Jessica Gibbs (Co-Host): Welcome back to “Off The Wall”. We have an episode today that is maybe not for everyone, but we’re stepping into the quagmire of Medicare. This episode is perfect for anyone approaching 65 or who knows someone approaching 65. We’re missing Dave today, but we’re joined by Emily Harper, who’s a wonderful co-host.
Emily Harper (Co-Host): Hi, everyone! Thanks for having me.
Jessica Gibbs (Co-Host): Emily is also a partner at Monument Wealth Management as well as a Certified Financial Planner. She works with our clients on Medicare-related matters. However, my real goal is to introduce our guest today, John Norce. John is the founder of Medicare Portal, which helps people understand and navigate their Medicare journey through education, enrollment assistance, and lifelong support. John has been helping clients with their health insurance and Medicare needs since 1988, so he really knows his stuff. In this conversation, you’ll see that he has a strong passion for Medicare, that he is very knowledgeable, and that every time we speak, I learn something new. So, welcome John to the podcast!
John Norce (Guest): Thanks for having me, guys. I am excited to share our Medicare content today.
Jessica Gibbs (Co-Host): Yes, exactly, and this is a really timely discussion because Medicare open enrollment usually takes place from October 15th through December 7th. So, John, let’s just do some quick definitions about the different parts of Medicare. Can you explain quickly what the different pieces are? Let’s start with: What is Medicare Part A?
John Norce (Guest): Yeah, sure! Basically, what we call “original Medicare” are Parts A and B, which were created and launched in 1966. This year, Medicare celebrates its 56th anniversary. Medicare Part A is very simple. It’s a very narrow benefit. There will be a physical inpatient hospital stay, outpatient rehab, hospice, and home care. In case you’re not familiar with what this is, it’s the payroll tax you pay each month when you work or your spouse is paid, which ultimately allows you to get Medicare Part A premium-free.
Medicare Part B is everything else about your healthcare. The coverage includes doctors, MRIs, CT scans, preventative care, outpatient procedures, ambulatory care, durable medical equipment, cancer treatments, and anything other than staying in a hospital. Part B is technically optional because there is a premium associated with it. However, I just want to make it clear that Part B does have a premium, and then we’ll talk later about how the premium is adjusted for your income.
I’m going to skip ahead to Medicare Part D. Part D is orally ingested self-administered medications. There are some shots included in part D, but overall part D is the drug plan that covers everything you get from the pharmacy on a daily basis for conditions, chronic conditions, or seasonal conditions. So, Medicare A, B, and D is one option for people with Medigap.
Secondly, there is Medicare Part C, which is Medicare Advantage, and I have kept it until the end because Medicare Part C, or any Medicare Advantage plan, is a combination of Medicare A, B, and D, but it is not administered by the federal government, but rather by a private insurance company or health care provider.
Jessica Gibbs (Co-Host): Right! The idea is similar to getting health insurance from one of the big insurance companies that we’re all familiar with. Instead of Medicare through the government, you’d get it through a private insurance company.
John Norce (Guest): It’s called “All in One.” Everything’s under co-pays, one ID card and really simple to navigate for anyone who wants this.
Jessica Gibbs (Co-Host): What about Part G/Medigap/Medicare supplement? Because we can’t have one clear name for things. We have to have confusing names.
John Norce (Guest): Sure! The scariest part about A and B is that there are no spending limits for individuals who choose to have their benefits administered through them. Taking part B, for instance, would expose you to 20% co-insurance regardless of how much you paid. So, if you had $20,000 in doctor bills, potentially you are exposed to $4,000 in expenses. Medigap, also known as a Medicare supplement, was created in 1966 to address those needs. Since it is a secondary payer, it isn’t part of Medicare, but as a secondary payer, it will fill in those gaps. Throughout the years there have been several letters that have changed. At the moment, just under 50% of Medigap are plan F.
Plan F is the most popular because it pays 100% of your out-of-pocket expenses under Medicare. As of 2020, the federal government will stop allowing people to enroll in those if they aren’t 65 or older. It’s also still possible to get Plan F if you’re born before 2020 or 65. However, Plan G is the most popular plan and the only difference is the Part B deductible, which is $233 this year. Your premium on G is also cheaper than F, so not only will you save on your monthly premium, but the savings on your Plan G will probably more than offset that $233, for example. This means that you’re not losing out on anything by not getting Plan F. Some people are worried about it.
Jessica Gibbs (Co-Host): Have you noticed any shifts in people’s choices between government-run Medicare Part A and B versus Medicare Advantage plans?
John Norce (Guest): So, like many things in life, Medicare, at the end of the day, is a deeply personal decision based on how you have consumed medicine historically. For those who like to choose their providers, have very low out-of-pocket expenses, and choose their own providers, original Medicare is the best option. When you have more than one provider, but still want the convenience of having one card and one plan, Medicare Advantage may be the perfect solution. The trend is moving towards Medicare Advantage today, all in, including those that are Medicaid eligible. We have about 26 million people out of the 62 million on Medicare Advantage, and the recent statistics say that about 14 million people are on supplements, so that makes 40 out of the 62 million. The other 22 million are either on government or employer-type plans, which could be VA benefits or TRICARE. Medicare is expected to grow to 80 million by 2030. There are a lot of things that could change with a large influx like this to meet that demand in terms of new plan designs. I am not sure what will happen, but 80 million people is a lot.
Jessica Gibbs (Co-Host): Right. So, can you tell us more about the process of initially signing up? I might be wrong, but the plan must accept you regardless of your health status. In other words, when you’re enrolling at 65, or possibly later, as we’ll discuss in a minute, should you be careful about what you sign up for at the beginning because it might be hard to change later?
John Norce (Guest): Let me answer it this way. Medicare is parts A, B, C, D. Part A, B, C, and D do not have any underwriting. If you have a plan C today, you can switch to another plan C, regardless of your health. Plan D holders can change to another plan D, regardless of their health, if they wish. Because Medigap is a secondary payer, Medicare gets a bit tricky with Medigap. Although they play in the same sandbox as the program, they have their own set of rules, including one related to underwriting. If you are first eligible for part B, it triggers a six-month window called, “Medicare Supplement Open Enrollment”. During those six months, as long as you apply, there are no pre-existing conditions, no waiting periods, and nothing that would penalize you regardless of your health. Unless you choose to change your plan, you are stuck on that lowest rate for life. I believe there are four or five states without any underwriting, but outside of that six-month window, if you decide to change your Medigap plan, you will have to go through an underwriting process. Currently, in Medicare, there is a thing called the trial right, where if you initially enroll in Medicare and for the first year of your plan, you are on a Medicare Advantage plan, and if someday you decide that you want to switch to a Medigap policy, you can leave that Medicare Advantage plan under a trial right, and then join the supplement plan without any underwriting. The same concept applies if you were on a supplement for 10 years and in the 11th year you want to try Medicare Advantage, you can get a one-year trial right. Choosing to enroll in Medicare today, staying on Medicare Advantage for two years, and then deciding in that third year that you want to get back to original Medicare with a supplement poses a problem. That individual, in my example, would have to go through medical underwriting again in most states.
Jessica Gibbs (Co-Host): Interesting! I didn’t know about the trial right.
John Norce (Guest): There’s also something called the “OEP, Open Enrollment Period” available to Medicare Advantage. Let me back up. All Medicare-eligible people can change their benefits from October 15th to December 7th. From January 1st to March 31st, if you have Medicare Advantage and only Medicare Advantage, you get a second kind of redo to change your plans, but you only get one chance to change your plans during that open enrollment period starting in January, where during the AEP, technically you could decide one plan the first day and a different one the second day. You change as many times as you want. As long as your last plan is filed by December 7th, that is the plan you will use in January.
Emily Harper (Co-Host): When it comes to selecting the right Medicare program for retirement, there are a lot of things to consider. When Jessica and I work with clients, one of the interesting parts is hearing what they plan for retirement, which is sometimes very specific, and they know exactly where they’re going to be and what they’re going to do. If you are still working close to 65, retirement can be a little fuzzy. Are you required to consider what state you live in when you’re selecting a plan during your retirement years, or do you just want to pick a plan based on where you plan to retire?
John Norce (Guest): Great question, Emily! The fact that Medicare is actually filed by counties is one of the most unknown facts about Medicare. Depending on your state of residence, certain plans may not be available in all counties within your state, especially C and D. So, I can make a generic statement that Medicare Advantage is available in all counties in Virginia. However, the plans available in Rockingham County may not be the same as those in Fairfax County. But I can tell you that in our state, Virginia, there is a Medicare Advantage plan available in every county.
So, with that, we do take an account when we speak to clients, Are you a snowbird? Are you someone who has multiple residences? Are you a traveler domestically or internationally? Again, what drives all of that Jessica underlying, is who are your doctors today? What are your prescriptions today? You can match those up because Medicare Advantage plans are all network-based. We wouldn’t be in a position to enroll you, even if you loved the plan, but Dr. Jones wasn’t on that plan because seeing Dr. Jones now would be a cash situation, not an insurance one. So, sometimes the choices are made because of the fact that your provider or providers aren’t participating with a certain plan, and that’s their choice. It’s just like with Medicare. It is up to a doctor whether they want to be part of the Medicare program and see patients or not. Obviously, that is up to them.
Emily Harper (Co-Host): Great! Travel is one of the things you mentioned, John, that I get excited about. I know it is something that many clients look forward to in retirement. Is there anything people should keep in mind when choosing a plan, and making sure they have great coverage while traveling, at home or abroad?
John Norce (Guest): Sure, I’ll try to answer this simply. If you sign up for an HMO plan, you will always be covered for emergencies no matter where you are. Medicare Advantage is a true HMO plan. Not just domestically but internationally, it’s pretty straightforward. There’s a new trend in Medicare Advantage where there are PPOs. Those PPOs often have a nationwide network, so it might be a large health insurance company that now provides Medicare providers nationwide. So, the person who may live in Virginia traveling to see their family in Texas for a month, potentially their plan on a PPO would allow them to see a network provider in Texas. It would be possible for them to see a Medicare doctor under their PPO plan even if the doctor was not in their network. It has to be a Medicare doctor.
It is technically possible to see any doctor in the country who takes Medicare without a referral under Medigap. Suppose that same person who goes to Texas chases the kids around the house and slips and falls and wants to see an orthopedic, they can literally get medical care through Medicare. Using the provider search on medicare.gov, enter the zip code, put orthopedic, and then have a list of orthopedic providers that take Medicare, and they can schedule an appointment with them without a referral. Since Medicare is a federal program, they are paid and claimed as if they lived here in Virginia. It’s the same across the country.
Jessica Gibbs (Co-Host): Because you’re talking about Medigap, Medicare supplement plans, and then I was just thinking back to, do you need to think about what state you’re going to live in? According to what I read, some states do not allow providers to charge more than Medicare does. So, if Medicare pays 80% of the allowed Medicare costs, Medigap reimburses the remaining. Do you need to be thinking about if you choose not to do Medicare supplement/Medigap, or if not, someone needs to think about in their calculus whether they would end up paying a lot more if they are not in a state where there’s a cap, a limit on providers charging more? So, potentially the provider could charge a lot more than Medicare. There is a limit on how much Medicare will cover, and I may cover much more than that. Does that need to go into people’s calculuses?
John Norce (Guest): I’ll answer that in twofold because there are technically two products. So, under Medicare Advantage, no matter what plan you chose, what provider you choose, those plans have max out-of-pocket. They have a clearly defined maximum out-of-pocket. So, this year, no matter what Medicare Advantage plan you’re on, it can’t be higher than 7,550 for in-network claims. It can be lower, but it cannot be higher. So, the stop loss on a Medicare Advantage plan will be that out-of-pocket maximum. When it comes to original Medicare, Part B does have an excess, called Part B excess. When your doctor or provider takes an assignment, it means that they agree to take the Medicare payment as full payment for your care. They will not balance bill you this Part B excess. If you buy a Plan G Medicare supplement anywhere in a country, or Plan F for that effect, that covers your part B excess. They cannot charge you for that under the contract. As with Nancy Medigap, Plan N exposes you to 15% Part B excess. That doesn’t matter what state you’re in, Jessica. Plan N is again standardized. Among the things, I didn’t mention about Medigap is the fact that all Medicare supplement plans were standardized in 2011, which means that no matter where you live, Plan G is still the same plan regardless of where you live. A Plan N is the same as any Plan N, and Plan F is also the same everywhere.
As a result, it makes it easier for the consumer to choose a Medigap plan with confidence, without having to enroll in a plan and ask, what is the co-pay or what is their co-insurance, or is it different for hospital stays or cancer? They don’t have to worry. If they choose G, it’s the same no matter where they are. They choose F, it’s the same no matter where they are.
Jessica Gibbs (Co-Host): That is helpful! Before we move on to Medicare enrollment at 65 and when you might not need it, I’d like to mention these nuances. I think that one thing that I’ve observed from clients, and tell me if it’s right or wrong, is that it’s definitely worthwhile to review your part D coverage every year at the very least, because, during the open enrollment period, it seems to me that part D plans, the monthly premium, the drug costs in each plan will change really drastically from year to year, and it may actually be beneficial for you to change your Part D plan every year. Is that right?
John Norce (Guest): Yes, for most of our clients, the medical part is the easiest part of the conversation. It is usually a list of providers, and sometimes it is a long-term relationship, but prescriptions, as we know, change as our health does. But sadly, a lot of the changes in prescription are outside of our control. You pick your pharmacy, take your maintenance medications, and do everything you want, but then next year, your plan decides to leave the market. They have that right. Or the next year, they decided to raise your premium. Everything again is fine with Medicare. It’s fully compliant, but you have multiple moving parts within Part D. Tiers are simply a quick solution. There are 5 tiers. Every plan has five tiers. Tier one is the cheapest, and tier five is the most expensive medication. Your drug could move from a tier one to a tier two, a tier two to tier three, and that could have an impact on what you pay for that medication. It’s simple.
There are four stages. One’s called the deductible phase, which we all know there’s a deductible. In addition to the initial coverage, there is what’s called the donut hole or coverage gap, and then there is what’s called catastrophic coverage. As of this year, it is $480, and it will increase to $505 by next year. Some plans cover that, but you have to pay a higher premium. Some plans may have a $100 deductible. They can assign it, as it’s their choice to do that. But the moving parts of having a deductible, having your tiers change, having the medications, what’s called a formulary. And every plan has a formulary that is a list of medications on the plan that you can access. Each plan creates a formulary because HHS and CMS identify over 1000 conditions that require medicine, and every plan must provide at least two prescriptions to address those conditions.
It could be that your drug is on a formulary this year, but next year that provider negotiates for a different medication, like cholesterol medication, and then your cholesterol medication is no longer covered. It comes down to either switching to that drug, appealing, which can be granted or paying cash without insurance for the medication. So, absolutely Jessica, that’s a great question.
We spend an overwhelming 50% or more of our time reviewing our client’s Part D, whether it’s in a Medicare Advantage or a standalone. As we remember, Medicare Advantage plans require you to get your medical benefits and prescriptions from the same provider, so if the formulary changes dramatically, your drugs will no longer be covered. Since your prescription isn’t going to change and your medical care is tied together, you should look for a new Medicare Advantage plan now.
So, you really have to stay in tune with what’s happening with your medications and how that happens. To provide you with all that information, every September, your Medicare Part C and D providers must send you what’s known as an ANOC, an “Annual Notice of Changes.” This month, you’ll get new deductibles, new premium costs, tier structures, etc. It has to be by law, and if it doesn’t, you need to call your provider and ask them to send it to you, whether you want it by email or mail, but you can get it. It’s very important to review that. It is probably a longer answer than you wanted, but it’s that important.
Jessica Gibbs (Co-Host): But it was a good answer. And it was important.
John Norce (Guest): It’s that important!
Emily Harper (Co-Host): There’s clearly a lot to think about when it comes to choosing a plan, but there’s also a lot to think about in terms of timing. It’s not always as simple as turning 65 and signing up for Medicare. There are some scenarios where you may not need to enroll in Medicare when you are 65. Some people might not be aware that you can enroll as early as three months before turning 65. I think it’s becoming more common to see people working beyond 65. So, John, could you talk to us about some of the scenarios where you might not actually need to enroll for Medicare at 65 like if you’re still working and have group coverage or your spouse is still working? What are some issues to consider there?
John Norce (Guest): Sure! This is a very common question we have, since sometimes a client, whether it is your firm or just someone coming to us at 65, tells us their story. “Hey, I’m working. Not sure I have to go on Medicare. Can you consult me, and tell me what we need to do?” Absolutely! So, the real defining question of your option to delay enrollment is simply this. According to federal guidelines, employers with 20 or more employees, both full-time and part-time, have creditable coverage and can delay enrollment into part B. It’s all about part B.
So, if I work for John Norce Enterprises and we have 1 million employees, when I turn 65, I can continue to be a part of their health benefits as long as I am working full-time and eligible for benefits. As long as I explain the back end, I won’t be penalized. Alternatively, if we had a little consulting firm or we were financial advisors, whatever our profession was, and I turned 65, I would have to go on Medicare because my company didn’t have 20 or more employees. However, if my wife works for my brother’s company with a million employees, I could now enroll on her health insurance and delay my enrollment in part B further.
So, you can delay your enrollment if you have access to that large group insurance, whether through your own employment or through your spouse . But for everybody else that doesn’t have access to that large group: they have to go on Medicare. For those under 20 groups, I just want to make it clear that Medicare becomes the primary payer in their view. When you’re under 20, if you have a medical claim and remain on Medicare at 65 and six months, the provider will anticipate billing Medicare first, then your insurance company.
But if that doctor sends it directly to the insurance company, and the insurance company identifies your company is under 20 employees, as a result, the claim can be rejected by the insurance company and sent to Medicare for adjudication first, and then we can pay the balances or gaps, similar to Medigap. You don’t want to be in that situation, trying to figure out if your insurance is going to pay or not. The federal guidelines state that under 20 are eligible for Medicare. There are brochures and booklets that we have. It’s on their website. The statement clearly explains that Medicare primary coverage is available under 20. I’ve even had people call Medicare and say, I have health insurance. Do I need to go on Medicare? The question won’t be asked, and they shouldn’t, as Medicare is going to go, no, you have health insurance. It’s actually a loaded question.
Jessica Gibbs (Co-Host): So, I want to circle back to clarify one point. So, you mentioned that if you work for a company with more than 20 employees or your spouse does, you can get health insurance through them, and you don’t need to enroll in part B. Do you need to enroll in part A, regardless of you’re still working for a company with more than 20 people? Do you need to do that at age 65?
John Norce (Guest): Yeah, if you ask 100 friends of yours what they did at 65, what would they say? They’ll all tell you they got Part A, and they’re right. The majority should’ve. It’s important to note that there is one caveat if you fund a health savings account, not an FSA, not an HRA, but an HSA. The HSA is funded by your paychecks, not Medicare, so you cannot have Medicare and fund it. As an example, if a client tells me, “Hey John, I’m 65, going to work five more years, and I’m going to fund an HSA. I loved it, and I fund it for both my wife and me, and we max it out.” Great, but you must terminate your HSA payments six months before you enroll in Part B when you are ready to retire.
You cannot overlap HSA payments with Medicare Part A once you reach 65 because Medicare will retroactively start your Part A for six months. Using a real-life example, I am going to apply right now for Part A, which will begin on October 1st. They will retroactively begin my Medicare Part A coverage in March. Consequently, any payments I made in January and February cannot be applied to January, and thereafter, I cannot try to slip in the 3,600 in January because that’s how the calendar works. In Medicare’s eyes, you have 1/12, so six months are excluded. In addition to the six months, March started, and now you’re going to be on Medicare Part A for the remainder of the year. You’ll have penalties and interest for ten months of that 3,600, and you’ll get an excess penalty as well. So, you have to coordinate Part A if you’re funding an HSA with your retirement.
Jessica Gibbs (Co-Host): Okay. But if you’re not doing an HSA, you can go ahead and enroll in Part A at 65, still working for a company with over 20 people.
John Norce (Guest): Yes!
Jessica Gibbs (Co-Host): Okay.
John Norce (Guest): And in the same sense, if the working spouse does not get Part A, still the non-working spouse or the non-insured spouse on the group plan can get Part A because they’re not funding the HSA. It’s the person who writes the check as I call it. If Jessica writes the HSA check, Jessica can’t go on Medicare. But if Jessica is married and her spouse turns 65, they can go on Part A, and it won’t impact because they’re not funding the HSA. Part A is not considered a high-deductible health plan if you want to get nerdy about it.
Jessica Gibbs (Co-Host): Okay, that makes a lot of sense!
Emily Harper (Co-Host): So, we’ve talked about timing. Probably the biggest concern most retirees have is how much Medicare is going to cost. They’re coming to Medicare after having years and years of employer-sponsored coverage, which is relatively low cost for people. Most people don’t know that the Income-Related Monthly Adjustment Amount impacts what you pay for Part B and D. That’s a mouthful. So, sometimes people call that IRMAA. John, could you explain to us what IRMAA is, and how it impacts what people pay for Parts B and D?
John Norce (Guest): Sure. The IRMAA first affected Part B in 2006, and then in 2011, they added Part D. The issue revolves around your MAGI or Modified Adjusted Gross Income. I am not an accountant, and we do not provide tax advice, but I know that you obviously have your gross income and everybody knows what it is. For the sake of clarity and common conversation, your MAGI is your adjusted gross income, which could have some items added back. As a result, your MAGI could be slightly higher than your adjusted gross income. So, Medicare uses a two-year look-back to determine your current premium. Consequently, they would base the full of your Part B premium in 2022 on whatever your wages were in 2020. Then for Part D, we call it kind of a surcharge, because you still have to pay the Part D premium whether it’s within a Medicare Advantage plan or a standalone plan. The government then adds this Part D surcharge on top of it. So, this is how it is formulated.
Similarly to people who understand health insurance, Part B is one single payment. When you work for an employer, there is a rate stating that a single individual pays $500, but the employer decides to share in that cost with you, and you say, “But I only pay $100.” You don’t know the real cost. Part B premiums are set by Medicare at 25% of the actual insurance costs, which makes this year’s numbers easy for me. The actual Part B cost is $680.40 a month. 25% of that is $170.10. So, $170.10 is what’s called the Base Part B Premium. All Medicare participants, except those who may receive government assistance, pay that monthly base premium.
When your income increases, IRMAA kicks in and your share of that $680 goes up as well. In other words, if you are above the first bracket, determined by Medicare, which is $91,000 and $182,000, you are in the second bracket. If your MAGI from two years prior is less than $91,000, you pay $170.10, and if you are married, you pay $182. For those who earn more than $91,000 but less than 114,000, you now pay 35% of that $680.40. If you go above $142 as an individual, you now pay 50% of that $680.40. Those in the highest bracket are paying 85% of that $680.40. For an individual that would be over $499,000, and for a married couple, it would be over $750,000. So, I mean it’s significant, but still, it’s 85%.
The Medicare Part D plan calculates off the same chart, using the same incomes, but it’s a little quirky. But in a nutshell, it’s the same concept The calculation is not worth it. The point I’m making there is that Part D will start this year at a $12.40 surcharge. So. If you’re in that 91 to 114 or 182 to 228, you will pay $12.40. If you’re in the highest bracket for Part B, you will pay a total of $578.60. If you’re in the highest IRMAA charge for a prescription, it’s $77.90. As a result, you will almost $500 more per month because of your income.
Jessica Gibbs (Co-Host): So, you talked about the two-year look back in terms of determining your IRMAA bracket. Can you appeal your IRMAA bracket if you have a change in income? If you retire and no longer receive salary income, for example, you’ve had a big change in your income, but because of the two-year look-back, your IRMAA bracket is based on your salary history. Can you appeal your IRMAA bracket?
John Norce (Guest): The answer is yes, and the form is used, it’s called a Ssa-44. There is no cost to appeal, except if you mail it, you’ll have to pay for the stamp at the post office. You can drop it off, but you cannot complete it online or over the phone. There are eight reasons that you can appeal to your IRMAA. So, the most common one is that I’m 67 years old. I’m going to now retire from working for my company. At 65, I was working, but not anymore. So, they file it under work stoppage. I’m stopping work, and my income was $150,000 when I was working, and now it’s $75,000 because I’m retiring. On the SSA-44 form, I would check the work stoppage box. It would be necessary for me to provide the date of my work stoppage, the income I expect to make, and some form of documentation such as a letter of resignation, a letter of termination, a letter of separation, or something that indicates that I will no longer be employed. You put those documents together in a letter, and you mail it in. You want to do that within 60 days of your Part B approval. That’s when you’re going to get the most impact from it.
Now if you do appeal and it takes time, pay your full premiums, your bills for the IRMAA, and adjustments, and if you are successful in it, they will send you a single check rebating for all the excess that you’ve paid. But you never want to find yourself in a situation where you did not pay Part B, because if you don’t pay Part B, you won’t have Part B. If you don’t have Part B, you don’t have Medigap and Medicare Advantage. So, even if you know you’re going to win your appeal and you’re super confident, don’t take for granted making those payments.
Jessica Gibbs (Co-Host): That’s a great point. Is our realization of capital gain a reason for appealing?
John Norce (Guest): Unfortunately, the eight reasons are marriage, divorce, death of a spouse, work stoppage, work reduction, loss of income, producing property, loss of pension income, and then employer settlement payment. That’s it. When doing Roth conversions and things like that, we always tell people to do it more than two years before retiring.
Jessica Gibbs (Co-Host): Yeah, before Medicare enrollment. A Roth conversion is something planners like to discuss with their clients after retirement but before they reach 72 and need to start taking required minimum distributions. There is, however, one thing to consider, and that is the fact that if you choose to do that, it may impact your Medicare premiums.
John Norce (Guest): And that lasts one year. I always say I hate to spend people’s money. I do. I’m one of those few people who don’t like to spend other people’s money, but you know it’s just one year. It’s a good thing if you did it and there’s a tax benefit for you, so that’s why you’re doing a Roth conversion. You guys are the experts in this field, but someone will convert because it’s truly beneficial to them. It’s a one-year IRMAA penalty, which I understand you’re probably not happy with.
Jessica Gibbs (Co-Host): It’s not something that will stick with you for the rest of your life.
John Norce (Guest): Yeah! A big misconception about IRMAA is that someone who has earned a high income and been very successful feels they’re set for life once they enter Medicare. So, I’m just using the example. I’m someone who’s crazy successful. I own multiple businesses, and I get paid $1 million a year. That does not mean I will stay at the highest level forever. If I work with professionals like Jessica and Emily next year and my income drops to 100,000, I will only pay based on 100,000. After all, my 100,000 appeals will justify because of my work stoppage. Since their high income now could potentially haunt them financially for the rest of their lives, I sometimes don’t want individuals to be afraid to retire or enlist in Medicare. Although it’s not a bad thing to be successful but don’t be afraid to go into Medicare knowing that you can appeal it.
Jessica Gibbs (Co-Host): Therefore, I believe it’s apparent that health insurance and healthcare bills in general are significant retirement expenses for everyone. So, how are Medicare expenses projected to change over the next decade?
John Norce (Guest): The pandemic increased a lot of utilization, so the Medicare costs, like all health insurance costs, were on the rise rapidly. The hopes are that it’s going to stay in line. Medicare has grown at about 6.9% premium average. Thus, if your project says $72 in 10 years, if we’re at $170, we could be as high as $340 in 10 years. In an interesting development, Aduhelm was initially approved by Medicare as an Alzheimer’s medication. I believe there were over 1 million people with Alzheimer’s currently that received this treatment. It was $86,000 per treatment. Then it was negotiated down. In this year’s Part B premium, there was the largest increase ever in the history of Part B. $10 of that monthly cost was allocated to pay for that Aduhelm. As Aduhelm will no longer be that price and will be available to 86 million people, we anticipate part B to remain at 170 next year, which will be a benefit.
The social security system just released an adjustment of 8.7%, which I understand, but I’m not an economist. This kind of increase does give Medicare the option to increase their premiums, so I don’t have an answer. Every day I am scouring to find out more about Part B because I’m interested in helping my clients with next year’s planning. But I don’t have that number yet. Unfortunately, what they initially said and what they released last year were two different things. We were told 158 and then it went up to 170 from 148, and everyone was blown away.
Jessica Gibbs (Co-Host): Are there any government regulations on how much Medicare premiums can increase per year?
John Norce (Guest): I’d love to find someone who’s truly knowledgeable about that, but Medicare Part B can’t go up more than social security. That’s what I’ve been told. So, that’s why I’m saying if it went up 8.7% your check, Medicare couldn’t go up 20%, but it could raise 8.7%.
Jessica Gibbs (Co-Host): What about regulations on how much a Medigap plan or a Medicare Advantage plan can go up each year?
John Norce (Guest): So, there are two different things. Medigap, because it acts as a secondary payer. And it is going to raise or increase potentially for two reasons, your age and then the utilization. There are some plans called community-rated, and those plans will go up for everyone. For those who don’t understand community ratings, it is something that everybody shares equally regardless of age and claims. So, if the utilization of the group goes up, your cost goes up, but it doesn’t go up because of your age because everybody pays the same premium. Then there’s a thing called attained age, which is your current age. So, I’m 65. I have a Medicare supplement. Next year at 66, I’ll share with the people at 66, but my premium goes up because I’m a year older. That’s one factor in attained age. Then the second factor in attained age is the actual utilization of that cohort.
Once I’m 67, and my rate increases because I’m going from 66 to 67, what was the utilization of that cohort or group or pool? So, depending on what your supplement is, your rates could be more moderate or extreme. But Medicare Advantage is not tied to your age or utilization as a supplement. The average national premium is $19. So, if you’re on a plan that costs $19, as long as the utilization and the benefits offered by that insurance company can still be administered at $19, they’re not going to raise it. But for whatever reason, they want to raise that rate with Medicare Advantage they would, but it wouldn’t be age discriminatory, or gender discriminatory for that fact. They assign the cost just if you’re in that Advantage plan. That’s it.
Jessica Gibbs (Co-Host): Okay. The only thing to keep in mind is that because they are private insurance companies, they can’t raise more than social security. Though I understand what you’re saying, they can’t discriminate based on age or gender, but perhaps they could decide to raise it to a higher percentage for the whole cohort. There’s nothing that sort of caps them on their decision.
John Norce (Guest): Medigap has no tie to anything other than just as an insurance company underwriting risks. So, if an auto insurance company underwrites their auto risks and one year everyone has accidents, their cost goes through the roof. The next year no one has accidents, the rates stay the same for argument’s sake. Hence, supplement is sometimes combined or grouped with Medicare because obviously, it works with Medicare. It’s no fault of theirs. But that’s why in one of the first comments, I said that Medicare is A, B, C, D. Medigap is outside of it. That’s why I’m saying they have rules they play by, but at the end of the day, they’re running a business as an insurance company, not as a government contractor.
Jessica Gibbs (Co-Host): Right? That’s just something to consider when you’re picking your plans, wondering how you’re going to deal with Medicare, and knowing what’s potentially going to increase in price over time and what’s going to decrease in price.
John Norce (Guest): That’s right! There’s no doubt about it. Finding good company from the outset is worth it. Don’t make the mistake of buying a cheap rate or a company that’s new to the market and you don’t know anything about it. There’s nothing wrong with those companies just do your research. Do your homework. I typically tell people in Medicare, don’t ask their friends because everyone has a different experience, medical utilization, and a different budget. Ask your friends about how did they research or arrive at a decision? Getting back to my comment, if I ask what you pay for Medicare and you say $170.10, and then I get a bill for $577, I will call you and ask, why are you paying $170?
All of a sudden, I’ll realize that Jessica makes a lot less money than me. Again, that might be personal information, that’s why the question you ask is loaded. I use these examples when I speak on our webinars. If you ask a friend, “Do you have Medicare A and B?” I sure do. “Did you buy a supplement?” “No, I didn’t buy a supplement. I didn’t need it.” Okay, great. Then I won’t buy it. Well, what that friend didn’t tell me is they have TRICARE for Life, and TRICARE for Life is a supplement. Do you understand? So, there’s nothing wrong with either one of those asking the questions. They just didn’t know the next question. So, that’s why you have to be careful when you ask your friends what they are doing for their Medicare because everyone could be different, and I would tell you that everyone is different.
Emily Harper (Co-Host): John, you have clearly seen a lot of different Medicare experiences that people have had, and as advisors, I think we’re all invested in making sure our clients can be as successful as possible. So, tell us about some of the biggest mistakes people have made when enrolling in Medicare that you’ve seen, that can be avoided with some planning.
John Norce (Guest): Okay, so the first mistake goes back to our conversation about your transition after retirement. Since you have worked past 65, there is legislation that may change this, but at the moment, one of the biggest mistakes you could make is assuming that COBRA (Consolidated Omnibus Budget Reconciliation Act) after 65 will solve your health insurance problems. In a nutshell, COBRA cannot be your primary insurance. So, it goes back to that conversation about if you have a large group employer, Medicare, or health insurance is primary. If you’re under 20, Medicare is primary. The same thing is with COBRA.
So, I fire Jessica. I put her on COBRA. I said I’m going to pay for it because I’m a good guy and next year, you’re not going to get much money for your COBRA claim if you didn’t have A and B. Then there are also rules that if you’re offered COBRA because you did not have Medicare so when you enroll in Medicare, it actually cancels your COBRA. So, the point I’m making is that if you are in a COBRA situation, and I’m talking to the people out there, make sure you talk to someone like us. There are other people in the country, get the right advice on what you need to do so that you do not leave yourself exposed to claims. That’s the number one thing that you don’t want to screw up.
Another thing is if you are on COBRA, and when your COBRA expires, that is not what’s called a Special Enrollment Period. In other words, if I lose my COBRA in September, and get Part B, I would have to wait until January of next year during the general enrollment period. And I’d have to start in July since the loss of COBRA isn’t considered a special enrollment period. These are two of the most common mistakes we see made around COBRA because they don’t get the answers about COBRA over 65. Now if they have a spouse, one thing for clarification, do not say that your spouse is under 65. They need the COBRA. They can keep COBRA. COBRA’s an individual enrollment. I, as the employee that gets fired, don’t have to have COBRA for my wife and kids. If I get fired, I go on Medicare. My wife and kids can get COBRA. So, don’t stay on COBRA that you think you need to have for your family.
During your initial enrollment period when you’re turning 65, Emily’s made a point that you apply three months before your birthday. The key here is you’ll start on your 65th birth month, the first of your birth month. The one caveat there is if you are born on the first of the month, like on September 1st, technically your initial enrollment period starts on August 1st. They predate it a month. So, be aware of that. But here’s where it gets quirky.
So, if I’m born in September. If I apply right now, I would start on October 1st. Not the worst thing. I was eligible on the 1st of September. Remember, Part A goes back six months, it’s all about Part B. I’d start on October 1st. Well, what did that mean? Well, that means right now I can’t get a supplement or a Medicare Advantage plan because I don’t have Part B. You need both Part A and B to have a supplement advantage plan. I could have gotten Part A retroactively back, but that would still be starting in October if I had applied right now. But here’s what people don’t understand. If I apply in October, my benefits wouldn’t start till December 1st. Medicare delays you for two months. So, if I missed that window of September and I apply in October, I have no Part B in September, no Part B in October, and no Part B in November, meaning that I can’t get a supplement, but I could get a prescription.
So, it’s all about Part B. I have no medical insurance. I have no medical. I don’t have anything for Part B. If I apply in November, they’re going to delay till December, January, and February. I won’t start until February 1st, and if I apply in December, which is the last month of my IEP, I will not start until March. So, you risk not having full health insurance because the government will delay your enrollment into that. The IEP is enforced whether you have employment insurance or not. Therefore, to support you, you might obviously continue your group insurance throughout that time. We can’t stress this enough, but if you don’t have access to group insurance, sign up as soon as possible to ensure that you never go even a single day or second without health insurance. It’s just too important to wait for that enrollment.
Jessica Gibbs (Co-Host): That’s great advice. You can enroll as early as three months before reaching 65 or as late as three months after. I hadn’t considered it. It feels like that offers some breathing room. However, in reality, you don’t potentially. You must get going right away.
John Norce (Guest): With COBRA and working past 65, I’m 67 again, so it’s the same thing. I get eight months from the loss of employer coverage to get Part A and B. The problem there is if I don’t have Part B, I can’t buy a supplement. And if I don’t have B, I can’t get Medicare Advantage. So, let’s say I had Part A and I go on COBRA. That means I have Part A and COBRA. COBRA’s going to pay 20% of Part B. I have now an insurance company paying 80% of my claims because COBRA’s not going to pay that as the primary payer. I can get Part D benefits for drugs. But even getting Part D could jeopardize your COBRA. My point is they tell you that you have eight months, but there’s no reason to wait. You’re only going to put yourself in an adverse situation. I say this because you guys know me.
I’d like to think of myself as a pretty nice guy, a pretty optimistic person, and when I have to tell such hardcore things, it’s because I don’t want people making these mistakes. After all, it could be catastrophic. And sadly there’s nothing you can do. If you didn’t enroll in Part B, and then someone has a significant hospitalization, they can’t retroactively start Part B. You got to do it right the first time. Then we didn’t even talk about it, but there are penalties. So, if you lose employer coverage, you have 63 days to enroll in Part D. If you don’t do it within 63 days, you’ll be denied enrollment, and have to wait till open enrollment and pay a 1% penalty for every month you went without.
So, $33 times one percent is 33 cents a month. You’re going to pay 33 cents every month if you don’t have coverage for the rest of your life. If you miss Part B, it’s 10% for every 12 months that you didn’t have Part B. Using my example again, someone has COBRA, and as a result, you could be impacted by that general enrollment period delay. It ends now. They have to wait till September, and then from September till July of next year for argument’s sake, they could face 20% of that $170. They could be on the hook for an additional $34 plus IRMAA.
Jessica Gibbs (Co-Host): Right. We were talking about IRMAA before, which is a year-to-year program. It shouldn’t change, but this is a mistake that would cost you the rest of your life.
John Norce (Guest): Forever!
Jessica Gibbs (Co-Host): You would be paying this penalty for the rest of your life.
John Norce (Guest): My example is if you wait two years beyond that to get Part B, you’re going to have your base B premium and get in the game. You’re going to have your lifetime penalty of the 20% just using saying $34. Then you still have IRMAA for everyone to contend with. So, you could put yourself in this outrageously expensive situation. Once again, you could appeal IRMA, and not have the benefit of no health insurance from August right now until July. We didn’t mention it earlier, but our services are free. We’re independent. At least our business is. We’re compensated by insurance companies. It has no impact on the costs that you pay. We don’t represent all the plans, but the plans we work with, we’d be more than willing to discuss them with you. So, if someone has questions about Medicare, we don’t cost anything, whether it’s today, tomorrow, or the rest of your life.
Get input or advice or counsel from someone who does this so that you can make sure that you do the right things, and avoid penalties. We prefer to talk to them about losing coverage or going on Medicare so that we don’t miss a beat. Medicare only starts on the first of the month. So, in retirement planning, tell your current employer your last date of employment is October 31st, or November 30th, so that the next day your Medicare starts. Try not to leave yourself in a situation where you lose health benefits on the 15th. For those 15 days in November without health insurance, you’ll have to buy Medicare for the entire month of November. So, always be prepared. Again, someone like us with decades of experience. Just get our opinion as it doesn’t cost anything.
Jessica Gibbs (Co-Host): Yeah, I mean that’s one of the main reasons that Emily and I love working with you, John, and your colleagues at Medicare Portal because like Monument, you are independent. In other words, you’re giving advice, not secretly selling a product, since that’s how you’re compensated.
John Norce (Guest): We love educating. This is the favorite part of my job. I love sharing my knowledge. I love hearing success stories obviously with our clients. But if we helped in any case, if we helped even one listener here go a different route, I’m glad to have been a part of their journey, because health insurance is one of the most important things to us as we age other than income. Making sure that you have access to health care at an affordable rate is what we try to do every day for our clients. That’s what we focus on: access and affordability. I think, leading with education as we do, we like to say that our clients are the smartest Medicare clients in the country.
Our goal is to keep them informed about Medicare changes during open enrollment and during the year, and one thing to watch for is this Part D legislation that was passed without getting into it because there are multiple levels. But 2024 is the first time we’re going to see some kind of impact from it. So, again, we’d love to share that. Maybe we have to do another podcast on that one when it happens.
Jessica Gibbs (Co-Host): I was going to say, we’ll have you back to talk about this. So, again, John’s company is a Medicare Portal. You can find them at medicareportal.org. As he said, lots of helpful resources are there. There are blogs, educational videos, enrollment guides, links to important Medicare forms, webinars, and events. We’re also going to link the notes from the show here. Medicare Portal has a fantastic checklist of what to do before enrollment. It lays it out clearly what you need to be doing three months before turning 65. It kind of walks you through all the steps. So, we’re going to link that in the show notes. But John, thank you so much for sharing your expertise. This was fantastic.
John Norce (Guest): Well thanks for having me, guys. Hopefully, I can earn my stripes and come back here again one day.
Jessica Gibbs (Co-Host): Sounds good!
John Norce (Guest): Thanks guys!
