“I know everything that I need to know about Medicare.” —No one
“I’m all set.” —Too many
All net proceeds will be donated to the Great Humanity Healthcare Foundation (www.greathumanityhf.org)
MAXIMIZE YOUR MEDICARE:
Understanding Medicare, Protecting Your Health, And Minimizing Costs
(2018 EDITION)
by Jae W. Oh, MBA, CFPTM
© 2017 by Jae W. Oh, MBA, CFP™, CLU® ChFC®. All rights reserved. No part of this book may be reproduced in any written, electronic, recording, or photocopying form without written permission of the author or the publisher. Print Format Publisher: GH2 Publishing Group, LLC e-book Format Publisher: GH2 Publishing Group, LLC Cover Art: Ani Cho Stone Library of Congress Cataloging in Publication Data Oh, Jae W. Maximize Your Medicare (2018 Edition): Understanding Medicare, Protecting Your Health, and Minimizing Costs / Jae W. Oh, CFP®, CLU® ChFC® Library of Congress Control Number: 2017963953 ISBN-13: 978-0-9967987-6-1 ISBN-10: 0-9967987-6-5 eISBN-13: 978-0-9967987-7-8 1. Medicare –Popular--works Notes: Includes Index and bibliographical references 10 9 8 7 6 5 4 3 2 1 DISCLAIMER: All statements in this book are solely the informed opinion of the author. The advice in this book cannot and does not represent financial or investment advice. Such advice requires a deep understanding of a person›s specific circumstances. Rather, this book provides examples of situations that are designed to provoke further inquiry by readers to help them understand how to best make Medicare work for them. Although the author has made every effort to provide accurate facts regarding Medicare, including the regulations that govern it, the author accepts no responsibility for any errors or omissions. The opinions stated in this book are not affiliated with, nor endorsed by, the Centers for Medicare and Medicaid Services (CMS). Printed in the United States of America.
— vi —
CONTENTS Preface.......................................................................................... xiii Medicare is Confusing But Vital....................................................xiii Why is Medicare So Complicated?................................................. xiv Medicare is the Least Expensive Health Insurance........................... xv Will Repealing the PPACA Affect Medicare?................................. xvii Medicare Must Change................................................................. xvii How to Use This Book................................................................. xviii
Chapter 1: Enrollment in Medicare.................................. 1 Medicare Eligibility...........................................................................1 Enrollment Prior to 65 (ALS, ESRD, Disability)...............................3 Can I Delay Enrollment If I Work?...................................................4 Late Enrollment Penalty....................................................................6 How Much Is the Part B Late Enrollment Penalty?............................7 If You Are Penalized..........................................................................7 Financial Assistance...........................................................................8 PPACA Does Not Affect Medicare Enrollment.................................8
Chapter 2: Medicare Part A (Hospital Insurance)........... 11 Premium.........................................................................................12 Part A Benefits................................................................................13 Part A Inpatient Hospitalization Deductible....................................14 Copays............................................................................................15
— vii —
Key Term: Benefit Period................................................................15 Skilled Nursing Facility Care (SNF)................................................16 Observation Status..........................................................................17 No Annual Out-of-Pocket Expense Limit.......................................18 Table 1. Medicare Part A Cost Sharing (2018)...............................19
Chapter 3: Medicare Part B (Medical Insurance)............ 21 Premium.........................................................................................21 Annual Deductible..........................................................................22 Coinsurance....................................................................................23 Key Term: Medicare-Allowed Charge..............................................23 Part B Excess Example.....................................................................25 Cancelling Medicare Part B.............................................................26 PPACA (“Obamacare”) and Medicare Part B..................................27 No Maximum Out-of-Pocket Expense Limit...................................27 Table 2. Medicare Part B Premium (2018).....................................28
Chapter 4: Medicare Part D (Prescriptions)................... 29 Enrollment......................................................................................29 Premiums........................................................................................30 Why People Misunderstand the Coverage Gap................................31 Choosing the Right Plan.................................................................32 Preferred Pharmacies and Mail Order..............................................34 Changing Plans...............................................................................35 The Coverage Gap (“Donut Hole”) and You...................................35 Employer Group Plans and the Coverage Gap (“Donut Hole”).......36 — viii —
MAXIMIZE YOUR MEDICARE
Extra Help Program........................................................................38 Money-Saving Tip #1 and 2018 Update..........................................39 Money-Saving Tip #2: Check Pharmacies Carefully........................40 Table 3. Medicare Part D Premiums (2018)....................................41
Chapter 5: Medicare Part C (Medicare Advantage)......... 43 Enrollment......................................................................................44 Types of Medicare Advantage Plans.................................................48 Medicare Advantage Prescription Drug Plans (MAPD)...................50 Premiums........................................................................................51 Deductibles and Coinsurance..........................................................52 In-Network vs. Out-of-Network.....................................................52 Annual Notice of Change (ANOC) ...............................................54 How to Compare Medicare Advantage Benefits..............................55 Money Saving Tip #1 Medicare Advantage......................................57
Chapter 6: Medigap (Medicare Supplemental)............... 59 Medigap Enrollment.......................................................................60 Enrolling in Medigap During Other Periods...................................61 How Medigap Works with Original Medicare.................................63 Base Case: Medigap is Superior.......................................................67 Advantages of Medigap...................................................................68 When Is Medicare Advantage Better Than Medigap?.......................72 Money-Saving Tips on Medigap .....................................................75 Pitfalls to Avoid When Choosing a Medigap Policy.........................77 How to Avoid Pitfalls......................................................................79 — ix —
Medigap Restructuring Has Occurred in the Past............................80 Table 4. Medigap Plans �����������������������������������������������������������������82
Chapter 7: Employer (Group) Plans............................... 85 Can I Delay Enrollment in Medicare?.............................................85 The General Case............................................................................86 Pay Careful Attention to Enrollment Issues.....................................90 Examine Cost Sharing Terms Carefully...........................................92 Employer-Sponsored Medicare Advantage.......................................97 Dental, Vision, and Other “Benefits”..............................................97 What Employers Can Do................................................................98 Obamacare and Employer-Sponsored Plans...................................100
Chapter 8: Special Groups............................................ 103 Veterans Administration (VA).......................................................103 Federal Employee Health Benefits (FEHB) Program.....................107 State and Local Government Employees........................................109 Unions..........................................................................................111 Disabled and Employer-Sponsored Plan........................................112 ESRD and COBRA or Employer-Sponsored Plan.........................112 Hospital (and Other Healthcare) Employees.................................113 Small Business Owners..................................................................113 Professional “Associations”.............................................................115 Seriously Ill...................................................................................116 Diabetes........................................................................................117
—x—
MAXIMIZE YOUR MEDICARE
Chapter 9: Related Topics............................................. 121 Medicare Will Evolve and You Must Adjust...................................121 Health Insurance and Life Insurance Are Related..........................122 Home Health Care and Nursing Homes.......................................125 What is Universal Life Insurance?..................................................127 Extended Benefits & Life Insurance..............................................127 Advertisements: Treasure or Trash?................................................128 Agents: Angels or Devils?.............................................................130 Final Thoughts..............................................................................132
Glossary........................................................................ 137 Bibliography................................................................. 145 Acknowledgements....................................................... 149 Index............................................................................. 151 Experts’ Addenda.......................................................... 155 Insurance Is An Option ................................................................155 Health Insurance Is Different........................................................155 Options Are Priced Using Probability............................................156 Everyone is “Short” an Option......................................................157 Comparing Apples to Apples.........................................................159 Medigap vs. Medicare Advantage Revisited...................................160
About the Author.......................................................... 163
— xi —
PREFACE Medicare is Confusing But Vital Medicare, along with Social Security, is the cornerstone of retirement planning in the United States. Understood correctly, you will be able to control your total healthcare costs as you become older, the time when it is most likely you require medical care. If Medicare is mishandled or neglected, you may face unexpected costs, with little or no idea of how high your costs will be, or how long that situation will last. If you are penalized for mishandling enrollment, these penalties never expire. Fear of unknown costs can lead people to avoid getting medical attention: we all know someone that has chosen this regrettable path. Worse, avoiding needed medical attention can lead to even higher costs in the future. If that person does not have adequate insurance, and does not have the resources to pay, then the doctor, hospital, or healthcare provider is left with unpaid bills. As a result, the vicious cycle of higher healthcare costs accelerates. Maximize Your Medicare is written so that you can understand the rules that govern Medicare. More importantly, Maximize Your Medicare will help you understand the ripple effects of the choices that you are making. Admittedly, these ripple effects of your choices may be unseen today. Nevertheless, the fact that the future is unknown is not a reason for being uninformed about Medicare. That would be similar to ignoring hurricane forecasts, even if ultimately, the hurricane swerves harmlessly away from your home. There is a long list of excuses for not fully understanding Medicare. •
Confusing enrollment dates
•
Jargon
— xiii —
JAE W. OH, MBA, CFP®, CLU®, CHFC®
•
Advertisements and commercials
•
•
Complaints by colleagues and friends
The reality is that the commercials and advertisements are factually accurate, but the explanations are either absent, or incomplete. Medicare and You, the official manual published by the U.S. Government, is also insufficient for this same reason. Critically, the jargon of Medicare looks the same as the language used in other health insurance, but it can work differently from health insurance before someone turns 65 years old. Maximize Your Medicare is a guide to help you clarify the confusion, so that you can understand what your costs can be when you choose a specific Medicare configuration. Why is Medicare So Complicated? In the U.S., there are over 58,000,000 people that are enrolled in Medicare, and every day, approximately 10,000 turn 65 years old. Every single day. Improvements in medical knowledge and technology have resulted in longer life expectancy of the largest generation known to the United States. The bottom line is that in a country as large as ours, with people from different backgrounds, it will be virtually impossible to find a simple, easy solution. This is not going away. While elected officials may attempt to say that a political party is to blame, demographic facts overwhelm politically-motivated messages. On top of this, employer-provided health insurance plans have weakened, or have entirely disappeared. There is very little that the Medicare-eligible population can do about these dynamics. All participants in the healthcare system face a very complicated set of factors. Physicians, pharmaceuticals, hospitals, equipment makers, insurance carriers: this is only a partial list. All parties are facing a complicated set of rules and financial pressures. The challenge: beneficiaries (you) are left to “fend for yourself ” in this maze.
— xiv —
MAXIMIZE YOUR MEDICARE
The bright side is that you can find a solution that fits your individual health and financial situation. The enrollment rules are overwhelmingly in your favor. Insurance companies do not have discretion (except in the case of applying for Medigap after 65.5 years old, and the absence of a Special Enrollment Period): they are required to strictly follow the rules. In addition, there is fierce competition among insurance carriers, which can succeed only if they win your business. Medicare is the Least Expensive Health Insurance The idea that Medicare is expensive is usually the result of a person being unaware of the actual cost of health insurance. Health insurance for a 64 year-old, with benefits that resemble anything close to original Medicare, with either a Medicare Advantage plan (described in Chapter 5) or Medigap policy (described in Chapter 6), would cost well over $1,200 a month. In addition, that pre-Medicare health insurance policy would have a deductible (easily more than $1,000 a year) and copays. Prescription coverage would be included, but in many cases, the deductible would have to be met first. Under Medicare, your costs will likely decline, and the quality of your coverage will likely improve. For most people, original Medicare, (Medicare Part A and Medicare Part B) costs $134.00 for new enrollees. The average standalone prescription drug plan will cost an average of $35.03 per month in 2018. Additionally, a 65-year old can purchase a policy, with no network, no deductible, and no concept of annual out-of-pocket maximum (because coinsurance will be $0), for about $150 a month. The two premiums (Medicare Part B and Medigap) define your entire medical cost (not including prescriptions). In short, equivalent coverage is available under Medicare for much less than the cost of health insurance before a person becomes eligible for Medicare. The total cost difference can be thousands of dollars a year when a person becomes a Medicare beneficiary.
— xv —
JAE W. OH, MBA, CFP®, CLU®, CHFC®
Some may say “Currently, I only pay $300 a month.” That is because someone else (an employer or the younger employees in the group) is subsidizing you. It has nothing to do with Medicare. It is very convenient to attempt to identify one “culprit.” In this case, Medicare is not to blame. In addition, those benefits programs include cost-sharing details (deductibles, copays, coinsurance), which are weakening over time. These are not aggressive estimates. Th ey are re al-life, market-relevant numbers. If anything, Medicare beneficiaries should want Medicare to stay in its existing state, and to not weaken further from here. When you think about the fact that Medicare can change, and largely for the worse, then you can understand the #1 recommendation of this book: Get the best coverage that you can reasonably afford, while you can, because your choices are probably going to worsen, due to your increasing age, declining health, and changing Medicare system. The changes that have been announced since the first edition of Maximize Your Medicare make this statement self-evident. This trend can be reasonably expected to continue. All three of the factors (age, health, changing Medicare system) are beyond your control. The only question is when, not if, these changes will affect your healthcare costs. Financial planning requires the understanding, and the acceptance, of risk. The perspective represented in Maximize Your Medicare is clear: the consumer has the prerogative to accept risk because consequences (which can be beyond your control) have dictated that to him/her, but that is entirely different from accepting risk that a person did not intend. This book reveals some of the most important risks you may be taking, risks that you didn’t know you were taking. You can find recommendations that can help avoid unintended risks. There is the age-old cliché that says that “you hope for the best and plan for the worst.” Medical insurance under original Medicare, when com-
— xvi —
MAXIMIZE YOUR MEDICARE
bined with a Medigap policy (also known as Medicare supplemental insurance, a Medicare supplement), allows you to do this. You can largely protect against the most likely expense you will encounter as you naturally age, the most likely expense to cause you and your spouse/family worry, and the most likely source of financial distress to you and your extended family. Will Repealing the PPACA Affect Medicare? It is almost impossible to predict what the ripple effects of a potential appeal of the PPACA (Obamacare) will be, but uncertainty resulting from the 2016 federal election will most likely result in higher hospital costs if the individual mandate is repealed. To review, the individual mandate is the requirement for all people to be covered by health insurance, or pay a penalty to the IRS. If this requirement no longer exists, the only logical conclusion is that the number of uninsured patients will rise. The result of this is the sum of unpaid bills, left at the hospital or healthcare provider, will also rise. That total bill must ultimately be paid, by someone. As of this writing, it is unclear whether the individual mandate, or other aspects of the PPACA, such as Medicaid expansion, will change, and the central question will be “how will the law change, and what will the replacement be?” The example above suggests that the ripple effect of a full repeal, if not replaced with a viable alternative, can have very negative effects on Medicare beneficiaries. Medicare Must Change Every year since the first edition of this book, Medicare has changed. For new Medicare beneficiaries, those first enrolling in Part B, the premium will increase from $121.60 to $134.00 a month. Those who earn more than $85,000 a year ($170,000 for married couples) will face higher surcharges, as anticipated by previous editions. This has been made more
— xvii —
complicated by the fact that IRMAA for Part D is now different than in the past. The bottom line here is that as the population of Medicare-eligible increases, the costs to the Medicare system are also increasing, which is being made more extreme by the fact that people live longer now than they have in the past. While the changes may seem minor, that does not mean that anyone should expect the situation to remain stable. Demographic and fiscal challenges will, invariably, remain. Maximize Your Medicare will evolve with it. You can go to the website www.maximizeyourmedicare.com to find updates, corrections and additional examples of “This Happens.” Upon examination of the Medicare Advantage plans and Part D announced for 2018, Part D, has become increasingly complicated, even when the prescriptions taken remains the same. The late enrollment penalty has increased, premiums are higher, copays are more expensive, and formularies (approved drug lists) are constantly changing. Finally, competition among carriers is intensifying, which means that consumers can save money by examining which plan is best, given their prescriptions. Further changes to prescription drug plans should be expected as the Coverage Gap (otherwise known as the “donut hole) continues to narrow. How to Use This Book What you select will depend on the complicated combination of your medical situation, financial resources, family situation, and in the end, your mental outlook. This book may convince you that your situation is too complicated to decide for yourself. As a result, reading this book may encourage you to seek outside assistance. Even if this is your best option, this book will still be useful because it will help you ask informed questions, to make sure that you have considered the most important factors when making a decision. This book will help you judge whether or not the advice you are receiving is credible.
— xviii —
MAXIMIZE YOUR MEDICARE
While it is understandable that consumer fatigue due to mail, commercials, and advertisements may be justified to some degree, “tuning out” isn’t really a viable approach, because the consequences of not being fully informed are enormous. The book contains many examples of real-life situations. They are called “This Happens.” They are real-life examples (the names have been removed). Here is a quick sample: This Happens. Mr. Brown is retired from a large employer, and covered by his employer-sponsored retiree health benefits plan. He continues to stay covered by his retiree health benefits plan, for himself and his spouse, even though the cost of coverage is $600 a month, and has coverage that is inferior to original Medicare, in combination with either a) a Medicare Advantage plan or b) a Medigap plan and stand-alone prescription drug plan (Part D). This Happens. Ultimately, this book wants to help you avoid this oft-repeated conversation: A. “Why didn’t you tell me?” B. “You didn’t ask.” A. “Well, I didn’t know where to start to ask.” This book will point out factors which should be used in making a decision. While the situations presented cannot possibly be exactly like yours, they are meant with one message in mind: you are not alone, and there is always a way to choose amongst a seemingly dizzying number of options. Maximize Your Medicare sets out to help you do just that. — xix —
ABOUT THE AUTHOR Jae W. Oh, MBA, CLU®, ChFC® is a Certified Financial Planner™, Chartered Life Underwriter®, and a Chartered Financial Consultant®. He is an expert contributor to a website powered by the nation’s second largest carrier of Medicare plans, Humana Inc., titled MyMedicareAnswers. com, and frequent public speaker to large and small groups, including colleges, companies, library systems, and senior centers. He has a Master’s Degree in Business Administration (MBA) in Accounting and Finance from the University of Chicago, and a Bachelors of Arts (BA) degree in Economics and Political Science from the University of Michigan, Ann Arbor. Consulting services to individuals, businesses and governments are available. License numbers, accreditations, and references are available upon request. Certified Financial Planner™ is a trademark of the CFP Board. Chartered Life Underwriter (CLU®) and Chartered Financial Consultant (ChFC®) are trademarks of The American College. Website: http://www.maximizeyourmedicare.com Financial Planning Website: http://www.jaewoh.com Email: jae@maximizeyourmedicare.com Twitter: @MaxYourMedicare Facebook: Maximize Your Medicare Pre-Medicare: http://www.gh2benefits.com
— 163 —