription drug, let’s dwell on that for a little bit.
Since we’ve mentioned that Medicare Parts A and part B essentially do not cover prescription drugs, you’re going to have to, most of us are going to; if we’re not using prescriptions, we’re going to. As the years pass, the parts wear out, and prescriptions become part of our day-to-day life.
To be eligible for a Medicare Part D prescription drug plan, you must have Medicare Part A and/or Medicare Part B. And this is a slight change. To purchase a supplement plan or a Medicare Advantage program, you must have Medicare Part A and part B. To purchase a Medicare Part D prescription drug plan, you must have part A and/or part B.
Medicare Part D Coverage Example
I want to point out that, and I have this on the slide, Medicare Part D, prescription drug plans are not required to cover all prescription drugs.
I’ll make up an example. Let’s say that there are 41 high blood pressure medications on the market. Medicare Part D, Medicare prescription drug plan has to offer a substantial standard level of coverage approved and agreed to by Medicare.
So in this example, there are 41 prescription drugs for high blood pressure. And let’s say that a Medicare Part D program covers 35 of them, and Medicare agrees that that’s a substantial standard level of coverage.
I want to mention to you that Medicare Part D carriers vary on which prescriptions they cover. If I have found through my doctor, my provider, I’ve found the prescription for my high blood pressure that provides me the least side effects and gives me the necessary outcome.
When I’m picking out a Medicare Part D prescription drug plan or a Medicare Advantage Plan that includes Medicare Part D, the first thing I want to do is make sure that the carrier covers the prescription I’m taking. That’s an important piece in the decision process.
Medicare Part D – Prescription Drug Tiers
And I’ll add a Medicare Part D carrier has five tiers of prescriptions. Using my vernacular, there is:
- Low-cost generic
- High-cost generic
- Low cross-brand name
- High-cost brand name
- High dollar chemotherapy type drugs, and generally drugs administered in a clinical or a hospital setting
One carrier may cover the prescription I wish to take, or I need to take at tier-four, and another carrier may cover it at tier three.
The copay will be significantly different between a tier-three and a tier-four brand name prescription. That will help me decide which Medicare Part D or which Medicare Advantage carrier I’m interested in.
One of Barber Financial Group’s clients in taking this step and determining which plans better fit her prescription drug needs saves over $200 a month in prescription copays.
Now, granted, she takes quite a few prescriptions. She has three rather significant health issues. But all three of them are currently being covered very well and handled very well by prescription drugs.
Review Your Options Before You Choose
I would urge you to go to medicare.gov. At the top of that site, you can click on pick a plan. Even if you’re not on Medicare yet, you can still list your name, your gender, your zip code.
And there are two tabs, pick Medicare Part D or pick Medicare Advantage Plan. And if you want, click them both. You can list the prescriptions you’re currently taking, and Medicare will give you a printout of which plans in our marketplace most closely match your current prescription drug usage.
It can save you a great deal of money, and it also ensures that you can continue to take the prescriptions that are important to you.
Medicare Part D Premiums
Premiums for Medicare Part D can be deducted from your Social Security monthly check if you choose to do so, or they’re happy to bill you in a variety of fashions.
The Donut Hole
We’ve all heard about the donut hole, and I’ll mention this again in the future. The donut hole essentially was closed in 2020 by the Affordable Care Act.
Four Phases of Medicare Part D in 2020*
The four phases of Medicare in 2020 Part D, prescription drug plans for the donut hole, you see on the left slide, you pay 100% of the retail cost before meeting the $435 annual deductible.
Once that’s satisfied, you pay 25% of the retail drug costs until you reach a maximum of $4,020, which is the initial coverage limit. At that point, you move into the third tier or the third phase, and you pay 25% of generic or brand name retail drug prices after meeting that $4,020 initial coverage limit, and you are now in the donut hole.
The fourth tier is you pay approximately 5% of retail drug prices after meeting a $6,350 out-of-pocket limit when entering the catastrophic coverage. The $6,350 limit is the retail price of the prescriptions that you’re currently taking.
Medicare Part D – Penalty
There’s a penalty for not taking Medicare Part D prescription drugs when it’s first available. And I might add that there is also a penalty for not taking Medicare Part B when you’re first eligible.
The whole concept of group insurance is that many shoulder the expenses of a few. It would be ideal if we could purchase insurance only when we needed it, like an auto carrier right after you had an accident, and put insurance in place. We’d save premiums from all the months and years before that point.
Unfortunately, that’s not how group insurance works. Medicare wants many shoulders to cover the expenses of the few. So they want healthy shoulders participating in Medicare Part B and Medicare Part D when they’re first eligible.
If you choose to wait until you need it, you still have the right to participate in those programs, B and D, but there’s a penalty or an additional premium.
I will point out that you have 63 days from losing your group coverage or losing credible coverage to take Medicare Part B or Medicare Part D coverage. If you wait longer than 63 days, you will have a penalty to deal with.
What if I Work Past Age 65?
I’m often asked in workshops, what if I work past age 65? And there’s a couple of points I’d like to make.
Suppose you work past 65 and have group coverage through your employer or have coverage through another credible source. In that case, Medicare is not interested in having you pay the Part B and Part D premium because they assume that you’re contributing something or paying something towards the plan, the employer plan that you may have.
There’s no reason to duplicate expenses for premium, and there’s no reason to duplicate coverages.
An Example of Working Past 65
Let’s hypothetically say a person works to age 70 and then decides to retire. Many people in our age group are now working past 65. When you stop the coverage through the credible coverage, through the group plan, should that be the case, you’ll be given a certificate of credible coverage.
That’s required by law through your employer’s insurance company or through the insurance company if it’s not employer-based. And they’ll send you a certificate of credible coverage, and it’ll tell you the beginning date and the ending date of that coverage.
Medicare will contact you and ask if you have credible coverage. If you do, they will ask you for the certificate of credible coverage certificate. Send it to Medicare, and that eliminates the penalty.
It’s important to remember you have 63 days from losing your credible coverage or your group health coverage to put something in force, or you will be paying the penalty.
Medicare Part D – Penalty Continued
The late enrollment penalty cost depends on how long you went without the part D, prescription drug coverage. It’s calculated by multiplying 1% of the national base beneficiary premium, in 2020, that’s $33.19, times the number of full uncovered months you didn’t have part D coverage. The monthly premium is routed to the nearest $0.10 and added to your monthly part D premium.
The national base beneficiary premium may increase each year, so your penalty may also increase each year. It’s important to realize that you do not have to have a penalty, just take actions when it’s appropriate, and you’ll be eliminating that potential.
And the same thing applies exactly to Medicare Part B.
Medigap Tie-In Plans
Let’s talk about the Medigap tie-in plan. We’ve talked about participating in Medicare Part A and part B that which doesn’t cover services at 100%. There’s an opportunity for asset erosion.
If you go with the Medigap tie-in plan, which is also known as a supplement plan or a tie-in plan, you must maintain Medicare Part A and part B.
These policies are sold by a private insurance company. They cover some or all of the expenses depending on which tier of coverage you purchase that isn’t covered by Medicare Parts A and B. To be eligible, you must have Medicare Parts A and B and maintain and keep Medicares Parts A and B.
There are tiers, and on the next slide, I’ll show you the various tiers of coverage. Fewer benefits, of course, less premium, the higher benefits of the premiums will go up.
Narrowing Medicare Options Over the Years
I mentioned earlier that shortly after Medicare was passed, the 2,000 plus insurance companies in this country recognized an opportunity to create policies to sell to the Medicare recipients. They had five or six or seven choices. So in 1967 or 1968, a person could have a choice between 6 or 8,000 insurance policies.
In the mid-1970s, the government stepped in and standardized these. And not to make things more confusing, they lettered them A through N. Yes, we have Medicare A, and we have Medicare B, and we also have tie-in plans A and tie-in plans B.
So it is confusing not necessarily by intent but by reality. And there are ten standard plans. The government said it makes no difference what carrier is selling it, a tier A or a tier G depending on which plan. We’ll look at the next slide to see that.
Standardize the Plans
The plans are standardized irrespective of which carrier is selling them. Now, the government said, “We don’t care what you charge. But from a benefits standpoint, we are standardizing the benefits. This is too confusing for this age group, and we’re going to standardize them and make it a little more understandable.”
Medigap tie-in plans are guaranteed renewable unless the premium is not paid or if you drop Medicare Part B.
Can’t Be Dropped Due to High Utilization
I want to make the point that if I have that $886,000 claim, my tie-in plan or my Medigap plan cannot drop me because of high utilization. As long as I pay my premium, as long as I maintain Part B, I will be able to stay in that tie-in plan. I mentioned Medigap plans would also necessitate Medicare Part D coverage. Medicare tie-in plans or supplement plans tie into Medicare.
And since Medicare essentially does not cover prescription drugs, you will need a Medicare Part D prescription drug plan if you go with a tie-in plan, a supplement, or a Medigap plan.
Medigap Chart 2020
Here’s a chart showing the various plans, the standardized plans sold in our marketplace in 2020. The higher the benefit, the higher the premium. Plan F, which is not shown in this chart, was the highest tier of Medigap tie-in policies.
The government ended that on January 1, 2020. If you were eligible to purchase a Medicare tie-in plan before January 1, 2020, you may participate in the F level of coverage. Now the highest tier of coverage is G., and the only difference between tie-in plan G and F is that F paid the Medicare Part B deductible of $198 a year.
This doesn’t give me pause. I never felt that the Medicare F plan was that good of a purchase. Painting with a broad brush, most Medicare tie-in policies cover the deductible, the F level, which is $198 deductible for more than $198 for that potential benefit in 2020.
So I’ve never felt that it was necessarily a great plan to participate in.
Side Note for F Plan Users
As a side note, people currently in a Medicare Part F plan can maintain that and continue in it. They’re grandfathered in.
But I’ve mentioned that group insurance is predicated on the assumption that many shoulder the expenses of a few. And as of January 1, 2020, those now becoming eligible cannot participate in the F plan. So it’s a closed-door policy that cannot be purchased after that time.
The people in an F plan will probably see increases in their premium at a little higher rate because they do not have young shoulders coming in to offset the expenses of the older shoulders.
The enclosed group of people are turning a year older each year. And as we age, we use more health care. If we use more healthcare, the premiums will go up.
So that group of people in an F plan may find themselves in a position where their premiums will start escalating at a little faster rate.
If you’re in an F plan, I would encourage you to contact your Medicare tie-in, Medigap carrier, and ask if you can move into a G level or a lower level.
Again, painting with a broad brush, most Medicare tie-in carriers will allow you to move from a higher tier to a lower story of coverage without underwriting.
Conversely, if you’re in a lower tier of benefit and you want to move to a higher tier and start paying a higher premium, they’re generally going to require underwriting. There’s a motivation for you to spend more money every month to get a higher level of benefits.
8 Things to Know About Medigap Policies
Things you should know about Medigap policy. You must have and maintain part A and part B. If you have a Medicare Advantage Plan, you can apply for a Medigap policy, but make sure that your Medicare Advantage Plan will allow you to exit before you do that.
You cannot have a Medicare tie-in plan and a Medicare Advantage Plan at the same time. It’s the private insurance company that should be paying a monthly premium for your policy. And in addition to that, you’ll be paying the Part B premium.
Medigap policy covers one person. If you and your spouse are both Medicare age, you both need to have a separate Medigap policy. I will note that some carriers of Medigap policies will offer a discount, sometimes up to 15% off of their premium, if they insure two people in the same home.
And this does not have to be a husband and wife or a spouse, and it can be two people of Medicare age living in the same household that will be eligible for that discount.
You can buy a Medigap policy from any insurance company that’s licensed in the state to sell it.
8 Things to Know About Medigap Policies (Cont.)
Any standardized Medigap policy is guaranteed renewable even if you have health problems; we’ve mentioned that. This means the insurance company cannot cancel your Medigap policy as long as you pay the premium.
If I have a G level coverage and I have $104 worth of claims this year, and my spouse through the same carrier has the G level of coverage, and she had the $886,000 of claims. Next year, our rate increase, assuming that there will be, and trust me, there probably will be, we will both get the same increase for that policy.
It’s community rated. The carrier will go to the Department of Insurance. They will mathematically demonstrate why they need to increase the policy for G., and the policy will be increased if approved by the Department of Insurance for all people that policy carrier insurers.
Some Medigap policies, it’s all in the past, cover prescription drugs. That’s been so long ago that there’s very little application. And I mentioned it’s illegal for you to have, and it’s illegal for an agent broker to sell you a Medigap policy if you have a Medicare Advantage Plan. You can only have one or the other.
Why is it Important to Buy a Medigap Policy When I’m First Eligible?
The effective date of your Medicare Part B starts a ticking clock, and that clock ticks for six months.
During those six months, you are eligible to join any Medicare tie-in Medigap policy without underwriting. That carrier will not know what bumps, problems, or issues you have because there is no underwriting. It’s what’s referred to as your guaranteed issue, period.
At the end of those six months, the clock stops ticking, and you are no longer eligible for your guaranteed issue. I know of people who have continued to work past age 65, and for whatever motivation, took Medicare Part A and part B.
But since they continued to work and had coverage through their employer, they did not take a Medicare policy with a tie-in carrier or a Medigap policy.
When they retire and are now interested in a Medigap policy, they may have to go through full underwriting because that six-month period of time would have passed.
With a Medigap policy, underwriting will tell the carrier anything and everything that’s wrong with you. And since it’s a private insurance company that’s issuing that policy, they have the right to deny or to increase premiums based on health issues that you currently have.
Underwriting for a Medicare Advantage Plan
There is one question always: Do you have end-stage renal disease, total kidney failure? If you do, you are not eligible for a Medicare Advantage program, although there’s a national program that far exceeds any of the benefits that we’ll be talking about today.
Annual Open Enrollment Period
So during the annual open enrollment period, October 15th through December 7th, when you can move from Medicare Advantage Plan to another Medicare Advantage Plan, there will always be that one question: Do you have an end-stage renal disease?
If you manifest end-stage renal disease while you’re covered under a Medicare Advantage program, they do not exit you out. Still, you will soon probably be eligible for the national program. The annual open enrollment period allows us to draw a conclusion that’s not exactly correct.
The TV commercials tell us that we can freely move from plan to plan during this time period. And that’s true if it’s a Medicare Advantage program or if it’s a Medicare Part D prescription drug plan. If you have a supplement plan, you can freely move during that time period if you can pass underwriting.
So if you’re going with a supplement or a Medigap policy, I would urge you to go with one of the major carriers. Premium, as I mentioned, will vary from carrier to carrier. But if you go with the lowest-priced premium and a lower-tiered carrier, you very well may be with that carrier for the rest of your life because of underwriting.
So pick a major carrier. And if it’s $10 or $12 a month more, it’s going to give you the flexibility and the comfort of knowing that three years from now, when I have that major claim, that carrier will be in business to cover it.
My opening and now my closing comment is the whole purpose of this seminar is to provide information and education to you. And I recognize it is extremely confusing.
Over the last several minutes, we’ve covered this in-depth. But you’re likely going to have other questions or comments. And by all means, please use the evaluation form. We very much encourage that and look forward to it.
The Guided Retirement Show
In addition, if you have other questions, I’ve done several podcasts on The Guided Retirement Show. I’m always available to meet face-to-face and try to answer the questions that you may have. Please do not hesitate to contact me.
If Medicare is an issue you’re facing in the near future, I’d be happy to sit down and visit with you one-on-one. It is confusing. Thank you for joining us today. We appreciate your time; it’s a gift to us. And we look forward to seeing you in the future, and we encourage you to participate in other Barber Financial Group events.
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The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.