SHOW NOTES: 2020-11-19 MiM

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Last Week’s Question of the Week: How many Americans filed tax returns in 2020 for the 2019 Tax Year?
Was it a) over 140 million or b) over 250 million?

ANSWER: Over 140 million.

HOST: For our listeners who are about to turn 65, I know you have a very important topic for us today, which is helping us understand more about Medicare and all that goes with it.

KLAAS FINANCIAL: Yes, so first disclaimer; although we are insurance licensed, we do not work directly in this space, but we interact with our clients and professionals who do every day. This information today is an introduction.

First, let’s start with a simple question for everyone. At what age does a person today qualify for Medicare Coverage? Age 65 is the first time that an American can move on to the “National Health Care Plan” known as Medicare. (Not to be confused with your full Social Security retirement age around 66/67).

If you are already receiving Social Security, you will automatically be enrolled in Medicare Parts A and B without an additional application. However, because you must pay a premium for Part B coverage, you have the option of turning it down. You will receive a Medicare card about two months before age 65.

What is the difference between Medicare and Medicaid?
Medicare is a federal health insurance program for people 65 and older, and younger disabled people and dialysis patients, whereas Medicaid is an assistance program for low-income patients’ medical expenses.

What are the different parts of Medicare you should be familiar with?

  • Medicare Part A (Hospital Insurance): Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care. This part is free if either you or your spouse paid Medicare payroll taxes for at least ten years. For people who are not eligible for free Part A, there is a monthly premium of up to $458 each month in 2020 ($471 in 2021). If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $252 ($259 in 2021)
  • Medicare Part B (Medical Insurance): Part B covers certain doctors’ services, outpatient care, medical supplies, and preventive services. The standard Part B premium amount is $144.60 ($148.50 in 2021, or higher depending on your income).
  • Prescription coverage (Part D): Part D also constitutes a monthly charge. Average monthly premium varies according to your needs and the plan that you are on. In addition to premium costs you will also be subject co-payments, deductibles and other out of pocket costs. If you have a higher income, you might pay more for your Medicare drug coverage. If your income is above a certain limit ($87,000 if you file individually or $174,000 if you’re married and file jointly), you’ll pay an extra amount in addition to your plan premium (sometimes called “Part D-IRMAA”). You’ll also have to pay this extra amount if you’re in a Medicare Advantage Plan that includes drug coverage. This doesn’t affect everyone, so most people won’t have to pay an extra amount.
  • Medicare Part C (Also known as an Advantage Plan): Typically covers Parts A, B, and D with one bundled insurance policy for all Medicare coverage. They also offer extra coverage for dental, vision, hearing, prescription etc. Similar to traditional Medicare, you will be subject to co-pays, deductibles and other out of pocket costs, although total costs tend to be lower than for traditional Medicare. Advantage policies generally charge lower premiums but have higher cost sharing. Choice of providers may also be more limited on these plans.

HOST: What about all the costs that Medicare does not cover?

KLAAS FINANCIAL: There are many items that Medicare Insurance does not cover, so in an effort to bridge these “gaps” this is where supplemental insurance plans come into play. These plans are known as Medical Supplemental insurance plans, or Medigap, or MED SUPs. These plans are offered by private insurance companies to help cover deductibles, co-payments, and other gaps.

Things to know:

  • Initial enrollment is a 7-month period; 3 months before your 65th birthday, the month of your birthday, and 3 months after your birthday. You do not have to qualify for the policies during this period.
  • Annual Enrollment for Medicare is October 15-December 7th (NOW). This is when you can make changes each year.
  • Medicare Supps have Plans A-N. (Offered through Aetna, Humana, Cigna, BCBS, AARP, Mutual of Omaha, etc.) Each policy that goes by the same letter must offer the same basic benefits, and usually the only difference between the policies is cost, service and claims.
  • Medicare Supplements range in price anywhere from $150-$350+ per month to help with the gaps. The cost depends on the company and your age.
  • You can switch Medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than 6 months after signing up for Part B. Contact a local Medicare Supplement provider to find out what will work best in your situation.
  • A common question is “Can I get Medicare with a preexisting condition?” Yes, even with a preexisting condition, you can enroll in Original Medicare or a Medicare Advantage plan.

Note: With Medicare Advantage, you cannot enroll in a plan if you have end-stage kidney disease. And with Medicare Supplement plans, if you don’t sign up when you first become eligible, the insurer may impose a waiting period before your coverage takes effect for any preexisting issues, except in certain situations that qualify for guaranteed acceptance.

HOST: What if I am still working at age 65? Do I have to go on Medicare?

KLAAS FINANCIAL: Great question. Whether you need to enroll in Medicare at 65 if you continue to work and have health insurance through your job depends on how large the employer is. The same rules apply if your health insurance comes from your spouse’s job.

If the employer has 20 or more employees:

For as long as you have health insurance from an employer for which you or your spouse actively work after you turn 65, you have the right to delay enrolling in Medicare until the employment or the coverage stops (whichever happens first). At that point, you’re entitled to a special enrollment period of up to eight months to sign up for Medicare without incurring any late penalties. 

Note that active employment (your own or your spouse’s) is the key phrase here. You can’t delay Medicare enrollment without penalty if your employer-sponsored coverage comes from retiree benefits or COBRA, which by definition do not count as active employment.

It is entirely your choice (not the employer’s) whether to: a) accept the employer health plan and delay Medicare enrollment; or b) decline the employer coverage and rely wholly on Medicare; or c) have both the employer coverage and Medicare’s at the same time. 

However, if you enroll in both the employer plan and Medicare Part B, be aware of the consequences. In that situation, the employer plan is always primary, meaning that it settles medical bills first and Medicare only pays for services that it covers but the employer plan doesn’t. So, unless the employer coverage is very poor, you’d be paying monthly premiums for Medicare with little or no return.

Also, by signing up for Part B while you still have current employer coverage, you could be forfeiting your right to buy Medicare supplemental insurance (known as Medigap) with full federal protections after this employment ends. Those protections prohibit insurance companies from refusing to sell you a Medigap policy or charge higher premiums based on your health or preexisting medical conditions providing that you buy a policy within six months of enrolling in Part B. (Outside of that six-month window, except in very limited circumstances, they can do both.)

If the employer has fewer than 20 employees:

The laws that prohibit large insurers from requiring (or even persuading) Medicare-eligible employees to drop the employer plan and sign up for Medicare do not apply to companies and organizations that employ fewer than 20 people. In this situation, the employer decides.

If the employer does require you to enroll in Medicare, then Medicare automatically becomes primary and the employer plan provides secondary coverage. In other words, Medicare settles your medical bills first, and the employer plan only covers services that it covers but Medicare doesn’t. Therefore, if you fail to sign up for Medicare when required, you will essentially be left with no coverage. 

HOST: Joe from our Money in Motion Listener Corner asks: Do I have to cash in my 401(k) right away when I retire?

KLAAS FINANCIAL: Not necessarily. If you have more than $5000 in your 401(k), the plan administrator must continue to maintain it — and you don’t have to take withdrawals or receive required minimum distributions until April 1 of the year you reach age 72. While this allows your investment to grow, it does prevent you from making additional contributions. Talk to a financial advisor about your best options. You can also consider rolling it into an IRA.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.