Understanding Medicare Options, Costs, and Coverage Pt. 2 with Tom Allen
Understanding Medicare Options, Costs, and Coverage Pt. 2 Show Notes
In our previous episode, certified Medicare specialist Tom Allen and I discussed what Medicare actually is and what it’s designed to do. If you haven’t listened to Part 1, I strongly recommend you do so now. Click here to listen.
There are so many nuances to health insurance, and it’s very easy to get caught in financially devastating traps if you aren’t careful. Understanding Medicare options can be stressful. That’s why today, in the second part of our series, we continue our conversation with Tom about Medicare.
We discuss why Medicare has become so complicated and confusing, the penalties you can incur for not having coverage, the rise of Medicare Part C (aka Medicare Advantage Plans), Medicare F and G plans, and when to find a Medicare specialist who can help determine the best possible plan for you.
In this podcast interview, you’ll learn:
- How employers typically view Medicare for employees over the age of 65 – and the circumstances under which Medicare serves as primary or supplemental insurance.
- What you can do to appeal a prescription coverage issue when a Medicare Part D provider refuses to pay for medications – and the five-tier system that determines prescription drug coverage.
- How adult children, financial advisors, and Medicare specialists can help you navigate your coverage – and how to find trustworthy guidance.
- Why people believed Medicare Part C to be too good to be true – and when to choose a Medicare Advantage Plan, or an F or G plan, over Part D coverage.
- “If the government had set out to create the most confusing system for people our age, they would get a gold star, but that wasn’t their intention.”
– Tom Allen
- “I don’t have an agenda. I need to sleep at night knowing that the person I talk to has the best coverage to fit their needs.”
– Tom Allen
[00:00:10] Dean: As always, thanks for listening to the Guided Retirement Show. I’m your host, Dean Barber, Founder and CEO of Barber Financial Group and we know that there are thousands of podcasts out there you can listen to. We appreciate you choosing the Guided Retirement Show podcast. This week we continue on with Tom Allen, Medicare expert, Medicare supplement expert. If you missed Episode 6 of the Guided Retirement Show, make sure to go back and listen to that. In fact, I would suggest that you listen to Episode 6 before you listen to Episode 7. We laid out some of the highlights of what is Medicare, what’s it designed to do. We’re going to get into more detail with Tom Allen on everything about Medicare and Medicare supplements on this part of the Guided Retirement Show. Enjoy.
[00:00:53] Dean: Okay. Let me ask you a question. From an employer’s standpoint, we’re going to get off of Medicare here but this whole health insurance thing to me is fascinating and there’s so many different nuances and if you don’t know some of these things, you can really get caught in the trap.
[00:01:08] Tom: Absolutely.
[00:01:09] Dean: So, let’s say that I am that 65-year-old that is still working and I’ve got a co-pay and let’s say that my copay is $200 a month. Well, if I could go to Medicare and get on Medicare 65 where my premium is $135.50 a month, that’s less than my co-pay, would that employer not look at Medicare as the number one and that their policy then as a supplement to Medicare wouldn’t they be better off too?
[00:01:40] Tom: Depends on the size of the employer. If the employer has 20 employees or fewer then their health plan is going to be primary and Medicare will be secondary. If they have more than 20 employees, the opposite is true.
[00:01:53] Dean: So, the employer would then want to encourage you if they have more than 20 employees to go ahead and get on Medicare and let their insurance coverage be the secondary.
[00:02:02] Tom: And a lot of them do that. That’s exactly right. It’s not uncommon at all.
[00:02:05] Dean: All right. Fascinating. So, okay, now Part D, that’s prescription drug. What’s my premium for Part D?
[00:02:14] Tom: Dean, I tell people that from a budgetary standpoint, they should budget $25 a month per person for Medicare Part D. There are some extremely good plans that are less than that, but I always encourage people to budget a little higher than what reality may come in. As I’m sitting here thinking about our conversation on Part D, there’s a piece that I want to make a point of and this is one that if you’re talking to an insurance company about Medicare Part D, they should and I hope in all cases they do but I’m told in some situations they don’t, a Medicare Part D carrier, their coverage is they do not have to cover every prescription drug. For example, let’s say that there’s 41 high blood pressure medications. Medicare is CMS. It’s not going to require that carrier to cover all 41 of them. They’re going to require them to cover a substantial standard level and that may be 20. That may be 30. It’s going to vary depending on the prescription. So, the carrier that you’re looking at may or may not respond to the specific brand name prescription that you’re taking.
[00:03:21] Dean: Okay. So, this is tricky.
[00:03:24] Tom: And it gets worse.
[00:03:25] Dean: Well, hang on a second. This one piece is really – so you’re telling me that if I had a Part D coverage and right now I’m taking no prescription medications and something happens and then I got to start taking prescriptions, but it just so happens that one of the prescriptions that the doctor thinks is what I need in order to stay healthy or to stay alive, this particular Part D additional coverage that I purchased may not pay for that prescription?
[00:03:52] Tom: That’s correct.
[00:03:53] Dean: Can I go find another one that will?
[00:03:55] Tom: Yes, during the annual open enrollment period.
[00:03:56] Dean: Okay. So, I can’t just do it immediately. So, I could be out-of-pocket a substantial amount of money for a period of a year.
[00:04:02] Tom: You could be. And that’s the point I want to make. We have a mutual client that has a prescription and she’s tried all the generics and she’s tried the lesser expensive choice alternatives to this one prescription, and the prescription that she takes is extremely expensive. The brand name is extremely expensive and there is no Part D carrier in our marketplace that will respond to that one specific prescription. Now, she can make an appeal to the carrier and the appeal will also include information from her provider, from her doctor, and the carrier could very easily make an exception and cover that. Their interest is, Part D carrier’s interest is if they can take a generic for 1/90 of the cost and satisfy the need then that’s what they want them to do. And maybe a situation where Part D carrier will ask the patient to try a couple of alternatives and if that doesn’t work then the appeal process.
[00:05:04] Dean: How long can that appeal process take?
[00:05:06] Tom: It will be very quick. It’ll generally be 10 to 14 days. But like any appeal process, the answer might be yes, but the answer also might be no. And when I say it gets more complicated. Well, so backup. What I’m saying is, could a prescription that your doctor, the person that knows you best and knows your healthcare needs best prescribes for you, could a Part D carrier say, “We’re not going to cover that?” And the answer is yes. That can happen. Very rarely we had a situation where that occurs and then you have the appeal process. And based on the information from the provider in my experience is, frequently, the appeal process results in them covering that cost but there’s a second piece of this that makes it even more complicated. In the old days of healthcare…
[00:05:53] Dean: I’m getting a headache of how complicated this is.
[00:05:56] Tom: And people wonder why this is so confusing and obviously, it is confusing. And if our government had set out to make this the most confusing and important coverage for people in our age group they wouldn’t even start. They couldn’t have done any better. But, Dean, it’s my sincere belief that that was never our government or Medicare’s intention. Lyndon Baines Johnson in 1965 signed the Medicare Act, 1965. A lot of administrations have come and gone and a lot of changes in healthcare have come and gone and it has developed into a very complicated system. And it’s not by intent, it’s not by design, but you’re right it could give you a headache and it can also keep you awake at night worrying about did I make the right choice? Is there something I don’t know? And that’s kind of my segue into the second half of why this is confusing.
In the old days, prescriptions came to you in the form of either generic and brand-name and the insurance industry figured out that that’s really not a broad enough separation of drugs based on cost. There’s now five tiers of prescription drugs. There is generic which is the least expensive, the insurance industry calls preferred generic, and I choose to refer to it as low-cost generic and high cost generic. Then there is brand-name. There’s preferred brand name. Again, it’s low-cost brand-name, high-cost brand-name. And the insurance industry recognized that some name-brand prescriptions are less expensive than some of the generics, so it depends on what tier that they place that medication in. And then to fill that out, tier 5 is the very high dollar injectables that again you’ll receive in a physician setting or a hospital setting that’s may or may not be covered under Medicare Part D. So, you have five tiers of prescriptions and a Medicare Part D carrier makes a determination on which tier a specific prescription would fall into.
[00:07:58] Tom: So, let me translate that into a person like myself to try and decide what am I going to do for Medicare and, yes, I take prescriptions because almost all of us in this age group take some form of prescriptions. It’s part of the reward or the penalty for living this long. So, if I have my five prescriptions that I need to take, I want to know if I can which Medicare Part D carrier most closely matches based on their formulary. Do they cover all five of my prescriptions? And if they do, which tier will those prescriptions fall into? Because the tier 1 is going to be the least co-pay. A tier 4 is going to be the most expensive copay and where is this prescription drug company? How do they list the prescriptions I take in their formulary? There’s a wonderful answer for this. You can go to Medicare.gov, which is an extraordinarily wonderful useful health website provided by Medicare. You can put in your name. You can put in your ZIP Code. You can put in your Medicare ID number if you already have it. It’s not required.
You can list the five descriptions of my example that I’m currently taking and you can click on pick a plan and Medicare is going to give you a descending from least expensive to the most expensive of the carriers in my marketplace, the choices that I have in my marketplace. Remember, I mentioned that for what’s going to happen in 2020 has to be approved is submitted in May of 2019. And Medicare has all the information from that Medicare Part D carrier. What prescriptions do they cover and what tiers do they fit into their formulary? They build that in their system. So, Tom Allen list is five prescriptions. I pick a plan, Medicare Part D, and it’s going to tell me which plan in my marketplace most closely matches my prescription drug use, needs, and what the tier cost will be. So, it’s an important tool.
[00:09:56] Dean: Okay. So, but that still may not help you. It’s interesting how this discussion is lining up with the conversation in an earlier podcast that I had with a lady by the name of Brie Williams. She’s a specialist on the cognitive effects of aging and how people begin to lose their ability to make decisions or discern things or really understand things as they get older. And what is striking about this whole conversation, Tom, is that at a point in our lives where our ability to make these decisions and understand this becomes more difficult, it seems as though the process is more difficult. So, I think it would be critical that you have adult children or somebody else there alongside you, professionals such as yourself to say, “Hey, help me decipher what I’ve got going on here so that I make sure that I’m making the right decision.”
[00:10:53] Tom: Dean, that’s exactly correct. Having family or friends or members in your church, caring neighbors or having people such as myself, they can sit down and help you make this decision because it’s not a decision you make this year for the rest of my life. Your prescription drug coverage and you going back to Medicare Part D, your prescription drug usage is going to change as we develop over the years. Some of them will go away and there’ll be new ones coming in. So, as we lessen our ability to make these sharp individual decisions, it’s real important to have someone you can turn to. And there’s a lot of people that do what I do because we really enjoy it. I’m fortunate to be in a position in my life where I don’t have to worry about my house payment, I don’t have kids to feed, and it’s important to me to have people know that what best fits their needs and what best fits their interest is the only thing I want to talk about. I don’t have an agenda. I don’t care which carrier you go with.
If you sell 20 policies and you get a free trip to Maui, well, I don’t need the free trip to Maui. I need to sleep at night knowing that the person I talk to has the best coverages that fit their needs. So, the only agenda that that people in my field that do what I do, the only agenda we have is what’s best for that individual. Compensation is not a consideration. The trips to Maui are not a consideration. It’s important that those people know that the person they’re talking to is giving them sound advice.
[00:12:23] Dean: All right. So, let’s continue on and figure out how much more time we’re going to need to talk about the different things. So, we got A that we talked about, B, we’ve done D, but you said that was really we’re just getting started. What else is there?
[00:12:39] Tom: Well, there’s Medicare Part C. Medicare Part C…
[00:12:45] Dean: But D comes before C. Is there a reason you did that?
[00:12:48] Tom: It’s – I don’t recall. It just came out that way. Medicare Part C, most people do not recognize Medicare Part C, but they recognize the term Medicare Advantage Plan and Medicare Advantage Plans for people in our age group there must be ways for carriers and providers to find out when people are nearing 65 or moving into the Medicare consideration time period. And I base that on the fact that once you get close to that time period, four or five items out of every six or seven items in your mailbox is going to be a Medicare Advantage advertisement. During the annual open enrollment period, which is October 15 through December 7 each year, the majority of the commercials you’re going to see on TV are on Medicare Advantage Plans and Medicare Advantage Plans, Medicare designated that Medicare Part C. And the genesis of that goes back to the late 1990s. Medicare recognizes that they had a significant problem coming down the pipeline, the baby boomers.
[00:13:46] Dean: It was at the administration of the whole process of – is it the processing of all of the healthcare claims and things?
[00:13:54] Tom: Exactly. CMS Medicare recognizes that the baby boomer generations were starting at maturity. They were starting to age into the 65 Medicare type considerations and Medicare recognize that they could staff, they could computerize, they could office for this large lot of people that were going to come down the pipeline, but they recognized, also recognize that there was going to be a beginning of this large group of people and then there was going to be the tapering off as they went through the system. The baby boomers ended in 1964. People born after1964 fall into a different category. So, Medicare recognized that they could staff and they can computerize and they could office for this large group of people coming to the pipeline, but they knew at one point in time that they would have too many staff, too many offices, too many computers so they went to the private insurance industry and ask a simple question, “Can we contract with you? Can we lease your capabilities to absolutely match everything that Medicare Part A and Medicare Part B does for a certain amount of money?”
And the private insurance industry said, “Yes, we’d like to sign that contract today and we’d like to start seeing patients tomorrow.” And Medicare said, “You really said yes way really quick,” and the private insurance industry said, “Yes, but we’re going to make a lot more profit. We take more risk every day for less income than what you’re offering us so yes we’re very, very interested in doing this.”
[00:15:24] Dean: That’s interesting. So, it was really Part C then is the Medicare Advantage Plan and it’s all about using the private insurance industry to basically process the claims.
[00:15:35] Tom: Well, to act on behalf of Medicare.
[00:15:37] Dean: Yeah.
[00:15:37] Tom: Process the claims, do customer service.
[00:15:39] Dean: So, what’s the downfall? What is the downfall to the Medicare Advantage? Well, first of all, the Medicare Advantage Plan has no premium because what happens is that the government is paying the insurance company to process the claims and to take care of this. So, the Medicare Advantage Plan has no premium but there’s a maximum out-of-pocket. Is that the deal?
[00:15:57] Tom: Yes, it is. In our marketplace there are some Medicare Advantage Programs that have a very small premium, but by and large, most of them are premium-free and in most cases, they also include Medicare Part B. So, a Medicare Advantage Plan in our marketplace is giving you Medicare Part A, Part B, and Part D and in most cases for a zero premium.
[00:16:19] Dean: I like it.
[00:16:20] Tom: Yes, but early on and, Dean, maybe the difference in our age group early on people in my age group said, “This is too good to be true,” and our government is telling us this is true and we kind of tend not to buy into that notion. So, early Medicare Advantage Plans early on, did not sell well because it was too good to be true over time and our experiences the Medicare Advantage Plans are now covering about 1/3 of the Medicare-eligible population and they’re growing rapidly.
[00:16:51] Dean: So, when would I go straight for a Part D plan from an insurance carrier versus just going with the Medicare Advantage Plan?
[00:16:58] Tom: Same answer, when you first become eligible for Medicare.
[00:17:02] Dean: But how would I choose one over the other, Tom? That’s my question. And why would I pay an insurance company for Part D, which is going to cost, I don’t know, what’s my average premium on the Part D, a couple hundred bucks a month?
[00:17:14] Tom: $25.
[00:17:15] Dean: $25. Okay.
[00:17:17] Tom: The consideration in my belief is that there’s a lot more than just the Part D coverage. Medicare Advantage Plans with a zero premium and let me back up. When we say there’s no premium, how can there be no premium if I’m getting Part A coverage, Part B coverage, and Part D coverage and there’s no premium? And the answer is Medicare allocates a certain dollar amount of dollars each month based on your gender, based on your ZIP Code area, and recognizes a lot more than $135.50 if you’re paying in for Medicare Part B. And to purchase a Medicare Advantage Plan, you must have and must maintain Medicare Part A and Part B coverage. So, from a threshold standpoint, you’re going to be spending $135.50 currently for Medicare Part B and you must have that in place to be eligible to accept or purchase a Medicare Part C Medicare Advantage Plan.
The Medicare Advantage Plan covers – the word advantage Medicare Advantage Plan and let me rewind my conversation back a little bit. When Medicare asked an insurance entity, national insurance entities, if they could lease them, if they could use them to act on behalf of Medicare, they allocate so many dollars a month based on the assumption of claims are going to come in for that person that month. And what I read tells me that’s in the $600 to $700 to $800 a month based on geographic locations and gender. So, every month that Tom Allen is a member of a Medicare Advantage Plan, that Medicare Advantage Plan is going to get $600 or $700 or $800 a month from Medicare but they’re going to be responsible for paying my claims. They’re going to be responsible for customer service, printing ID cards, all the aspects of coverage. And the conversation I had about Medicare Part D where you were looking for…
[00:19:10] Dean: So, let me make sure I understand what you just said. You said that the government is going to pay the insurance company $600 to $800 a month. You’re paying the $135.50, so the government’s actually come out of pocket but when the claim gets filed, the insurance company is on the hook for whatever the claim is.
[00:19:31] Tom: That’s correct.
[00:19:31] Dean: But it’s got to be the Medicare-approved amount that the insurance company will pay.
[00:19:36] Tom: And it has to be a Medicare-approved coverage.
[00:19:38] Dean: Got you. So, they’re shifting the risk to the insurance industry.
[00:19:44] Tom: Yes, exactly correct.
[00:19:46] Dean: Which is why they’re pushing the Medicare Advantage Plan then.
[00:19:49] Tom: Well, and for the Medicare Advantage carriers, it is an extremely profitable line of business.
[00:19:53] Dean: I get it. It makes sense to me.
[00:19:55] Tom: And recognize that the $600 or $800 that’s going to be given to a Medicare Advantage Plan if the Medicare Advantage Plan does not come about, Medicare would be allocating those dollars for each person in that ZIP Code of that gender. So, it’s worked very well. Prior administrations have looked upon Medicare Advantage Plans, Medicare Part C, and talked about maybe this is an expense that they can remove and shift back to Medicare and the reality is they’re saving money.
[00:20:24] Dean: Right. So, in other words, it seems to me it’s a lot like a company that decided they were going to self-insure and then they said, “Well, self-insuring really isn’t what we thought it was going to be. Let’s shift that risk back over to the insurance company,” and that’s what the Medicare Advantage Plan is. And that was done late 90s?
[00:20:40] Tom: Yes. Exactly right. And part of the name Medicare Advantage Plan, let me back up slightly. To offer Medicare Advantage Plan, they must provide exactly what Medicare Part A and Medicare Part B does. And when they were negotiating early on with Medicare, with CMS for coverage, Medicare said, “There is a profit cap. You cannot make, I mean, the fact that you said yes so quickly made Medicare come back and say, “Do you realize there’s a profit cap?” and the private insurance industry said, “We’re going to make more profit on this line of work than what you’re allowing us. You’re asking us to be as inefficient as an arm of the federal government and recognize that we are an investor-, shareholder-, stockholder-owned company that must run an efficient, tight, clean operation and we’re going to make more profit than traditional Medicare would.” And the private insurance industry said, “You know…” Let me back up.
Medicare said, “We limit the amount of profit you can make,” and conversations pretty much came to a standstill. Medicare came back and said, “What if you just charge everybody an individual premium?” and the decision was made that that was probably going to fail. That was probably a situation that would not work out even in the short run. Conversations pretty much stopped, and one national insurance entity went back to Medicare and said, “Okay. What if we offer additional benefits on top of what Medicare A and Medicare B offers to stay under the profit cap?” And Medicare said, “We like that notion. We like that idea a lot.” Medicare said, “The first thing that we’re going to require is that there’s going to be an annual maximum out-of-pocket.” And this is a good point to tell you that a Medicare Advantage Plan in most cases, not each case, but in most cases has no deductible. They have a series of co-pays using one of our marketplace larger carriers. If I see a primary care physician, I pay a $25 copay. If I see a specialist, I pay a $50 copay. If I go in a hospital, I pay $315 a day for the first five days of hospitalization.
[00:22:43] Tom: Wellness is covered at 100% so I get that without a cost. And maybe a CAT scan maybe a $90 co-pay. Each and everything you have done has a small copay associated with it and Medicare said, “We wanted annual maximum out-of-pocket. When your co-pays hit this amount of money then you’re going to be responsible for picking up 100% of that.”
[00:23:06] Dean: And what is that out-of-pocket?
[00:23:07] Tom: In our marketplace, a penny with a slightly broad brush is $6,500.
[00:23:12] Dean: Per person?
[00:23:13] Tom: Per person, per year. And yes, I could write a check for $6,500 and that we’re clear and I wouldn’t smile, but $6,500 is how high the ceiling is for me on looking at healthcare cost for a calendar year. Having said that, of the now 19 million or 20 million people covered under Medicare Advantage Plan, less than 1% hit the annual maximum out-of-pocket. So, my maximum out-of-pocket ceiling is $6,500. I stand less than 1% chance of hitting that. I like that a lot and for zero-premium, I just protected my assets. We’re coming back to our earlier comments. I can protect my assets. I can ensure good quality healthcare when I needed for zero premium. What’s not to like?
[00:24:04] Dean: Thanks for listening to the Guided Retirement Show. I’m Dean Barber, CEO of Barber Financial Group. We’ll be back after the short break.
[00:24:12] Female: At some point in everyone’s life, you have to go to school because let’s face it, a good education is important and just because you’re nearing retirement age or you’re already there, it doesn’t mean the learning stops. One of the easiest ways to learn about retirement is at Barber Financial Group’s Education Center. There, you’ll find things to read, to watch, and to listen to about important retirement topics. So, go to BarberFinancialGroup.com. Click on the menu dropdown. It’s in the upper right-hand corner and select Education Center. There you can download and read our Social Security checklist, watch Dean Barber’s latest video on the current state of the markets, or listen to an audio recording about tax reduction strategies and so much more. There’s no cost. Just sign up for access at BarberFinancialGroup.com. It’s as simple as that. Besides, there’s no tests, no textbooks, and I promise, not to move your seat even if you talk too much. There’s so much to learn about retirement. Just go to BarberFinancialGroup.com. Click on the menu drop down and select Education Center.
[00:25:25] Tom: In the old days, prescriptions came to you in the form of either generic or brand-name. The insurance industry figured out that that’s really not of broad enough separation of drugs based on cost. There’s now five tiers of prescription drugs. There is a generic, preferred generic, then there is brand-name. There’s preferred brand-name. Tier 5 is the very high dollar injectables that you will, again, you’ll receive in a physician setting or a hospital setting. This may or may not be covered under Medicare Part D.
[00:26:07] Dean: Welcome back. I’m Dean Barber, CEO of Barber Financial Group and this is the Guided Retirement Show. Let’s see if we can put a bow on this thing and say all right, how do I choose then? Why do I go out and buy that Part D? Because if I got to go out and pay for Part D or I go to Medicare Advantage which is going to include prescriptions, why would I go pay for Part D?
[00:26:25] Tom: Well, Dean, there’s 1/3 page of this. Paul Harvey would say Page 2. I got to say Page 3. There’s another choice we haven’t talked about. And that’s a Medicare tie-in plan or a Medicare supplement plan. They all mean the same. When LBJ, Lyndon Baines Johnson signed the Medicare Act in 1965, the private insurance industry looked at the coverage and they said, “Well, this Medicare doesn’t cover everything.” Medicare Part B covers 80% of the cost and the patient pays 20% of an unknown amount of money because we don’t know what the bill is going to be this year. And so, the Medicare part of the insurance industry created what was called a supplement plan to supplement Medicare.
[00:27:08] Dean: That’s what you call your Medicare supplement policies.
[00:27:10] Tom: Yes.
[00:27:10] Dean: But isn’t the Medicare supplement policy really the same thing as the Medicare Advantage Plan?
[00:27:14] Tom: No. It’s the second choice. It’s an alternative choice. You cannot have both.
[00:27:19] Dean: Well, I understand that, but I mean don’t they both essentially do the same thing? They pick up where Medicare leaves off?
[00:27:24] Tom: Yes. Sure. Yes, I see what you’re saying. Yes, that’s exactly right.
[00:27:27] Dean: But one I have a premium for it and one I don’t.
[00:27:29] Tom: That’s exactly right. But recognize Medicare Advantage Plans didn’t come around until the late 1990s, early 2000s. Medicare Advantage Plans are the result of a need because of the baby boomer generation hitting the pipeline.
[00:27:43] Dean: I get it.
[00:27:45] Tom: In 1965 when Medicare was first passed, the private insurance industry recognized that they had an opportunity to come up with a product to fit in with…
[00:27:54] Dean: And they’re going to take the risk where Medicare leaves off.
[00:27:57] Tom: Medicare with an amount under a supplement plan or a tie-in plan or Medigap plan, all three mean exactly the same thing. Medicare is going to pay what is going to pay and then your supplement carrier is going to pick up part of or most of or all of what’s not covered depending on which tier, which level you purchase. So, that’s what we had. We had Medicare in 1965. We could purchase the Medicare tie-in supplement plan, Medigap plan, to offset the expenses that weren’t covered by Medicare at a premium and that was our choices until Medicare Advantage Plans came around 2000. A tie-in plan is by a private insurance industry. You must have Medicare Part A and Part B and maintain Part A and Part B to be eligible to purchase as a supplement or tie-in plan and there’s a monthly premium.
[00:28:48] Dean: Are the monthly premiums reasonable? What do we got there?
[00:28:52] Tom: The monthly premiums can be reasonable within…
[00:28:54] Dean: And do I have deductibles and how does this hold? How does this thing work? So, here’s what I – I want to see if I can cut straight to it. If I get sick and I’ve got a Medicare tie-in plan or a Medicare supplement whatever you want to call it versus a Medicare Advantage Plan, in that year where I got sick and I met my $6,500 out-of-pocket maximum on Medicare Advantage, is that going to be more expensive for me that year than the tie-in plan would be or is it going to be about the same?
[00:29:25] Tom: Well, it depends. Trying to determine how the best way to answer your question is under a Medicare tie-in plan, a supplement plan, when Medicare first came out, there were probably 2,000 insurance companies plus in this country selling health insurance. Now, there’s under 10 but at that point in time there were a couple thousand and all of them came out with their choices on a Medicare supplement plan which translates into let’s assume that there were five or six choices from each carrier times 2,000 carriers. You had 8,000 or 10,000 policies to choose from. And if a person chose the right one, it would’ve been accidental. I’m sure it may have happened, but it probably didn’t. The government stepped in and said we’re going to standardize this. This is too confusing. This is an age group that deals less with confusion than perhaps a younger person. So, we’re going to standardize the coverages and so they gave a coverage designation of A through N.
Now, don’t confuse that with Medicare Part A or Medicare Part B. This is a whole another set of choices that have exactly the same name. You can have a supplement plan A, which is the least expensive and provides the least amount of coverage. The plans that cover the greatest amount of coverage is the F tier or the G tier and the government made they standardized what the benefits were going to be under each of these tiers, each of these sets of choices. They don’t care what a carrier charges, but if you’re looking at a Medicare supplement F plan, it makes no difference which carrier you purchase that from. They’re going to be exactly the same coverage. Premium may vary but they’re going to be less coverage. And so, for in our marketplace for an F or G plan which is the highest tier of coverage, I tell people to budget about $150 a month premium per person. That’s on top of they must maintain Medicare Part B, which is $135.50 this year.
[00:31:23] Dean: Right. What I want to do here, Tom, is I don’t want to get confused. I don’t want people to get confused because to me you’re going to pay the $135.50 regardless of whether you have the advantage plan or whether you have the type F supplement, right?
[00:31:37] Tom: Right.
[00:31:39] Dean: The difference is if I go get a supplement that’s an F plan, I’m a pay $150 a month, $1,800 a year. If I don’t use it, I’m still paying the $1,800 a year.
[00:31:50] Tom: Yes, that’s right.
[00:31:51] Dean: Okay. Now, do I have a deductible with the F plan?
[00:31:55] Tom: You do not.
[00:31:56] Dean: It pays for 100% of everything?
[00:31:58] Tom: The F plan essentially pays for everything that Medicare doesn’t.
[00:32:02] Dean: So, you have no other costs for any kind of healthcare if you have the F plan and you have the A, the B, and the D?
[00:32:11] Tom: Yes, essentially, that’s correct and to put a fine point on that, the Medicare Part F plan which is the richest plan is going to go away January 1, 2020, because essentially, what you just said is correct. If you have A, B, a D plan and an F plan, you have no out-of-pocket expense for anything that should come about this month.
[00:32:32] Dean: You just got your premium and that’s it.
[00:32:34] Tom: That’s it.
[00:32:34] Dean: Pay 100% of everything.
[00:32:35] Tom: And the government has a problem with that. They want you to have some cost associated with receiving healthcare. So, the F plan is going to go away. The highest tier is going to be the G plan and the only difference between the F and the G plan is that the F plan pays the Medicare Part B deductible, which this year is $185. So, translating that, the government, Medicare wants there to be some out-of-pocket expense involved in receiving some healthcare although it’s going to be very minor. They want the patient to have some cost of receiving healthcare or they’re afraid there’ll be overutilization if it’s absolutely no out-of-pocket cost.
[00:33:17] Dean: So, then how do you determine which one’s better? How do you determine what should you do whether, I mean, because as we are talking about the Medicare Advantage Plan thing, well, that’s a no-brainer? Let’s just use the Medicare Advantage Plan, but now you’re saying the F plan would’ve been a better deal because maybe, I mean, I guess it depends on how many years you can go without having to use the Medicare Advantage Plan.
[00:33:36] Tom: Well, part of this is a mindset. What I portrayed for your mind’s eye is with a Medicare Advantage Plan you have zero premium and you have a series of co-pays with a maximum that’s hardly attainable.
[00:33:47] Dean: But you’re saying that only 1% of people that are on the Medicare Advantage Plan ever hit that. Is there an average, a national average that people hit on that copay?
[00:33:57] Tom: If there is, I have not read it. You’re paying a little co-pay for each service that you have done. So, it’s a pay as you go or a pay as you use.
[00:34:08] Dean: So, I guess the question is, is that copay going to be more than the $150 Medicare supplement policy?
[00:34:16] Tom: In my experience, it’s not. It’s really a mindset. If a Medicare Advantage, let me say the opposite. A Medicare tie-in plan and if you went with the F or a G, the higher tier premium and you paid $150 a month and then you have your Medicare Part D at $25 a month or spending $150, $175 a month for that coverage, you’re prepaying what healthcare costs you might need and you’re right. Your point’s accurate. If you didn’t get any healthcare that month you paid $175 for nothing and I mean I would argue, “No, you paid $175 for the ability to sleep 31 comfortable nights knowing that you cannot be financially destroyed. Your assets are protected and you’re going to have the healthcare coverage you need.” To contrast that, with a Medicare advantage plan is a pay as you go, $25 for an office visit, $90 for this step, $315 for the first five days of hospitalization. Every month under Medicare Advantage Plan that you didn’t receive healthcare, you didn’t pay anything. So, one is prepaying your healthcare cost and one of them is more as a pay as you go.
[00:35:20] Dean: Right. But you’re still going to do have a maximum out-of-pocket in an individual year that that Medicare Advantage Plan could be. Right. So, I want to see we can wrap this conversation up if you think we’re to a point where we can do that, and I want to do it by just asking this question. Assume that I’m 64 years old and I need to get on Medicare next year or I’m going to be 65 in a few months. At what point should an individual seek out professional help like you, Tom?
[00:35:50] Tom: I suggest about 90 days before they’re eligible for coverage. Recognize that people in my position cannot sell, cannot provide a Medicare tie-in plan or a Medicare Advantage Plan until that person has Medicare Part A and Part B in place.
[00:36:07] Dean: So, the first year they don’t have to wait for that open enrollment period. In the first year, if let’s say that I turned 65 on January 1, I don’t have to wait until October 15 to the open enrollment period to get on to find my Medicare Advantage Plan or my Medicare supplement and sign up for Medicare. I can get on Medicare, get that tie-in plan right away.
[00:36:31] Tom: Exactly, correct. That is your initial enrollment period and turning 65 and if you have about 90 days before you turn 65, I would encourage you to contact Medicare and tell them that I want Medicare Part A, I want Medicare part B and my birthdate is June 7 so the coverage is going don’t start on June 1. It’s always the first of the month of your birthday unless you become eligible if you’re born on the first of the month, it’s the first of the preceding month.
[00:36:59] Dean: Interesting.
[00:37:00] Tom: There’s always little pieces that makes this tough. A point that I want to make, and I didn’t, with a Medicare Advantage Plan, there is one question for underwriting and that question is doesn’t matter if it’s your initial enrollment period or the annual enrollment period. Do you have end-stage renal disease? If you do, you are not qualified to purchase a Medicare or take a Medicare Advantage Plan. Now, there are other federal programs that far exceed anything we talked about today that you will be eligible for and you’re probably already aware of that because of being diagnosed end-stage renal. But there’s only one question for underwriting for a Medicare Advantage Plan. With a Medicare tie-in plan, you have six months from the date you receive your Medicare Part B where there is no underwriting and they take you with a reward, every bump, and every problem that you would have because they don’t know it because they never asked you a question. But if you want to enroll in a Medicare tie-in plan after that six-month clock has expired, you have full underwriting.
[00:38:02] Dean: And so, every enrollment period after that you have full underwriting or that’s one of the penalties if you didn’t get it right after that 65th birthday.
[00:38:10] Tom: Right. They’re going to underwrite it and there’s a lot of people that will go with the Medicare tie-in plan because they recognize the health issues that they currently have are going to keep them from ever qualifying to take a Medicare tie-in plan unless they do it during their initial enrollment.
[00:38:24] Dean: So, it’s really critical then that somebody – I don’t know that 90 days is enough time for somebody to talk to you or somebody in your position, Tom, to really truly understand to weigh out all the different options because it’s really independent on what’s going on in their life and their current health status.
[00:38:39] Tom: And, Dean, you’re right. If you’re in a situation where you have a very complicated set of circumstances, by all means, give us a call. Give me a call.
[00:38:46] Dean: Because these are things that I think I could – I couldn’t make an instantaneous decision after having a half-hour or 45-minute discussion. I mean I’m going to need to process this stuff and probably what’s going to happen is and maybe this is what happens, we’re going to have a discussion and then there’s going to be, “Oh my gosh, like that just brought up 100 more questions.”
[00:39:06] Tom: Real common.
[00:39:07] Dean: Yeah.
[00:39:09] Tom: In fact, when a person says after an initial conversation, “I think this is what I want to do,” I always encourage them unless we’re just absolutely with our back against the clock I encourage them not to make a decision to go think it through. New questions as you pointed out are going to come about and we need to sit down and kind of walk our way through what’s best for them. Some people would have to say that I sell all these products and therefore if I do, I’m the salesman but, Dean, I really truly and I know this fits under a financial mantle, I really consider myself an educator. My job is to give you enough information where you can say yes, no, no, no, maybe, oh yes, this is the one. And that requires education and so your point, how many meetings do you need to have to get to that point? It depends on the circumstances.
[00:40:03] Dean: Well, Tom, think about our whole guided retirement system. This is a journey and if you want to have the best experience on any journey, whether it be a vacation or wherever it is you’re going, a good guide is really what you need and a guide not just on the investment side of things or the tax side of things but the risk management side of things, especially as it pertains to healthcare. So, I want to thank you for taking some of your time and spending with me here on the Guided Retirement Show to help people better understand the complicated nature of Medicare, Medicare supplements, Medicare Advantage Plans and I’m sure will do this again. There’s things that I’d like to ask and some additional things and so I’m sure we’ll have you back on here again.
[00:40:48] Tom: Look forward to it.
[00:40:49] Dean: All right. Thanks.
[00:40:50] Tom: Thanks, Dean.
[00:40:51] Dean: Who would’ve known that a couple of guys could have an hour-and-a-half-long conversation on Medicare and still not touched everything. We’ve got a lot more to talk about on Medicare. We’ll make sure and get Tom Allen back on here in the near future for more on the Guided Retirement Show. You can find links to this episode show in the show notes and also the giveaways in the show description or you can also visit us at GuidedRetirementShow.com/7. Also, make sure that you subscribe to the Guided Retirement Show and share this with your friends. Everything about retirement, it’s all about guided retirement. We are your guides for a successful retirement.
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