November 2019

The Fall Classic!

Author: Matthew G. Kovalcik, CFP

Ah, the fall; I love this time of year! The weather begins to turn, football season is kicking off, and best of all, it’s time for the fall classic. No, I am not referring to the World Series, in which I hope to see my beloved Yankees win number 28 this year. I am referring to the fall classic for those age 65 and older: Medicare election season!

Everyone on Medicare has until December 7, 2019 to make their elections for Medicare Part D and, if they have one, their Medicare Advantage Plan. Medicare can be confusing, but it does not have to be. You simply need to understand the basics and how the plans change from year to year.

First, let’s perform a high-level review of the basics: Medicare Parts A and B. Medicare Part A, also known as hospitalization, covers costs related to a hospital stay. You are automatically enrolled in Part A when you turn age 65. There are no Part A premiums due in retirement. During your working career, you paid taxes which “pre-funded” your Medicare Part A premiums. But that does not mean you’ve eliminated all risks associated with Part A. The cost for a hospital stay lasting 60 days or less is negligible—about $1,364 in the form of a deductible. But if you are one of the unlucky few who requires a longer hospital stay, your out-of-pocket costs could increase significantly. The cost for hospitalization from 61 to 90 days is $341 per day. What’s more, in days 91 to 150, the ticket is $682 per day, and for anything beyond, you pay 100 percent of all costs.

If you require rehabilitative in-patient post-hospitalization care, the first 20 days are covered by Medicare Part A; from day 21 to 100, you have a cost-sharing of $170 per day. For anything beyond, you pay 100 percent of all costs.

Medicare Part B, also known as medical insurance, covers expenses related to physician visits. In 2019, the premium starts at $135.50 per month. This is a means-tested premium, so the greater your income, the greater your premium (maximum of $460 per person, per month). For those considering the sale of an appreciated asset like a stock, be aware that a spike in your income could result in a spike in your Part B premiums. Medicare recasts this calculation each year to make certain you are paying your fair share. In addition to the monthly premium, participants are responsible for a 20 percent co-pay on all Part B expenses.

Medicare Supplement Insurance, also known as Medigap, should be considered by those who do not wish to risk incurring large out-of-pocket costs like those identified in Parts A & B above. A Medigap policy helps pay some of the health care costs that Medicare A & B do not cover, such as copayments, coinsurance and deductibles. You can buy a Medigap policy from any insurance company licensed in your state. Most are guaranteed renewable.

This means the insurance company can’t cancel your policy as long as you pay the premium. Like most insurance, there are less expensive policies that provide less coverage, and there are “Cadillac” policies that cover almost everything. Consumers often have the misconception that they can opt for a less expensive Medigap policy, or even a Medicare Advantage Plan, and then switch to the “Cadillac Medigap Plan” in the future.
If you decide to switch from one Medigap Plan to another, you will have to go through an underwriting process.

The insurance company will investigate your health history to make sure you are a good risk. If for some reason you fail to pass the underwriting process, you may remain on your current plan. For those currently enrolled in Medicare, Plan F was considered the best coverage. Beginning in 2020, Plan G will offer the most comprehensive coverage.

If you are turning 65, new to Medicare, you must have Medicare A & B to buy a Medigap policy. Your Medicare elections may be made three months prior to and three months following your sixty-fifth birthday. Choosing Plan G from the beginning will ensure the most comprehensive coverage for 2020. Making plan changes down the road can be difficult, especially if your health is failing. In other words, do your homework and choose the right Medigap plan at the outset!

Medicare Part D, for prescription drugs, covers some of the costs associated with prescription drugs. Your cost in Part D comes in three forms: a monthly premium, a co-pay and, potentially, the “donut hole” (coverage gap). The monthly premium is means-tested like Medicare Part B. Your co-pay depends on the medicines prescribed. The donut hole comes into play once the total spent on prescriptions by you and the insurance company reaches $4,020. Once you’ve exceeded that amount, you will pay 100 percent until the total exceeds $6,350, at which point your policy will cover the vast majority of the remaining costs.

Evidence shows that the average person spends exponentially more money on healthcare in the later years of their life. Making sure you have the best coverage mitigates risk. Consult with your insurance or financial advisor for guidance when evaluating coverages. 

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