With rising health-care costs threatening to derail carefully
constructed retirement plans, advisers should ensure clients successfully
navigate the process of signing up for Medicare to avoid stiff penalties
Nov 24, 2018 @ 6:00 am
Who knew that turning 65 would be so fraught with
confusion and angst? It has less to do with acquiring more gray hair — or
losing your hair altogether— and more to do with the nagging feeling that you
face a momentous decision with strict deadlines and severe consequences if you
screw up. I am, of course, referring to signing up for Medicare.
As a financial adviser, you are in a position
to help your clients tackle some of the most confusing issues they will face in
retirement, including how to pay for ever-increasing health-care costs that could upend
their financial plans. Think of their sense of relief if you provide them with
a step-by-step process (see checklist) for how and when to enroll in Medicare
and claim Social Security benefits in the most beneficial manner.
The traditional retirement age of 65 is still
a key milestone for Medicare eligibility, but full retirement age for Social
Security benefits is 66 or older, depending on the individual's birth year.
The decoupling of the eligibility ages for
these two essential retirement programs, and the fact that many people continue
to work beyond traditional retirement age, complicates critical enrollment
decisions.
Best time to prepare
The year before turning 65 is a good time to
review Medicare options. Financial advisers may want to send "Happy 64½
birthday" cards or similar notices to clients to focus their attention on
the timeline for the important decisions that lay ahead.
"Increasingly, health care is material to
the financial well-being of Americans," said Ryan McCostlin, head of
health-care financial planning at Bernard Health, a benefits brokerage firm
that partners with financial advisers to provide health-care counseling to their
clients.
"More and more, financial advisers are
embracing health-care financial planning because they feel they
can't get away with not addressing it," Mr. McCostlin said. "The ones
that do can use it as a prospecting and retention tool to differentiate
themselves from other advisers."
In the two years since launching its financial
advisory division, Bernard Health has partnered with Morgan Stanley,
Ameriprise, Baird and several regional and independent advisers.
Auto enroll vs. sign-up
People who claim Social Security benefits
early are automatically enrolled in Medicare when they turn 65.
Clients can decline Medicare enrollment if
they have other "creditable" health insurance coverage from a current
employer or union or through a spouse's job. Retiree health benefits and
extended coverage through COBRA do not count as creditable insurance to replace
Medicare Part B.
Clients who have creditable coverage through a
group health insurance plan at work have up to eight months after that coverage
ends to sign up for Medicare penalty-free during a special enrollment period.
Clients age 65 or older who are not receiving
Social Security benefits and do not have group insurance at work — defined as a
company plan for 20 or more employees — must enroll in Medicare during their
seven-month initial enrollment period or face tough consequences.
Clients can sign up for Medicare by visiting a
local Social Security Administration office, calling the SSA toll-free number
(800-772-1213) or applying online at ssa.gov. Your clients should click on the
"online services" tab and then "apply for Social Security benefits,"
even if they just want to apply for Medicare, as it's the same form.
If clients miss their initial enrollment
period, they could face lifelong penalties and costly coverage gaps.
The initial seven-month enrollment period for
Medicare begins three months before an individual's 65th birthday, includes the
birthday month and extends for three months afterward. If your client misses
that initial enrollment period and isn't covered by an existing employer's
group health insurance plan, he or she must wait until the next general
enrollment period to sign up — a potentially costly delay.
General enrollment runs from Jan. 1 through
March 31 every year for coverage beginning on July 1. So if your client missed
their initial enrollment period that ended in April 2018, they would have to
wait 14 months until Medicare coverage could begin on July 1, 2019.
In the meantime, they could be on the hook for
80% of health-care expenses, even if they have retiree health coverage or
extended employer health insurance through COBRA — neither of which are
considered creditable insurance that replaces Medicare. Medicare is the primary
payer of medical expenses for Americans age 65 and older, and other insurance
is secondary.
Remind clients with health savings accounts that once they enroll in
Medicare, they can no longer make tax-deductible contributions to the HSA,
although they can continue to take tax-free distributions to pay for qualified
medical expenses.
The ABC and Ds of
Medicare
Medicare has four parts. Part A covers
hospitalization and is free for most people.
Part B covers outpatient services and doctors'
fees and has a monthly premium of $134 per month for most enrollees in 2018,
which will rise to $135.50 in 2019. Higher-income retirees, defined as individuals with
modified adjusted gross incomes above $85,000 and married couples with joint
incomes of more than $170,000, pay more.
Medicare Part D covers prescription drugs and
is also subject to high-income surcharges.
Most people choose original Medicare Parts A
and B, and add Part D prescription drug coverage and a private Medigap
supplemental policy to cover deductibles and co-payments. Clients can use
Medicare anywhere, at any doctor or hospital in the country that accepts it,
and most do.
About one-third of Medicare enrollees instead
opt for an all-inclusive Medicare Part C plan, also known as Medicare
Advantage, which often offers additional benefits not provided by original
Medicare, such as dental and vision care, and often includes prescription drug
coverage.
Medicare Advantage plans, which are provided
by private insurers, tend to be less expensive — some charge only the standard
Medicare Part B premium and others charge an additional monthly fee. In
exchange for lower costs and expanded benefits, Medicare Advantage members are
usually restricted to using health-care providers and services within the
plan's network, often limited to a specific geographic region except for
medical emergencies.
In a worrying development, a recent report by
the inspector general of the Department of Health and Human Services found
"widespread and persistent problems related to denials of care and payment
in Medicare Advantage." Separately, a bipartisan group of more than 100
lawmakers sent a letter to the Trump administration complaining that Medicare
Advantage patients "may be encountering barriers to timely access to care
that are caused by onerous and often unnecessary prior authorizations."
Late-enrollment
penalties
If your client misses their initial enrollment
period, they also will incur a delayed enrollment penalty of 10% for every 12
full months they were eligible to enroll in Medicare Part B but did not. And
the penalty continues for as long as they have Medicare Part B.
So if your client mistakenly assumed their
retiree health plan or COBRA coverage would replace Medicare and signed up for
Medicare Part B two years after their initial enrollment period, they would pay
a delayed enrollment penalty of 20% of the standard Part B premium every month
for the rest of their life.
The delayed enrollment penalty for Medicare
Part D prescription drug plans is 1% per month or 12% per year for every year
an individual was eligible to enroll but did not.
Clients may be able to delay enrolling in Part
D penalty-free or skip it altogether if they have creditable drug coverage,
defined as a policy that is as good or better than the basic Medicare D
benefit.
Many retiree health plans qualify as
creditable drug coverage, as do Tricare for Life, Veterans Benefits and Federal
Employee Health Benefits. Clients with those benefits do not need to buy a Part
D drug plan.
Having creditable coverage also means that if
your client loses such prescription drug coverage — perhaps because of
retirement — they will have a two-month special enrollment period to sign up
for a Part D plan penalty-free after their previous coverage ends.
Although retired military personnel can skip
enrolling in Medicare Part D, they must sign up for Medicare Parts A and B when
they're eligible to qualify for Tricare for Life health benefits.
Retired federal employees can skip signing up
for Medicare and rely on their FEHB benefits alone, but if they later decide to
enroll in Medicare Part B and use their FEHB benefits for supplemental
coverage, they will be subject to Part B delayed enrollment penalties.
Initial choices
Probably the most important thing that
financial advisers can communicate to their clients about Medicare is the
importance of making the right choice in the first place.
Although clients who select original Medicare
initially can switch to a less expensive Medicare Advantage plan later (see
open enrollment guide), it is only during their initial enrollment period or
special enrollment period that they can choose any supplemental Medigap plan
without medical underwriting.
If they select a Medicare Advantage plan
initially, they can switch to original Medicare in later years, but they may
not be able to get the Medigap plan of their choice, or they may have to pay
more for it as a result of their health status.
Medigap plans are health insurance policies
that offer standardized benefits to work with original Medicare. They pay part
or all of certain remaining costs, such as deductibles, coinsurance and
copayments. Medigap only works with original Medicare, not with a Medicare
Advantage Plan.
Depending where you live, you may have up to
10 different Medigap policies to choose from: A, B, C, D, F, G, K, L, M and N.
Policies in Massachusetts, Minnesota and Wisconsin have different names.
Each policy offers a different set of
standardized benefits, meaning policies with the same letter name offer the
same benefits. However, premiums can vary from company to company. Clients
should select the plan letter they want and then compare prices.
"With more choice comes more
complexity," Mr. McCostlin said. "For many people, shopping for a
Medigap policy feels more like filing their taxes than buying insurance."
Currently, Medigap F plans are the most
popular and comprehensive, but they are going away. Starting in 2020, Medigap
Plan F cannot be sold to new Medicare beneficiaries.
New Medicare enrollees who like the
comprehensive coverage of Plan F should consider buying Plan G, which provides
most of the same benefits but does not include the Part B deductible, which is
$183 in 2018 and $185 in 2019.
Existing Plan F policyholders could see
premiums rise in the future, as the insurance pool shrinks.
MEDICARE RESOURCES
Social Security
Administration
Helpful brochures include "Medicare" and "Apply for
Medicare Online — Even If You Are Not Ready to Retire."
Medicare
Learn about Medicare costs, find out about health and drug plans,
and compare options.
The Medicare Rights
Center
Offers several free interactive guides to Medicare costs, annual
open enrollment and info on how to appeal high-income surcharges, as well as
tools to help clients make the best decision based on their health, budget and
state of residence. The center also offers training and continuing education
credits for financial planners and insurance agents through its Medicare Pro
program.
The State Health
Insurance Assistance Programs
Provides contact information for free personalized counseling in
all 50 states and the District of Columbia, as well as other helpful resources.
Mary Beth Franklin, a certified
financial planner, is a contributing editor for InvestmentNews.
https://www.investmentnews.com/article/20181124/FREE/181129992/medicare-enrollment-prepare-or-pay-the-price
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