Understanding Medicare Options, Costs, and Coverage

[INTRODUCTION]

[00:00:10] Dean: As always, thanks for listening to The Guided Retirement Show. We know there’s thousands of podcasts out there. We appreciate you choosing to listen to ours. This particular podcast, you know what, it doesn’t matter if you are Medicare-age eligible or not, you know someone who is Medicare-age eligible and Medicare and Medicare supplements are a super confusing part of your retirement. And as we talk about on The Guided Retirement Show, we want to cover all topics that have to do with your retirement. And joining us today on The Guided Retirement Show is Tom Allen. He is a Medicare expert, he is a Medicare supplement expert, and Tom goes through certifications every single year to make sure that he stays on top of all the latest and the greatest and he brings it to us in a way that it’s down to second-grade language so that we can understand it. He doesn’t talk over our heads.

You’re going to get some clarity here on The Guided Retirement Show on the ins and outs of Medicare, what it does, what it doesn’t do, what it’s designed to do, and what kind of supplements you may want to have on top of your Medicare. Enjoy the Guided Retirement Show.

[INTERVIEW]

[00:01:23] Dean: Well, Tom Allen, a retired health insurance professional, 38 years. You get into retirement and you decide, “Hm, I need to help people with Medicare supplement.” So, in 2002, you get your CMS certification. What is that?

[00:01:42] Tom: Centers for Medicare and Medicaid, the Godfather of Medicare, if you will. They require people that are selling or doing this type of coverage, they want them to be certified. They’re really trying to weed out the people that should be doing something else and try to pick the people that are doing this for the right reason. And the people, their definition of that is that you have to go through an education process annually and at the end of that, you have a quiz and you have three opportunities to pass an exam that requires a 90% passing rate. If you don’t pass it during the three attempts, then you get to wait 12 months before you can try again. So, the real sincere about trying to have people educated to the point where they can do the job of telling people what’s available and educating them on what their choices out there.

[00:02:26] Dean: And that’s an annual certification?

[00:02:28] Tom: Annual certification.

[00:02:29] Dean: You got to do this every single year.

[00:02:31] Tom: Yeah. That’s part of August for me.

[00:02:32] Dean: Okay.

[00:02:33] Tom: Which is the part that I don’t enjoy but at the same time this is terribly important. This is not trying to be melodramatic, but for some people, this is definitely life-and-death. They had the courage they need to take care of the injury or disease or the onus that they’re experiencing. It’s the single most important thing in their life at that moment.

[00:02:51] Dean: All right. So, I am a financial planner. I looked at it as something that is necessary, and I look at all insurance as kind of a necessary evil. You always hate paying the premiums on insurance and you hope you never, ever have to file a claim but when you do have to file that claim, you want to make sure that it’s the right claimant. And as it pertains to health insurance, there are a lot of misconceptions about how Medicare works, how Medicare supplements work, what should you do through your retirement years, and how do you analyze it all. Those are the things that we really want to lay out here on The Guided Retirement Show. And you’ve seen the studies, Tom, where it says that somebody that’s retiring they’re going to need in most cases they will spend somewhere around a $0.25 million on healthcare through their retirement.

[00:03:43] Tom: Well, Dean, you’re absolutely right. One of the number one reasons that people in our age group go bankrupt is because of healthcare cost and in most cases, there’s choices that they can make that will offset the potential loss of assets and, more importantly, or maybe equally important, provide them the health coverage when they need it. And insurance, you’re right, it’s a necessary evil. It’s one that we don’t enjoy but unlike an out-of-carrier insurance or a homeowner’s insurance, you may go years and hopefully, you will go years without ever filing a claim. Health insurance, unfortunately, even if you’re healthy, you want to maintain that health. There’s wellness exams. There’s Pap smears, mammograms, all the things that help keep us healthy, have an expense. So, translating that, the human body just has parts that wear out and you don’t have to have a windstorm or a crash at the intersection to have a need for healthcare. It’s an insurance that’s used.

[00:04:37] Dean: All right. So, I want to make sure that as we’re talking about healthcare in the context here on The Guided Retirement Show that we’re talking about specifically in the context of someone who has retired and who has reached Medicare age. Tom, I met with dozens and dozens of people over the last few years, especially since the Affordable Care Act came out that have delayed their retirement until they are Medicare-eligible because of the high cost of individual coverage prior to Medicare and I think that there’s a lot of confusion around how Medicare actually works. So, the first thing I want to do is I want to break down Medicare so that it’s simple to understand. There’s multiple parts of Medicare so I’m going to let you start. You’re the expert here.

[00:05:28] Tom: Okay.

[00:05:28] Dean: All right. What’s the basic Medicare? What’s the first part that we need to know about?

[00:05:34] Tom: Medicare A, there’s always a confusion and there’s oftentimes a confusion between what’s Medicare A and Medicare B. I hear both terms, and I’m not confident what one means over the other. So, the best way to remember it is if you are going to be in the hospital for two weeks and you asked me, “Tom, would you please pay for my hospital bill or my physician charges?” Well, you would ask for the hospital bill. That’s going to be the largest expense you’re going to occur in a two-week hospitalization. That’s what Medicare A covers. It covers the inpatient hospitalization and that can be very, very large.

[00:06:06] Dean: So, is that it? That’s all Medicare A pay for is hospitalization?

[00:06:10] Tom: It pays for hospitalization, it pays for skilled nursing, and hospice. That’s the three coverages that you get through Medicare Part A.

[00:06:18] Dean: All right. You said something that might confuse people. You said it pays for skilled nursing and I know that there are a lot of people, even though you and I know this isn’t the case, to think that Medicare is going to take care of skilled nursing.

[00:06:34] Tom: And let’s divide this. There’s two separate paths here. Definition of skilled nursing for Medicare is, “Will this person improve? Will skilled nursing care make this person’s condition whatever that condition may be, will it give them an improvement? Will there be a better outcome?” Contrast that to nursing home care where there is no possibility or very little expectation of any improvement on the care. The person is simply living in a nursing home because they’re too ill or too injured to be home by themselves. Maybe there’s no one to assist them but they’re not going to get better. They’re just living their life out.

[00:07:08] Dean: Who gets to decide that?

[00:07:10] Tom: Well, the physician and Medicare, in this case, would make that decision but it’s going to be primarily the physician. They’re going to be able to look at what’s happening and they’re going to know.

[00:07:20] Dean: So, let’s say for example that the doc says there’s no chance of you coming out. What’s Medicare going to do then?

[00:07:27] Tom: They’re going to tell you that you need to go into a nursing home and there is no coverage for Medicare. There’s no coverage for a nursing home, standard nursing home. There’s long-term care policies that are available. There’s some life insurance policies that have provisions for this, but Medicare is not going to be the source of income to offset that expense. So, the risk there is that that nursing home expense could wipe out lifetime savings and leave the surviving spouse destitute.

[00:07:54] Tom: Absolutely. Depending on the state you live in, some states will only remove 50% of the assets if it’s a husband-and-wife or in that situation, but many states once the assets are completely gone then the person would probably be eligible for Medicare. They would move from Medicare to Medicaid typesetting, but your point is accurate. Their assets are gone. They are financially destitute.

[00:08:15] Dean: All right. So, let’s go back to Part A. Part A is taking care of hospitalization. Part A is also taking care of long-term care but not nursing home.

[00:08:25] Tom: That’s correct.

[00:08:25] Dean: Okay. So, I’m confused at the difference and I know that people listening to the podcast here have to be confused. What’s the difference between long-term care and nursing home in the Medicare definition?

[00:08:39] Tom: For Medicare to cover, there has to be the probability of an improvement in the condition. If the condition you’re experiencing is not going to improve, the Medicare they’re not going to respond to the expense of it. You need to go into a traditional nursing home setting for which Medicare pays zero.

[00:08:56] Dean: All right. So, just make sure that I’m clear on Medicare Part A, hospitalization and long-term care. Anything else that Part A pays for?

[00:09:04] Tom: Hospice.

[00:09:05] Dean: Hospice. Okay. Well, hospice is just the final days.

[00:09:07] Tom: It is the final days, and it’s pretty strange how accurate physicians have become in today’s world of medicine. They can very well predict when you’re within that last six months of time period. I mean, they sometimes are surprised but seldom they’ve got that pretty well figured out and it’s a fabulous coverage. I mean, people don’t think about or talk about hospice because you’re right, it’s the last days of life, but those last days of life can be very traumatic for your family, for your children. So, hospice has a lot of aspects to it besides just the individual that’s expiring.

[00:09:41] Dean: All right. So, let’s go to Part B then. So, there’s Part A and there’s Part B. What’s Part B?

[00:09:46] Tom: Medicare Part B is the outpatient services. My example if you were in the hospital and I asked if you want me to pay the hospital charges of the physician charges, Part A covers the hospitalization charges. Part B would cover the services not covered by Part A, the physician charges, the lab charges, the x-rays, the durable medical equipment, wellness exams. All aspects of wellness is covered under Part B. There has some very, very minor prescription drug coverage under Part B, but for most of us that think of prescription drugs and the drugs that we take on a daily or monthly basis, those are not covered under Part B. The Part B benefit for prescription drug, which is extremely limited, are primarily the very expensive injectables that you will get either on a hospital setting or a physician setting, but for all of our day in, day out prescription drug usage there’s none. So, Medicare does not cover prescription drugs with that minor exception.

But Part B picks up what Part A doesn’t when you see a physician when you’re in the hospital or when you’re out of the hospital and it also includes all the preventive services. And most of preventative services under Part B are covered at 100%. They encourage you to have the annual exams, to have the flu shots, to have the paps and mams and prostate exams. They want to help you. They want to encourage you to stay as healthy as long as you can, ensure that’s going to save Medicare money, but you’re going to personally go through less pain and suffering, as well as Medicare saving money, so it’s a win-win situation.

[00:11:20] Dean: All right. So, what do I do? I’ve got Part A just cover my hospitalization, my hospice, and 90 days of long-term care with that 30-day one-time additional. And then I’ve got my Part B that’s going to pay for the physician’s charges and all the other ancillary things that are there for the hospital stay but there’s only a minor portion of Part B that’s going to cover any kind of prescription drug. What do I do about prescription drug? Prescription drugs, we have prescription drug coverage under Medicare Part D, D as in David.

[00:11:49] Dean: Okay. So, I got A, B, and D now.

[00:11:51] Tom: You’ve got A and B and D, and we’re not done yet.

[00:11:53] Dean: Okay. So, this is part of the alphabet. Okay. So, now we’re on A. We did A. We did B. Anything else on B that I missed?

[00:12:00] Tom: Well, a couple of things that’s probably worth mentioning on A and B both. To qualify for Medicare Part A, you must be a US citizen, or you must’ve lived in the United States legally for five years and the premium for Medicare Part A there’s many people that say Medicare Part A is free. And, Dean, it is certainly not free.

[00:12:21] Dean: What do I pay for it?

[00:12:22] Tom: Well, you and your employer over to FICA contributions. When you all get your paycheck if you ever looked at the deductions, you’ll see a FICA deduction.

[00:12:33] Dean: I work for free. I don’t ever…

[00:12:36] Tom: Okay. I don’t know how to respond to that one. FICA is a tax that you and your employer have paid into the federal government, and if you’ve had 40 quarters or more, 10 years of FICA contribution and most of us have had many quarters more than that, you have simply prepaid your Medicare Part A premium. So, it’s not free but there’s no out-of-pocket expense. There’s no premium.

[00:13:01] Dean: You pay for it before you got it.

[00:13:03] Tom: You paid for it before you got it. That’s exactly right. And the benefit far exceeds what you have paid as far as contribution in the FICA. If you went to a commercial insurance entity and said, “Can you replicate what Medicare Part A does, what would the premium be?” And, Dean, I’m going to guess it would be $800, $1,000, $1,200 a month.

[00:13:24] Dean: If you wait until the time.

[00:13:26] Tom: Well, and that’s based on the assumption that that insurance entity could and would write a policy that matched or mirrored Medicare Part A. The point being is it’s a sensational value. It’s a true gift to our age group.

[00:13:42] Dean: All right. Now, you say it’s a sensational value. I don’t want to politicize this discussion, but does that get into one of the reasons why the politicians are saying that Medicare is broke?

[00:13:52] Tom: You know, it’s awfully hard for me to guess what goes through a politician’s mind.

[00:13:55] Dean: Wow. That’s fair.

[00:14:00] Tom: This is Tom Allen’s personal opinion based on years of experience and a lot of reading. I think that the people inside the Beltway use, “Medicare is bankrupt. Social Security is bankrupt,” as a scare tactic. These funds that pay for Medicare and also pay for Social Security do not come from the general pool of annual budget.

[00:14:22] Dean: Right. But on Medicare aren’t we deficit spending right now?

[00:14:25] Tom: We’re not deficit spending right now. We’re now to the point where we’re paying our own way. And with Medicare, will Medicare, could Medicare go away in the future? Sure, it could. I mean, there’s a lot to talk right now for a single-payer health system and will that occur? It is my opinion that it will occur. Will it occur during my lifetime and I’m sadly a few years older than you are, Dean, but maybe it may occur during our lifetime and it’s not to be political. It’s not a Democrat statement. It’s not a Republican statement. It’s a mathematic statement. When you look at what we’re spending on as part of our gross national product on healthcare as that number continues to grow and it has continued to grow since I became involved in this industry and there’s nothing in place that’s going to slow down significantly, the increases that we’re seeing from what hospitals and the pharmaceutical companies and hospitals charge.

We’re going to come to a point where the percentage of gross national product that goes for healthcare is so large that we’re going to have to start choosing between sleeping indoors, eating three times a day or having health insurance. When that day comes, we’re going to have to do something and single-payer healthcare certainly looks like the most logical.

[00:15:43] Dean: So, how is that going to be different? Does that mean it’s going to be cheaper? Does that mean that the coverage is not going to be as good? Is it going to control the prices? I mean, how does that work? If healthcare is going up, and by the way, when I put together a financial plan for somebody with our guided retirement system, I’m projecting healthcare costs are going to increase by 6.5% per year throughout their entire retirement and it’s kind of scary when I put that on graph and it’s showing here’s what your healthcare expenses are in your early years as a percentage of your total spending, and as time goes, how the healthcare portion of your spending and retirement actually increases at a much faster rates than everything else does. And so, you’re 20 years into retirement and you got far more as a percentage of what you spend in retirement being laid out for healthcare than you do for your normal living expenses. And if you don’t plan for that, if you haven’t projected that in then what happens is, is that what you’re saying is right that you are now choosing between healthcare and having a place to live, and three meals a day.

[00:16:48] Tom: Exactly, right.

[00:16:49] Dean: But a lot of that has to come back onto a person’s own ability to plan and project, right?

[00:16:55] Tom: Dean, it does.

[00:16:56] Dean: They’re not being reliant. Because you say that single-payer system and I think many people think, “Well, then that means it’s free. It’s covered.” This is now Sweden and we’ve got a healthcare system that we don’t have to pay for.

[00:17:09] Tom: Well, nothing is free and your point exactly and you use Sweden as an example. In the Scandinavian countries, they provide healthcare from cradle to grave. They provide education from kindergarten through college and there’s no cost for that. Oh, except that you’re taxed at about 70%.

[00:17:28] Dean: I was going to say they don’t get to keep much of what they make.

[00:17:30] Tom: No, and surprisingly enough, the government has no problem at all getting their tax dollars. Your employer sends your salary to the Swedish government. They take their $0.70 and they send you a check for $0.30 and they get first bite of the apple. They never have a problem with tax collection and so to say that it’s free is about as far from the truth as you can get. You’re just being taxed at a very, very high level. And if you are not in school and if you’re healthy, you’re obviously paying a lot of money out of your income for people that are receiving those services. In your point, going back to your point about people spending 6.5% growth which unfortunately is your point on compounds and really it grows into a huge number quickly, a lot of people think this is not going to apply to me because I don’t spend anywhere near those numbers on healthcare nor does my spouse.

And the reality is if you bought a loaf of bread this week, you probably paid a penny-and-a-half of the price of that loaf of bread for the health insurance for the baker and the driver that took it from the bakery to the grocery store and for the grocery store that sold it to you. All of those people have overhead and part of their overhead is healthcare cost.

[00:18:43] Dean: It’s the FICA tax.

[00:18:45] Tom: Well, in this case, no.

[00:18:47] Dean: Or it could be the healthcare that the employer is providing.

[00:18:50] Tom: Exactly, right. So, every time we spend any amount of money…

[00:18:55] Dean: But I’m talking about real hard out-of-pocket and I think that people don’t think they do but, Tom, I’ve seen it. I’ve taken people from the day they retired all the way until they’re no longer on this earth and I’ve seen what the healthcare cost can do.

[00:19:08] Tom: It’s dramatic.

[00:19:09] Dean: It is.

[00:19:10] Tom: It can devastate. It can completely wipe out their assets in a very quick period of time.

[00:19:14] Dean: All right. Let’s get back onto the whole Medicare discussion. I kind of got us off on a little bit of a tangent thereby I think it’s important to lay that out.

[00:19:21] Tom: Sure. Well, let me add. I mentioned to you. Medicare Part A is prepaid premium. Medicare Part B, there is a premium.

[00:19:30] Dean: And how do we determine what the Medicare Part B premium is?

[00:19:32] Tom: It is predicated on your adjusted gross income 24 months prior than going onto Medicare. And if you’re a married couple and you pay taxes on your adjusted gross income tax with $170,000 or less, you’re going to pay the threshold premium for Medicare Part B, which is this year $135.50 per person and it’s important to point out that you should assume and you should build into your financial planning that there’s going to be an increase in Medicare Part B premium. If there is a cost-of-living adjustment in Social Security, then that’s the trigger for our government to be able to increase the premium for Medicare Part B. Now, it goes up very modestly. It went from $134 to $135.50.

[00:20:19] Dean: Okay. But that’s $1,626 per year, per person.

[00:20:22] Tom: That’s correct.

[00:20:24] Dean: Hang on a second. How do I pay that?

[00:20:27] Tom: If you are drawing Social Security, they will take that out of your Social Security check.

[00:20:32] Dean: What if I delayed my Social Security?

[00:20:34] Tom: Which is wise, as you know. You can do it on a coupon basis where the government will simply bill you on a quarterly basis.

[00:20:40] Dean: Okay. And what happens if you pass 65 and you don’t sign up for Medicare?

[00:20:45] Tom: Two things and a lot in our age group are working past 65. We have the health. We have the desire and there’s a motivation for us to continue to get the benefits and all the advantages of continuing to work. If you are eligible for Medicare Part B and you choose not to accept it for whatever reason and down the road, you decide that you want to take Medicare Part B, there will be a penalty for not taking when it was first offered to you when you’re first eligible. The concept of group insurance is that many shoulders the expenses of a few and if you chose to take your healthy shoulders out of the equation, you’ve not been shouldering the expenses for the people that are using it.

[00:21:22] Dean: What’s the penalty? Let’s just say that I go to 65 and like I don’t need this right now and I wait until 70 when I start claiming my Social Security and now, I got Medicare. How much different is my Medicare Part B premium going to be that if I had started taking it at 65?

[00:21:39] Tom: There’s a penalty of 10% for each year and I’m saying that poorly. There’s a 10% penalty for twice the number of years that you are eligible for Medicare Part B and did not accept it.

[00:21:54] Dean: Break that down for me really simple.

[00:21:55] Tom: Okay. This year’s $135.50. If you went one year without taking Medicare Part B when you could have and chose not to, for whatever reason, you’re going to pay 10% of that $135.50 twice for that one year. If you go 10 years, you’re going to pay…

[00:22:11] Dean: So, I’m going to pay $27 more a month forever?

[00:22:14] Tom: No, for twice the number of years that you didn’t accept Medicare Part B that you should have or could have.

[00:22:20] Dean: I got you.

[00:22:22] Tom: And the motivation of course is…

[00:22:23] Dean: So, it’s not a lifetime penalty. It’s a penalty only for a couple of years after or four years or six years after whatever your delayed period was.

[00:22:300] Tom: That’s correct.

[00:22:32] Dean: And it’s just 10% of whatever that initial amount was or is it 10% of what the amount is when you get on that?

[00:22:37] Tom: It’s 10% of what the amount is that year. So, if it increases in premium, your penalty is going to increase. It’s simply a matter of if you own five rental homes in a row and three of them had smoke coming out from under the eaves and you wanted to ensure those three because it’s going to be a loss of some sort but you didn’t want to insure the other two, that’s not how insurance works. Insurance is a small known loss of cost or loss of money to protect you for an unknown large potential cost to you if something should manifest itself or you should have some injury or illness or disease come up.

[00:23:15] Dean: All right. So, now premium is on Medicare Part B, 135.50 and as we’re doing this podcast, we’re in 2019. So, if you’re listening at a time that’s later down the road, chances are the Medicare premiums have increased from what we were talking about here.

Thanks for listening to the Guided Retirement Show. I’m Dean Barber, Managing Director at Modern Wealth Management. We’ll be back after this short break.

[ANNOUNCEMENT]

[00:23:38] Female: Is thinking about your retirement intimidating? Okay. Let’s get real. The thought of not having to go to work five days a week traveling, spending time with your grandchildren, basically, doing what you want to do on a daily basis. Well, that’s not scary. However, paying for that retirement lifestyle, well, that can be a little more daunting. The reality is retirement doesn’t have to be scary and a good place to start is by listening to America’s Wealth Management Show hosted by Dean Barber, that’s the guy you’re listening to on this podcast, and Bud Casper. With over 65 years in the financial industry, Dean and Bud discuss how to live your one best financial life. And unlike some other radio shows, they don’t talk about investments or the latest get rich financial products. It’s strictly retirement education.

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[00:24:54] Dean: Now, I don’t want to politicize this discussion, but does that get into one of the reasons why the politicians are saying that Medicare is broke?

[00:25:01] Tom: It’s awfully hard for me to guess what goes through a politician’s mind.

[00:25:04] Dean: That’s fair.

[00:25:06] Tom: This is Tom Allen’s personal opinion. I think that the people inside the Beltway use Medicare’s bankruptcy, Social Security’s bankruptcy as a scare tactic. These funds to pay for Medicare and also pay for Social Security do not come from the general pool of annual budget.

[INTERVIEW]

[00:25:34] Dean: We are back. This is the Guided Retirement Show, I’m Dean Barber. So, to get back to what we were talking about, now you have the IRMA rules. So, that’s your earnings test to determine what your adjusted gross income is that can make those Medicare Part B premiums higher.

[00:25:52] Tom: That’s correct. And they can go up to $325 a month.

[00:25:55] Dean: Do you get better coverage?

[00:25:56] Tom: You get exactly the same coverage.

[00:25:58] Dean: That’s not very fair.

[00:25:59] Tom: Well, you can make that argument. The government feels that if you are in a financial position where you can make an additional premium, then they’re going to have you do that. And their goals…

[00:26:10] Dean: So, this is a form of means-testing.

[00:26:12] Tom: It is, at the government level. That’s exactly correct. We have a Barber Financial client that is in the highest tier of premium for Medicare Part B and she pointed out that seems terribly unfair and I offered to change income and pay her premium and she could take my income and pay my premium and that was not a choice that she wanted to make. She wants to continue to enjoy the income that she’s experiencing. And no, it’s not fair, but everything in life is not fair and that’s one of them we just have to smile.

[00:26:43] Dean: Well, I kind of chuckle when I say it because there’s a lot of people that say, “Well, at some point they’re going to means test Social Security. At some point, they’re going to means-test Medicare.” Well, they already are.

[00:26:52] Tom: They already are.

[00:26:53] Dean: They already are. They just don’t call it that. You got the increased premium due to IRMA. You got the taxability of Social Security at certain income thresholds that can make up 85% of your Social Security taxable. For others, it may not be taxable at all.

[00:27:02] Tom: That’s correct.

[00:27:08] Dean: That’s a way of means-testing. Both of those things are ways of means-testing, both Social Security and Medicare.

[00:27:13] Tom: And that’s a reality we’re facing today.

[00:27:15] Dean: Right.

[00:27:16] Tom: That’s not something we have to worry about in the future.

[00:27:19] Dean: But I don’t think the majority actually understand that both of those systems are, indeed, means-tested today.

[00:27:24] Tom: They are now, yes.

[00:27:26] Dean: All right. So, now we’ve covered Medicare Part A. We covered Medicare Part B. You said, okay, now we got Part D, which is the prescription drug coverage, but we’re not done yet. Let’s go to D. Let’s understand what D is.

[00:27:39] Dean: Okay. George W. Bush, president #43, he signed the Medicare Part D coverage and it is vastly needed and widely accepted, widely appreciated. Medicare Part D is a separate coverage for prescription drugs.

[00:27:57] Dean: Is there an additional premium for it?

[00:27:58] Tom: There is a premium and you will purchase this through an insurance entity. This doesn’t come to you through the United States government. This will come to you through one of the various insurance companies that are selling product Medicare Part D products, recognize that it is significantly controlled by Medicare. If you are going to start a Medicare Part D prescription drug plan and you want to sell it in 2020, sometime in May of 2019 you would submit to Medicare CMS your coverages and the premiums because you’re going to charge for that and Medicare would go through that program that you presented and now that they would approve it or they would negotiate because they want to have minimum standard of coverage of prescriptions. And, Dean, the Medicare Part D plan is something I feel that a lot of people will – let me back up. People my age group are afraid they’re going to make the wrong choice. They’re afraid that they didn’t understand all the choices that were available to them.

[00:29:02] Dean: Well, for good reason.

[00:29:03] Tom: Absolutely.

[00:29:04] Dean: It’s complicated.

[00:29:06] Tom: Well, and maybe their biggest fear is not that I’d made a wrong choice, but there was something out there that I never knew about that would’ve been a better choice for me. And this really flows into Medicare Part D. Medicare Part D carriers, coverage providers.

[00:29:2] Dean: By the way, how many are there? How many Part D carriers are out there today?

[00:29:25] Tom: Oh gosh, in our marketplace, there is a half-dozen very, very good strong Medicare Part D carriers. I only deal with and I only certify with carriers that have the financial strength that ensures to me that they’re going to be in existence two years from now, five years from now, ten years from now when we might actually need that coverage. Going with a company that has the lowest premium and the weakest financials does not offer me any peace of mind at night. Those 3 AM conversations where there’s only me and the liars it worries me a great deal. I want to know that carrier is going to be there where I need them. So, the point I want to make…

[00:30:04] Dean: So, hang on. I got to make sure I understand this. Okay. So, Medicare Part D isn’t really Medicare. It is really a Medicare supplement that you can purchase separate and you purchase that through an insurance company. It’s not something that’s just provided as part of Medicare?

[00:30:24] Tom: It’s not provided as part of Medicare, but it is extremely controlled by Medicare.

[00:30:30] Dean: Is it required?

[00:30:31] Tom: No, it’s not required. You may choose to take Medicare Part A, Part B, and choose not to take Medicare Part D, but where you’re going is yes, there’s a penalty.

[00:30:43] Dean: So, you have a penalty if you don’t have Part D?

[00:30:46] Tom: You have a penalty if you don’t choose to take Part D when you’re first eligible and the penalty, unlike Medicare Part B, the penalty is predicated on the national, I’m going to loss of phrase. Medicare has a national minimum standard of coverage and the penalty is somewhere this year I think $35.10 and your penalty if you don’t take Medicare Part D when it’s first available is that it’s a 1% penalty for each year, but under Part D, it goes forever. You will pay that additional premium. So, it could be a matter of $0.36. It could be a matter $3.60.

[00:31:30] Dean: And is that from the time you choose to get on Part D or is that just your penalty for not taking it?

[00:31:35] Tom: That’s your penalty for not taking it when you first…

[00:31:37] Dean: What if I’ve got a plan that I’ve retired from a business that they are going to pay my health care coverage, which includes a prescription drug coverage. What if I have that and I don’t need this Part D supplemental piece?

[00:31:54] Tom: I would encourage a person to take a long hard healthy look at the retirement plan and the benefits that they offer to you. I spent an afternoon with a lady that was looking at removing her and her husband from a retirement plan that included…

[00:32:12] Dean: A retirement health insurance plan.

[00:32:13] Tom: A retirement health plan, and they are paying zero premium and their benefits far exceed anything that they’re going to get if they would choose to leave that retirement plan, but they also have a lot of additional benefits. They had some life insurance. They had some long-term care coverage. They had some coverages that if they walked away from it and when you leave that plan, when you leave your retiree health plan, it’s a one-way street. They don’t let you back in.

[00:32:41] Dean: So, let me just ask the question and it’s just a really simple direct question. If I have that plan that’s offered from my former employer that I’m carrying through retirement and I choose not to take Part D because I don’t need it, am I still going to pay that penalty anyway, even though I’ve got another supplemental plan?

[00:32:59] Tom: No. In this scenario, you have prescription drug coverage.

[00:33:02] Dean: Okay. So, Medicare doesn’t care whether it’s one of these Part D supplemental plans as long as I have prescription drug coverage through an outside insurer. Is that what you’re saying?

[00:33:14] Tom: Dean, I am. Yes, but really what I’m saying is Medicare doesn’t care if you have prescription drug coverage. Period.

[00::00] Dean: Well they do because then otherwise they wouldn’t penalize.

[00:33:25] Tom: Well, if you have it through another vendor or if you’re one of the lucky people that don’t take prescriptions and never take prescriptions, Medicare is not going to send you a letter saying, “We’re unhappy with you.”

[00:33:34] Dean: No, but they’re going to penalize you for not taking it. I just want to make sure if there were going to penalize somebody that actually had a policy that they were able to carry from their former employer through retirement.

[00:33:44] Tom: Exactly, correct. And you know, there’s a piece of this that needs to be mentioned, should be mentioned that we’ve not talked about. Let’s go back to the person that’s 65 and intends to continue working and they asked to contribute towards him and his family’s healthcare costs. The employer doesn’t pay 100% of the cost. There’s some kind of a copayment from the employee. Does that employee have to take Medicare Part B to keep the penalty from occurring although he’s still continuing or she’s still continuing to work and has coverage through the employer?

[00:34:18] Dean: Okay. That’s a great scenario. I can’t wait through the answer.

[00:34:20] Tom: And the answer is no. The government has no interest. Medicare has no interest. If you’re contributing on a monthly basis to your employer health plan, they’re not expecting you to take Medicare Part B.

[00:34:32] Dean: So, if you don’t take it, you’re not going to have a penalty?

[00:34:34] Tom: That’s correct.

[00:34:35] Dean: How do they know?

[00:34:37] Tom: There’s a certificate of credible coverage that an employer is required to give you when you terminate your coverage, when you terminate your employment. And that certificate of credible coverage is going to tell you the starting date of your health insurance and the ending date of your insurance.

[00:34:52] Dean: So, you turn that in when you go to Medicare and you start to apply for Medicare so they know that you had coverage so we’re not going to penalize.

[00:35:00] Tom: That’s right. It’s the offset of the penalty. But, Dean, there’s real important pieces a lot of people seem to not be aware of. The ending date of that coverage, you have 63 days, not 65 not 60, not 70. I don’t know why 63. You have 63 days to secure and put in place additional coverage without any type of a penalty.

[CLOSING]

[00:35:21] Dean: I’m Dean Barber, Managing Director at Modern Wealth Management. I appreciate you joining us for this episode of the Guided Retirement Show. You can find links to this episode’s show notes and giveaways all in the show description. You can also visit us at GuidedRetirementShow.com/6. Don’t forget, subscribe to this podcast. Share it with your friends. Everybody needs a guide in the complexities that surround your retirement and that’s why we’re here on the Guided Retirement Show

[END]

Investment advisory service is offered through Modern Wealth Management, an SEC-registered investment advisor.