On-Demand: Medicare Basics
- Aug 17, 2022
In this webinar, the speakers will cover the complications of Medicare and provide you with the basics to determine when to apply and knowledge on options available to you.
Daniel Gibson: Thank you, Bella. Hey, before I forget, everyone, in addition to this webinar, next week, we have a program on social security, which will appear at the same time that this program is going, 12:00 next Thursday, so please, if you're interested, go ahead and register for the program through EisnerAmper's website.
Today's objective is to go through some of the basics of Medicare. There are complications to Medicare, but we're trying to keep it as basic as we can. Hopefully we'll bust some of the myths that people have with Medicare, answer some questions, and hopefully get people in the position where they feel comfortable dealing with the subject matter.
Again, hello, everyone. My name is Dan Gibson. I'm a partner in the private client services group working out of New Jersey. I have about 40 years of experience in public accounting, 35 of those years with EisnerAmper. My practice centers around closely held businesses and individuals, and I focus on accounting, tax, financial planning, tax controversy, consulting, and compliance. Let's get started and have Onofrio introduce himself.
Onofrio Cirianni: Good afternoon, everyone, and thanks for joining us. Onofrio Cirianni, in EisnerAmper wealth management and corporate benefits group here within EisnerAmper. Similar to Dan, we work on a lot of mutual clients, working with families and many closely held businesses. I've been in the industry for 35 years and here at EisnerAmper since 2001. To Dan's point, we're going to cover some highlights of Medicare. I will say it is a complex area, and as you start approaching Medicare eligibility, for those of you who've already been there, you know your mailbox starts getting filled and the phone starts ringing from telemarketers. Hopefully we're going to hit on some points and some concepts and things to think about, and we'll give you some guidance on how to approach this as you approach eligibility, or if you're already Medicare eligible, make sure that you're avoiding some blind spots and mistakes, which could impact you greatly from a medical standpoint, making sure that you get the right care, but also financially. Thanks. Take it off, Dan.
Daniel Gibson: Thanks, Onofrio. We've got a ton of content here, so we're going to go pretty rapidly through it. Onofrio will be handling the questions, so if you have questions, feel free to submit them on the inbox, and we can turn those around and address as many as we can. The first question we're going to address is turning on Medicare. Simply stated, if you're on social security at 65, you're going to be automatically enrolled in social security. If not, you're going to have to self-enroll yourself at 65, and you enroll yourself during what's called an initial enrollment period. It's a seven month period, three months be prior, three months after, and in between is your birth month. For instance, if you were born on July 15th, the enrollment period would be from April through October.
You have to be careful when you try to do the start date, because you could be caught without coverage, so if you enroll in the prior three months, prior to your birth month, your coverage will start on the first of your birth month. If you go to enroll in your birth month, it'll actually turn on the first of the following month. If we were talking about July 15th, if you enrolled in July, it would start August 1st, and then for months afterwards, it's actually delayed somewhat. If you enrolled in August, it wouldn't start until October 1st. If you enrolled in September, it wouldn't start until December 1st, and if you enrolled in November, it wouldn't start to January 1st. Again, just a caution here as to the timing as to when you enroll, because you wouldn't want to get yourself, obviously, get caught without any coverage.
Onofrio Cirianni: Now, just to add to Dan on that slide, it is a little clumsy. Everyone should know that this is under ... There's some proposals right now in 2023, where this may all change. They're going to try ... Most of the proposals are to, once you sign up, you're going to go into the next month without all these gaps, so stay tuned. We'll keep you posted.
Daniel Gibson: Okay, so staying on the topic of turning on, when to turn on your Medicare, if it's over 65 and four months, you are beyond the initial enrollment period, so keep in mind, they have this concept called a credible plan, all right, and a credible plan, non-credible plan. The credible plan allows you to continue being insured by another carrier or another group without having to be enrolled in Medicare and not be penalized. We'll talk a little bit about that further on down on the slide, but if you're in an employer plan and it works for you and you've done the analysis with Medicare and you want to stay with that plan, as long as you have 20 people or more in that plan, it's considered to be credible and it allows you then to delay ... It allows you to stay in Medicare, and this could be ... It could be on your plan or it could be on your spouse's plan.
Now, there are plans called non-credible plans that do not allow you to delay the Medicare, namely employer plans with less than 20. If you're on COBRA, if you're on the exchange, if you're on a veterans plan, these are considered non-credible plans, and what they do is they end up taking a position as a second payer. If you haven't signed up for Medicare in these sort of situations, the non-credible plan sits there as the second payer awaiting for the first payer to pay, and if you haven't signed up for Medicare, you don't have a first payer. All right? This could be catastrophic, and if you don't have a credible plan that you are using to delay getting into Medicare, the penalties for when you do sign up for Medicare are onerous, to say the least, and they're lifetime.
Okay, so when you've had a credible plan, you're over 65, and you're beyond the 65 and four month period, you're beyond that initial enrollment period. Again, if you've got a credible plan, that's fine, and you can enroll during what's called a special enrollment period. All right? However, you need to have certain forms, the CMS L564 and the CMS 4-B, and all these are doing are just verifying the fact that you were in an employer plan, it was a credible plan, and you also specify the date that you want to start your Medicare, all right? Normally we would suggest that you start addressing this probably 60 to 90 days before you want your coverage to be turned on. I guess we've come to our first polling question.
Bella: Poll #1
Onofrio Cirianni: While we're waiting for the polling results, just a few comments, and a bunch of questions came in regarding if you're still employed, working for a large group over 20 employees, you don't have to sign up for A or B, and typically most people do not, and there's no penalty if you have a credible plan. I'll touch on it a little while, some people do sign up for part A, but that could have some other impacts, particularly if the employer is offering a high deductible plan with a health savings account. Also, we have a lot of individuals, but I saw that we have some CFOs and controllers of businesses. If a business is offering group health, we recommend that they educate their employees on the choices of how Medicare works to the company and to the individuals, where the individuals may save money and have access to better coverage can also help the business as well. Obviously you can't force them off the group plan, but if you educate them and they do enroll independently, it could be a win-win for both.
Bella: Great. Thank you for those comments, Onofrio. I have shared the results of the poll.
Daniel Gibson: Okay. Very good results. Thank you everyone. Let's talk about the Medicare coverage. As many of you may or may not know, you actually have two options when it comes to Medicare coverage. You have option number one, which includes Medicare A and B, and then you have option two, which is better known as Medicare Advantage plan. Option one is normally considered, is referred to as normally original Medicare, and the Medicare Advantage plan is usually just referred to as the Advantage plan. Can't pick both. You've got to pick one or the other. We're going to go through some of the highlights of both of these plans. Some of them are ... There's probably some biases between ... Hopefully none of the biases bleeds through for me or Onofrio, because we're just trying to give you the facts right now, because it depends on the individual and their circumstances as to which options work, but the we're going to go through those in the next couple of slides.
All right, so now we're talking about original Medicare, and part A and B. Part A is a plan that, or the part of the Medicare which covers all hospitalization costs, skilled nursing and rehab, home healthcare, and hospice. Part B covers the doctor costs both in and out of the hospital, and outpatient costs, so basically you can think about it, part A is in hospital, part B is out of hospital, except for the doctor costs.
Let's go through some of the numbers here on part A and part B. Part A, there normally is no premiums. You've paid the premiums most of your careers, as most of you know, that you get this thing called Medicare taken out of your paycheck on a regular basis, and that's where that's been paid. As long as you or your spouse have 40 quarters of work, which normally equates into 10 years' worth of work, there's nothing to be paid when you have part A, but if you haven't, then you would be charged premiums. Some of the unique features of part A, part A has a deductible, which is a little bit different than most deductibles. The dollar figure for 2022 is $1556, and it's for a benefit period, all right, as opposed to where most of us are used to an annual period.
In other words, you could be going into a situation where you might be hospitalized, say in January, all right? You have a deductible for this $1556. If 60 days elapse and you have to go back into the hospital, you're good, you've satisfied the deductible, but let's say you had something happen in November. Well, you're beyond that 60 day period, all right, so you have another deductible that you have to pay. You have to be, again, wary of this part of the part A. If you're in the hospital for more than 60 days, up to 90 days, you have a copay of $389, and if you go in for more than 90 days and up to 150 days, it's $778. After 150 days, Medicare covers nothing. All right? Medicare also does not normally cover foreign travel, so you have to be careful. Those of you that are traveling that are on Medicare, out of the country, you may not have coverage, so you want to check on that before you leave.
Any of you that have gone through this with yourselves or relatives or friends, there is a skilled nursing option that you can take advantage of, but you also have to be in the hospital for at least 72 hours, all right, and the first 20 days of that skilled nursing facility, which is really rehab, most of us know it as rehab, those first 20 days, there's a zero copay. From 21 to 100 days, the copay is almost $195, and then after 100 days, there's no coverage at all from Medicare. All right? Again, these are numbers that I'm giving you with Medicare, the original Medicare by itself. We're not talking about supplemental, Medigap, which we'll talk about a little bit later.
If you go over to part B, which is the part that covers the outpatient services and the doctor services, the monthly premiums are $170 a month, and if you're getting social security, this will be taken out of your social security check. If not, you'll be billed separately for it. I think it's on a quarterly basis. I may be wrong in that, but you are billed separately. There is an additional uptick on higher income individuals. It's called IRMAA, and IRMAA would layer on additional costs onto the $170, all right? To do the calculation for IRMAA, they look back two years to determine what your modified adjusted gross income is. If your modified adjusted gross income is greater than $91,000 as a single person or $182,,000 as a married couple, this layering of IRMAA, depending on ... It continues to layer based on the additional income that you're earning. There's also a deductible of $233, relatively small amount, and it is on an annual basis, not like the part A that we just talked about. Medicare covers 80%, individuals are responsible for 20%, and more importantly, on that 20%, there's no stop-loss. All right? It's a co-insurance. You are responsible for that 20%. In some cases, some doctors can charge an excess charge. Not a lot of them, probably about 10% of them, but they can charge as much as 15% additional, and this is not covered by part B.
Just a quick note, again, I know I mentioned before, the late sign-up penalties. Be aware of those. If you're signing up for part B, that penalties are somewhat onerous, and the HSA issue, which Onofrio mentioned before, and not going to get into a lot of detail with that because we could actually do a whole program on HSA and how it interplays with Medicare, but if you're on an HSA program and you're an employee plan, you do not want to not want to sign up for Medicare, because once you sign up for Medicare, all bets are off. You cannot make contributions to HSA. That was a lot. Onofrio, I don't know if you had any comments on that.
Onofrio Cirianni: Yeah. Thanks Dan. Yeah. I just want to emphasize that, because a lot of the questions are coming in for folks that are over 65 and are still in a large group health plan. Although part A is free, that would be one reason not to sign up for A. It may preclude you from participating in your HSA, and if your company is only offering one plan, then you might have a lot of out of pocket cost. The other comment is, these monthly premiums, I mean, they could be as high, depending on your income, around $500 per person per month. I would just say from a financial planning standpoint, we do this for all clients, is a lot of people don't take these costs into consideration when they're going to retire or doing any type of projections. There are tools that you can plug in based on income, not just what the Medicare part B premium would be. Some folks might be at that high level of income in perpetuity in retirement. It may not fall off, but also the cost of supplemental plans and out of pocket cost, to plan for it. It really could change the retirement cash flow scenario.
Daniel Gibson: Here's a question for you, Onofrio. IRMAA, what does that stand for? Do you have that at your fingertips?
Onofrio Cirianni: I do not, Dan.
Daniel Gibson: Yeah. I always try to remember that, but I don't have it exactly so I'm not even going to try.
Bella: Poll #2
Daniel Gibson: I will follow up with IRMAA. You definitely don't want to learn who she is, but I think it'd suffice to say at this point, it is a penalty for higher income individuals with respect to their part B premiums.
Onofrio Cirianni: Just another question in the time we're waiting here. There were also additional questions. There's some folks that might be working past 65, they're on a large group plan, and they may or may not have elected social security. I think one big misconception is, when you elect social security, it follows the election with Medicare part A and B, and they are really two separate decisions. It's not that if you choose social security, you automatically have to choose A and B, or vice versa. You might be signing up for A and B, but may be delaying the social security election.
Bella: All righty. I am now closing the poll and sharing the results.
Daniel Gibson: Okay. Very good. Good answers. Again, the correct answer is 15%. Okay, so now we're going to talk about the Medicare supplement plan, which, not required, but is strongly, strongly suggested that folks look into this. All right? This again is a slide summarizing part A and part B, and basically the supplemental plans, whatever gaps appear over on part A as far as out of pocket monies that have to be paid, those would be taken care of, all right, by the supplemental plan. All right? On the part B, I mean, you still have to pay the monthly premiums, all right, and you still have to pay the deductible of $233 per annual period, but your 20% stop-loss is taken care of, the insurance that you're responsible for, and any excess charges. All right?
Now, the supplemental plans, as I'll show in the next slide, just to confuse things, they've got the supplementals identified by letter, so it's not enough that they have part A, part B Medicare, but now they have supplemental A, B, through H, G. G is normally the best one that's out there. They used to have plan F which used to cover everything that G does, including the $233, but if you haven't signed up for it now, you're not going to be able to get it. I mean, it used to be only for people that were born prior to 1955 that signed up for it, I think, by the end of 2020. Anybody that even could be eligible, it's too late for them to do it now, but G is still a good option, obviously, because it covers most everything except for the $233. It even covers some foreign issues. If you're having an emergency and you're traveling foreign, it will cover 80% of it up to $50,000. As with all supplementals, no networks, no referrals, no authorizations, plans are written for life as long as you pay your premiums, and they're portable.
All right, so again, I listed all of the plans here at the top for the supplemental plan. There's four items which are really identical from the plans that everyone should know about, all right? Each of these letter plans is standardized, so if you decide to get an N plan from Aetna, the coverage is going to be the same under Mutual of Omaha, so shopping for these from a coverage standpoint is kind of a waste of time because the government has required them to have certain coverages for all of these plans. What kind of network? There isn't any network. It's all doctors who will take Medicare, and probably 90, 95% of doctors will take Medicare. The claims, the nice part about that is there's really none filed by the individuals. The providers take care of most, if not all of it. The providers file the claims with Medicare and then Medicare submits, to the extent that they're not covering things, they'll submit the remainder to the insurance carriers.
The customer service is really not a difference between one or the other. You could call up now and get the best person on earth that has all the answers, been trained well, is very friendly, and then wait 10 minutes, call the same carrier and get somebody who doesn't know what they're talking about and is not very well trained. It's not any difference from any other providers that you may be dealing with, whether it's doctors, or in my case, dealing with the IRS or the State in New Jersey Division of Tax. One minute I get a great person. Next minute, I may not get such a great person, so from that standpoint, the customer service is the same.
Two things that are different is, when you are shopping for the supplemental plans, it's going to be your initial premiums, all right? Those initial premiums are usually locked in for 12 months. They vary by carrier, so you want to be able to go out and shop them, and the premiums are based on the age, gender, location, and tobacco status of the individual. One thing that might be overlooked, in addition to looking at the initial premiums, you want to really look at the stability of the premiums, and by that, you want to look at a plan to see whether or not, in history, whether they have great increases and decreases in their premiums. I mean, we can't predict the future, but at least we can look at the past and see how stable the particular carriers that we're looking to sign up with.
Next thing, and we're still on the supplemental plans, all right, is what we call the B date. The B date is when you start Medicare, all right, and it's extremely important, all right, for those of you with preconditions, or maybe someone who is not as healthy as others might be. All right? You have a six month window, all right, once you start Medicare, or once you're starting Medicare, to have this window to sign up for a supplemental plan without any health underwriting. By health underwriting, I mean not having to answer a bunch of questions regarding your medical conditions, getting statements from doctors or things of that nature. Once that six month window is closed, all bets are off. All right? Then you have to address any preexisting medical conditions and you have to proceed with caution at that point because you could be denied coverage, or your coverage could be tremendously increased in premiums, so you have to be careful during the six month period and you also have to be careful later on. If you're switching from another carrier or over to Medicare Advantage, you will lose that ability to leave out preconditions, and you may have to go through some sort of a medical or health underwriting.
Onofrio Cirianni: Just to add to that, to complicate this further, certain states have alternate rules, so these rules are for the majority but not all 50 states. As an example, as Dan just gave, if you want to switch from one Medicare plan to another in New Jersey, as an example, they can deny you or apply preexisting conditions, but states like New York or Connecticut have a lot more flexibility, in terms, there are companies that will allow you to switch, no medical underwriting. It really depends on the state that you live in, and zip code, to be specific.
Daniel Gibson: Polling question number three?
Bella: Poll #3
Onofrio Cirianni: I want to thank fellow colleagues within EisnerAmper throughout the firm. I was starting to Google the acronym IRMAA, but I got five messages on what IRMAA stands for. It's income-related monthly adjustment amount.
While we're waiting, one more comment. We've had circumstances where those who are over 65 ... As Dan mentioned, 98% of providers do accept Medicare, but there's a large percentage of that 2% that do not in certain pockets of the country. New York City's one of them, so you do really have to be careful. If you're on a group health plan and you can remain on the group health plan, just be 100% certain, if you're in the middle of treatment or a procedure coming up, a surgery, make sure those doctors take Medicare, particularly in these pockets, because if Medicare doesn't cover the expense, the prerequisite is that they do have to cover those expense or the Medicare supplement or part D coverages won't pay for any expenses either.
Bella: Great. Thank you. I have closed the poll and am showing the results.
Daniel Gibson: Very good. Thank you everyone, again. That's a great answer. Six months. Okay, so we've talked about option one, and by the way, there is a prescription drug plan on this. We will talk about it later, but we're basically talking about the healthcare part of original Medicare, and now we're going to switch over to Medicare Advantage, which is option number two. Okay, so Medicare Advantage program, for those of you that have a few years on you as far as career go, and you've been through a number of health plans, more than likely at some point you've experienced the health maintenance organization or the preferred provider organizations. These are the models that basically Advantage plans use. All right?
I've kind of depicted here, the HMO and the PPO. The HMO is normally a tighter, smaller group, only because they probably don't pay as much as the PPOs do, so there's a limited amount of doctors, and they really are restricted on going out of network with your healthcare. I mean, obviously if there's an emergency, you're covered. All right? That means fearing a loss of life or limb, but the HMO is a very tight group. PPO is a little bit more liberal. The doctors get paid a little bit better there, so that you're more apt to have more doctors in that plan. It's a little bit easier to go out of network in a PPO, but I will tell you, it will be more expensive to go out of pocket or out of network, I should say, for the PPOs.
Onofrio Cirianni: Just a comment on HMOs. All HMOs are not alike. As an example, here in New Jersey, we have Horizon Blue Cross Blue Shield, which is limited to the doctors of New Jersey only, where there are may be HMO providers in the Medicare Advantage space that's a national HMO, like Aetna or Cigna. That's a consideration that might give people a little bit more peace of mind, if they are limited to a network, that it has a national access and you can go to some of these centers of excellence in surrounding cities if need be.
Daniel Gibson: Okay, so we'll go through some of the Advantage plan, as detailed. The Advantage plans normally have a low or actually no monthly premiums. All right? Which is a lot different from the original Medicare that we talked about before. The other side of the story, though, is you're not paying a lot of upfront costs, which you would in an original Medicare plan, but you're paying it in the back end. All right? Individuals are paying copay for most or all of their services, until there's usually a maximum out of pocket, and that varies from $3500 to $10,000. The drug coverage, which again, we're going to talk about that in a little more detail later, but the drug coverage on original Medicare is really what I call a snap-on coverage. It's a separate program, whereas in Advantage, the drug plan is actually embedded in the plan itself, so you if you've looked at the Advantage plan for medical and you're happy with it and you want to go with it, you've got to make sure you've looked at the drug plan that's embedded in that, to make sure that it's covering the things that you want it to cover in your particular situation.
The Advantage plans will also throw on some goodies. Sometimes they'll throw in fitness center benefits. They call it the Silver Sneaker program, they call it. There may be some dental, vision, hearing prevention care and equipment that's included. Now, keep in mind, under original Medicare, it's not like they don't cover ... If you were in an accident, let's say, and you needed dental care because within that accident, you had a catastrophic event and lost your teeth or you needed some denture work or something, they would take care of that. All right? If you had cataracts, original Medicare would take care of that. Advantage, what it does, it provides preventative care and equipment, which original Medicare may or may not cover. They also provide over the counter limited coverage. Again, limited because it's usually something like $50 a quarter, they'll allow you to do over the counter drugs, and in some cases, they may actually rebate some of the part B premiums that you're paying through your part B. It might be a rebate, but just keep in mind, not always the case. They're looking more at folks that might be on Medicaid or veterans, or things that ... Some special groups, normally, so you have to be careful with that and keep it in mind.
Advantage plan, some of the drawbacks is that the plan does change. Remember back with original Medicare, once you have that plan in place, that plan is good for life, all right, and as long as you want to keep it, you can keep it and continue to pay your premiums. If you don't pay your premiums, obviously you get dropped from your plan under the original Medicare supplemental plans. Long as you're paying your premiums, you're good. With Advantage, it's an annual ... It could be an annual change that you have to make, because the plans, the characteristics, the perks, the out of pocket, the drug plans, they may change on an annual basis and you really have to go back and look to see whether or not they're covering your needs. The Medicare or the medical procedures that you may want will be much more scrutinized than under original Medicare in its supplemental plans. You may need a hip replacement. Whereas in original Medicare, you may be able to get that pretty quickly or as quickly as you would if you were on a normal healthcare plan. In Advantage, they may look at that and say, "You know what, maybe we put you through physical therapy for six months and then we'll go back and revisit that," so there's someone other than yourself and your doctor making the decisions under the Advantage plan. If want to, I'm sorry.
Onofrio Cirianni: I was going to say, just a comment on that, and I see a flurry of questions on this. We have a lot of folks that live in multiple states, right? They might spend time up here and then are snowbirds. When you're picking one of these plans in particular, like my example before, if you're choosing an Advantage plan, it might be good for the six months of the year that you spend here in New Jersey or New York, but if you're going to be in Florida or somewhere else, you want to make sure that the plan works wherever you are. Right? Going to potentially a national Advantage plan, if that's in your best interest after doing analysis.
Daniel Gibson: Right, but just keep in mind the last bullet point here too. Some people will make the decision that, "Hey, I'm in good health at 65. I'm going to take the Advantage plan, and when I'm 70 or 75, I'll switch over again." Again, everybody's got to make their own decisions, but just keep in mind, if you're switching back over to the supplemental plan under original Medicare, that you no longer have that six month window. You may have some trouble flipping over from an advantage plan to a supplemental plan, so just keep that in mind. All right, so these are the plans that we talked about. Option one, option two, this is just a summary page here, and remember, you have to pick one or the other. You can't pick both.
Let's just do a quick comparison. We've already mentioned some of these. The supplemental versus Advantage supplemental, there's very little if any perks. In Advantage, there could be quite a lot of perks. No networks to deal with in the supplemental plans. Under the Advantage, you have HMOs and PPOs, networks that you have to work within. Normally there's no pre-authorization. It's a decision between you and your doctor under the supplemental plans. Under the Advantage plans, there's normally, probably 70 to 75% of the cases, there's some sort of pre-authorizations that are going to be required. Supplemental is really more of a, if you think about it, it's more of a premium-based, driven plan, right? You're paying premiums to transfer over risks to a carrier to cover those costs that you would otherwise come out of pocket for. Whereas, under Advantage, it's a copayment system, all right? You are really taking on probably more of that risk, because there's very little premiums that you're paying up front, but you have, again, the copayments that you've got to pay on the back end.
The lifetime policies of the supplemental plan, we've talked about that before. As long as you're paying your premiums, you have that policy in place. If you have cancer and you have heart surgery, if you had those, in comparison with a car or a house, those insurance companies could drop you. Not under this. As long as you're paying the premiums, the policies stay in place. The Advantage, again, you've got the annual changes that take place that you've got to take a look at and make sure they are meeting your needs, and as Onofrio was saying before, when you look at the supplemental plans, they're very portable throughout the United States. You can take that plan with you, and the Advantage, you're much more limited, and you've got to make sure. If you do your summers in New York, but winter in Arizona, those are two different regions. You may not have the coverage that you're looking for there. All right? Again, with either plan, make sure you're checking the foreign travel coverage. That may not be there for you. It's limited, and it may require you to pick up some additional coverage.
Okay, this is polling question, I believe it's four.
Bella: Poll #4
Onofrio Cirianni: While we're waiting, a few people have asked a question, and we encounter this pretty often, and it does take even more thought. It could be a little tricky. You may have someone that's over 65 that's working and covered by a group health plan, and they're considering to retire, but they may have a spouse that's under 65 and not Medicare eligible, and they may also have children that are dependents that are under 26. They may even be younger than that, and may not be eligible for group health coverage. They may be students. You really have to look at the entire family unit in those circumstances to see what coverage would be available for all three of them. If only one person's over 65 and they choose to retire, you do have COBRA, which would be an extension of coverage for the spouse and the children. Could be, under federal law it's 18 months. In some states, it extends it to 36 months, so that group health plan may still be available if they're not Medicare eligible, but you would be paying the full cost. Typically, most employers are covering a percentage of the premium.
Once COBRA ends, for the dependents, they may only have individual coverage on the exchange that's available, so it is, again, a more complex situation, which again, we encounter, where you do have to take some thought, and I know, grudgingly, some people are delaying retirement for that reason. A lot of it is weighing in on the health insurance, particularly if there's health insurance, health issues, or in the middle of some form of treatment within the family,
Bella: All right, I've now closed the poll and shared the results.
Daniel Gibson: Okay, great. That was a trick question. It's actually the last two, are the right answers, and it looks like 95% of the people got it right, so again, thanks for answering the questions. Again, these aren't graded, obviously. They're just responses to make sure you're there still there. Okay, so we'll look at the drug coverage now, and again, remember that part D under original Medicare is what I like to call a snap-on. It can be taken off. It can be taken on. We recommend that you have it, but it's not something that you're required to have. Under Advantage, it's included. However, both of them operate the same, whether or not you're in the original or whether you're on the Advantage plan. All right, so let's go through some of the details here.
This is what we call the out of pocket stages of the drug plan. All right, so in stage one, you have this stage where you have a deductible, so you have $480, is the annual deductible, is normally what you pay, actually what you pay. A lot of folks can stay within that stage, I mean, especially if you're dealing with generic drugs and there's not a high cost, and most people will stay in it, at that stage, but if you end up paying more than $480, you go into what's called stage two, which is not a bad place to be, but your copays can be anywhere from $0 to $95. All right? The difference here is, in order to stay in this stage, you have to stay under a total cost ... It's a retail cost, not what you pay, but it's a retail cost going up to $4430, all right, as long as you stay, from the retail standpoint, and again, it's not what you pay. If you're up around $4000, you've probably spent about $1000, but on a retail basis, which Medicare tracks, and then when it gets up to that $4430 amount, then you go into what's called the donut hole. All right?
Then, the donut hole, you're paying 25% of retail until the out of pocket reaches a little more than $7000. That's it. That's your true out of pocket. When it goes over $7000, then you're going to the next hole, but one thing I wanted to mention about the donut hole is that years ago, the donut hole was actually 100% of retail, which was obviously very onerous on the consumer, but back in 2007/2008 period, I think around the time that the Affordable Care Act measures were being passed, they reduced it from 100 to 25%. They often mention and say that closed the donut hole. It didn't close the donut hole. It just reduced it, the amount that you have to come out of pocket for, from 100 to 25% of retail. Once you get past that $7000 of out of pocket, you get into a stage which is called catastrophic, right? That's, you're back in a good place there, because now you're paying 5% of retail. Probably 1% of the users of the drug plans get into that catastrophic area, but it is there, and again, you're paying 5% of retail.
Okay, so the important things to keep in mind in the drug plan is that the enrollment is optional. However, individuals signing up after 65 do risk paying a lifetime late enrollment penalty. Not as onerous as signing up late for part B, but still, it's an extra penalty that's tacked on and it will stay with you for life. The premiums here are relatively small. I mean, if you weren't someone who had a need for various prescription drugs, I mean, I don't know what Onofrio's opinion would be, but my recommendation would be, try to get a low cost one. You can get one, again, very reasonable, just so that you have it, so that in the event later on in life you need some prescription drug, you could easily get those, switch over to those without having to endure the late enrollment penalties.
Onofrio Cirianni: Yeah, just to add to Dan's comments here, where most people sign up for a supplement plan, I would say it is atypical to be switching that plan, A, because you may have had a change in health and you may not qualify for another plan, depending on the state that you live, but with part D coverage, you could switch every year. You see the ads in the papers. Again, you see things coming in the mail about the open enrollment period, which goes from October to the beginning of December, typically, six, seven week period. I would highly recommend everybody goes through the process at least once a year to look at this. To Dan's point, if you're not on any medications, there are very inexpensive plans and you could switch to another plan next year, no pre-existing condition. If a new medication or drug has been prescribed, then it's going to end up being out of pocket cost based on some of those deductibles and copays.
I would say, in addition, if you're on medication, it doesn't mean that that medication is going to stay in the same tier. There may be one insurance company that may classify the exact same, particularly name brand drug, in one tier versus the other, and you might delay getting to the donut hole by being with one insurance company versus another. It does take analysis. There are tools and there's professionals within our group and the resources we have outside to help people make those decisions.
Daniel Gibson: Okay, and this is our last slide, and it's very, very important, I think for people to know that long term care is not covered by Medicare, all right, which might surprise some folks. All right? Medicare, the coverage is more in line with, it's more skilled care that's needed, whereas long care is a coverage in those cases where you can't perform certain daily living functions, all right, and they normally list out six of them. Dressing, walking, transferring, which means going from sitting to, say, a standing position, bathing yourself, feeding yourself. Not preparing the food, but actually not able to feed yourself, and then using the toilet by themselves. If you can't perform any of those two out of six, you could qualify for the long term care. I mean, obviously if you have a long term care policy, so it is something that, if you are someone who is approaching senior years or you have a loved one, or if you have client that you're consulting with, they should really consider long term care options, which have changed somewhat.
There used to be a big pool of traditional premium-based policies that were out there. Those have slowly been reduced. There's much less carriers that do the premium-based policies, and then there's an asset-based policy, which is becoming a little bit more popular, where you actually put money into life insurance policies with a long term care rider. If you use the life insurance, there's so much that ... If you use the long term care, there's so much that you can get from the policy, and if you never use the long term care, those dollars that you put in, those upfront asset dollars would go on to your heirs to the extent that you have used long term care. Again, I would urge everyone to really consider the long term care. Onofrio, any closing comments at this point?
Onofrio Cirianni: Yes, Dan, just some closing comments. As you can see, there's a lot of moving parts. A lot of the questions we're getting are very detailed and specific to their situation, and the decision of signing up, when signing up, should I say on the group plan, should I sign up for an Advantage plan or a supplement plan, and what type of part D coverage? There's really two parts to it. One is, you don't want to make a mistake. It's hard to do this on your own. We internally can give you guidance, and we have resources and partners that we work with externally to help guide you through this process. It is one of the topics on our quarterly meeting agendas with every client as they approach Medicare eligibility, and all the answers are not going to be one size fits all, for sure, just with geography alone, because the offerings and the choices are different within every zip code throughout the country.
It's no secret. There's been hundreds of studies done, that the future success and happiness in retirement years is typically based on two factors. One is doing the right planning to be prepared, to have the finances to support the lifestyle you want to live, and one of the biggest eroding factors to success and happiness is usually making sure that you could take care of your health and be treated properly and get the best care as possible during those years. Thanks for allowing us to spend some time with you this afternoon. For the questions we did not answer, we will follow up with you individually, and feel free to reach out to Dan or myself, and we'd be glad to help you or your clients or colleagues in any way.
Daniel Gibson: Yeah, thanks everyone. I mean, you're a very engaged audience. I can see by the number of questions here. I think it must be a record, the number of questions that we got in here for this webinar. Again, much appreciate it and hope everybody has a great day.
Transcribed by Rev.com
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Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.
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