Many healthcare decisions were made for you by your parents as a child and your employer as a working adult. However, once you turn 65, you’re suddenly eligible for Medicare – and there are many options, as well as mistakes you can make. One wrong decision can lead to financial penalties for life, and having insufficient coverage can completely derail your retirement plan. Worse yet, there are countless people out there looking to make a quick buck selling less than ideal plans to older Americans.
That’s why Michael Clarke founded Strategic Growth Insurance Associates. He works to help simplify the Medicare world, break it down to the lowest common denominator, and empower both individuals and business to take advantage of what Medicare has to offer.
Michael wants you to be able to answer two simple questions about your Medicare plan: “What do I pay, and what do I get?” Today, he joins the podcast to talk about this seemingly complex system, navigate the alphabet soup of Medicare plans, and discuss the biggest gaps in our healthcare system.
In this podcast interview, you’ll learn:
If you enjoyed this podcast and are interested in working with SGIA to solve your own tough Medicare questions, please contact us to setup a phone call with one of SGIA.
[00:00:39] Andrew: Welcome, everybody, to another episode of Your Wealth & Beyond. Today, I am super excited to have on Michael Clarke as we discuss a very sexy topic today which is Medicare, all the ins and outs, and some of the mistakes that a lot of people make and how you as the listeners can avoid it. Michael, how are you doing this morning?
[00:00:59] Michael: Doing fantastic, Andrew. Thanks for having me.
[00:01:01] Andrew: And I know this is the beginning of the busy time for you, so thanks for spending a few minutes with us on the podcast. I think we’re going to go through a lot of good nuggets to help people and guide them through with your history in this world when you started SGIA when? Back in ‘06, ‘07?
[00:01:19] Michael: 2007. Yeah. I was coming off of a corporate job where I was heading up one at the divisions, actually, the Health Net’s Medicare division at the time, nationally, and I saw a gap and I decided to take the leap of faith and went off and created SGIA.
[00:01:35] Andrew: I think when we look at Medicare and we look at Social Security, two big components of a planning side in retirement, and when you look at people that have worked into their mid-60s, I think the average amount of money that they paid into the system is well over 500,000 to 600,000. And listeners, what we see too many times is that you make really rash decisions without looking at all the info in regard to optimizing Social Security and in this case here understanding the fundamentals of Medicare. And I know from my side, it’s tricky, right? So, today, Michael, we’re going to really try to break it down, simplify it for people. We’ve got some important timelines coming up. We’ll go through some of the mistakes that you’ve seen over those years because overall your firm works with both individuals and then you built the practice to help employers educate their employees on what to do, what to look for, how to best take advantage of Medicare in the system behind it. Is that correct?
[00:02:35] Michael: That is correct. So, yeah, we’ve got both models built. All of it though drives to how do we simplify the Medicare world and break it down to the lowest common denominator, which in reality, it all breaks down to what do I pay and what do I get. And people forget that in the world of health insurance, everything does break down to what do I pay, what do I get. Same as anything else that you purchase. And so, when you break it down that lowest common denominator, it makes it a little bit more simple to think in terms of what should I do.
[00:03:08] Andrew: And I know a lot of our clients and for those of you getting close to 65, you get inundated with mail after mail after mail. So, I think there’s so much misinformation out there, confusion. So, Michael, let’s talk about some of the important factors here with those that are getting close to that magic age of 65. What are some of the important dates in regard to somebody who hasn’t hit that age yet? What do we have to look for in regard to starting to make some decisions?
[00:03:39] Michael: So, you have a window when you’re turning 65. You’ve got a seven-month window that will start three months prior to your birth month, the month of that you turn 65, and then three months after. And during that seven-month window, you should be going through and making some decisions in terms of what coverage should I keep, what should I change to, so and so forth. So, let’s kind of give a couple of examples now. And unfortunately, Social Security did not keep up with Medicare in terms of dates for eligibility or I should say Medicare did not keep up with Social Security. It’s the reverse. So, as we know right now, full Social Security eligibility is not until 66 yet somebody becomes eligible for Medicare at 65. When somebody is turning 65, about six months prior they’re going to get just inundated with mail and phone calls and it comes in the thousands.
I mean, just tons of stuff comes in and it’s saying everything through this, everybody is saying, “You have to do this. You have to do that. You have to do the other thing.” But that’s not necessarily true. Most people now are working past the age of 65 so that they can at least get to the age of 66 where they become full Social Security eligible. And so, they will not want to do most of the things in the world of Medicare. So, let’s just kind of talk through that, break that down. So, in the world of Medicare, you have two pieces, Medicare Part A and you have Medicare Part B, B as in boy. Medicare Part A for the vast majority of everybody, we have paid into the Medicare system. So, anybody that’s working currently today paid their Medicare taxes and that pays for Medicare Part A so that when you turn 65, you don’t necessarily have to pay anything for Medicare Part A. Oftentimes, people think that it is automatic as it used to be. Back in the number of years ago, it used to be automatic.
And the reason why it was automatic is because people would automatically qualify for social security, apply for social security so that it starts drawing right at 65. And if you start drawing Social Security, you will be enrolled in at least Medicare Part A and you can’t separate that. Now, though, that most people are waiting to draw Social Security, especially if they are working, they are not actively enrolled in Medicare Part A automatically and you have to physically go in and do it through the Social Security system and you can do that through SSA.gov.
[00:06:08] Andrew: Okay. So, that’s very important as optimizing social security benefits. We had that podcast a few episodes ago. So, again, listeners, if you’re going to postpone or delay your retirement benefit on social security to full retirement or later, you have to make the decision, or you have to make the execution with regards to social security office. And you’re saying it’s just online? They don’t have to go in and deal with the two, three-hour wait at the office itself?
[00:06:36] Michael: They don’t. So, if you’re applying just for Medicare Part A, you can go into the Social Security Administration’s website and that website is www.SSA.gov. So, that’s Sam, Sam, Apple dot gov. And they can go into that website and they can apply, submit the application for Medicare Part A. Now, we want to throw up one caution though. If you’re actively at work and if you are actively enrolled into what’s called a high deductible health plan that is paired up with an HSA or a Health Savings Account, you will not want to enroll in Medicare Part A if you are the employee, very important, because if you enroll in any part of Medicare, you nor your employer can make any pretax contributions to your HSA. And if your employer does make pretax contributions to your HSA, you have to take that as taxable income.
[00:07:41] Andrew: Okay. And we’ve talked about this in the past in other episodes. The HSA or the Health Savings Account is the Cadillac of retirement planning. It is the pinnacle, triple tax deduction. Money goes in, it’s tax deductible. It grows tax-deferred and then comes out for qualified medical or even, Michael, as you know, paying your Medicare premium. It comes out tax-free. So, that is one area where you do not want to lose that. Now, Michael, the question is, you just went through, “Got to have 20 employees. We got to do this and that.” How in me, as the employee, how am I going to know that? Do I have to go to my employer and ask them, how many full-time workers that qualify for that?
[00:08:22] Michael: It’s not a matter of how many people qualify for the plan. It’s how many employees are employed at the employer. So, if you have greater than 20 employees then your group health insurance plan is primary then what does that mean? That means that Medicare would be a secondary coverage to your group health plan. So, if that was the case and you are the employee and you are an employer that has more than 20 employees and you’re on an HSA or a health savings account-based plan, you will not want to do anything in the world of Medicare.
[00:09:01] Andrew: So, even though I may get the letter, I may get all of those different pieces of mail saying I have to do something, I don’t have to do anything? I don’t have to contact SSA? I just go business as usual?
[00:09:14] Michael: Business as usual. Now, there is one caution. The one thing that you will want to ask your employer is, is your plan considered creditable? Cre-dit-able. So, it’s a fancy word for saying that your group health insurance prescription benefits are equal to or better than the Medicare prescription drug plan. If it is not considered creditable, then you’re going to have to take a serious look and say, “All right. Well, what should I do?” One, if you go enroll in Medicare Part A, you can no longer make any pretax contributions to your HSA nor can your employer, but then you can go enroll in a prescription drug plan, a Medicare prescription Part D prescription drug plan. Because if you do not have creditable coverage when you finally do go purchase a prescription Part D program, you will have a penalty that has been building up since you turned 65.
[00:10:16] Andrew: How much is that penalty?
[00:10:17] Michael: It’s 1% per month, compounded monthly off of the national average. National average right now is averaging about $35 so if you kind of did the math on that comes out to about for every 12-month period that you did not have creditable coverage, it’s about $4 a month penalty.
[00:10:38] Andrew: Okay. So, that can start adding up for sure.
[00:10:40] Michael: Oh, Sure.
[00:10:41] Andrew: So, I guess, the key component here of what you said is just because you have the HSA doesn’t mean that your situation always warrants to continue on the HSA plan and it may make sense to actually disqualify yourself from that so that you can have the Part A and potentially the Part D.
[00:11:00] Michael: Correct. Now, one thing to also be cautious of, some of the larger employers, there’s a very large aerospace company here within the Valley that within the Phoenix metropolitan area that only offers HSA-based clients, so you may or may not have any other options available to you. So, again, it’s just a matter of you’ve got to get some good solid advice and unfortunately, the vast majority of the agents and/or brokers or sales shops that are out there don’t necessarily understand group health insurance regulations and how they impact to the world of Medicare, and that’s kind of our specialty.
[00:11:41] Andrew: Right. And that’s in the show notes and throughout one of the areas, listeners, you’re going to have the opportunity, if need be, to have a consultation from a team that really knows the ins and outs of this, so we’ll continue to look at that. Before we jump into Part B, one thing is on the Part A. What is that actually whether we get it now or later, what does it actually entail? What’s the simplified version of what I’m going to get for Part A that I’ve been paying into all these working years?
[00:12:07] Michael: So, in essence, what that does is it gives you inpatient services. So, it says hospitalization on the card but think it’s not a place of service. It’s, “Was I admitted to the hospital and did I stay overnight?” If that is the case, then that bill would be sent to Medicare Part A and if you’re not on an HSA-based plan so you’re just not a standard run-of-the-mill group health insurance plan that is not an HSA-qualified plan, you will want to enroll in Medicare Part A, so some people say, “Well, why? I’ve got my group health insurance plan.” Well, think of it as this way. You’ve already bought this plan. You’ve already bought this Medicare Part A because you paid into your taxes. So, you are by definition entitled to that because you paid for it. It would act as a secondary coverage to your group health insurance plans. So, let’s say you had $1,000 deductible, let’s say you had 20% coinsurance that you would normally be responsible for if you had an inpatient stay, Part A will pick up the vast majority of those costs. So, what it does is it, in essence, lowers your liability, which isn’t that what the goal is in terms of your coverage? How do I make it least expensive for myself?
[00:13:22] Andrew: There’s no doubt about it, especially of all the money that you paid into the system. If let’s say for instance you do take a Part A even if you’re still working, are we still paying in the Medicare if we’ve triggered Part A and Part B and we’re still working? Is it still going to come up with our paycheck?
[00:13:41] Michael: Yes.
[00:13:41] Andrew: Okay. So, no matter what, no matter the age, we’re still going to be paying into the plan itself, which is similar to Social Security.
[00:13:49] Michael: And in reality, we have to do that because there’s not enough for the next generations down either the X, Y, or millennials in terms of paying into the system to support the baby boomers with basically withdrawing from the system. So, back in the 80s, we rated the system a couple of times to balance the budget and so the Medicare trust fund has got some issues in terms of stability.
[00:14:10] Andrew: All right. And that could be a whole another show for us to talk to you on that.
[00:14:13] Michael: That is a whole another show.
[00:14:15] Andrew: But like we talk about with Social Security, the system itself although it may change, it’s too big of a benefit, especially for those that are getting closer utilizing it that it’s going to go away, but it may be quite different for you and I, Michael, and our kids and subsequent grandchildren out there. Most likely it will be in some different iteration of what it is today.
[00:14:38] Michael: Agreed.
[00:14:38] Andrew: Okay. So, Medicare Part A, we talked through on high level. Let’s talk about Medicare Part B. I know this one gets a little convoluted as well so first let’s talk timing and then go into if working or not, and cost structure, and things of that nature.
[00:14:57] Michael: So, typically speaking, if a person is actively at work and they have an employer group health plan through either their active employment or a spouse’s active employment, they will not want to enroll in Medicare Part B as in boy. That is just kind of a generalized statement. I mean, there are some exceptions to that rule. It depends on the claims cost and what you’re looking at in terms of the forecast of claims, but that’s the general rule is that if you’re working and you’re on an employer group health plan or if you are the spouse of a working individual and you’re on their group health plan through their active employment you want to decline Medicare Part B and remain on just Part A only.
[00:15:42] Andrew: When you decline, you actually have to physically decline it through the online system?
[00:15:48] Michael: Correct. So, you’ll go to SSA.gov and as you’re going through the application process, it’s a fairly simple application, name, address, phone numbers, so kind of demographic information. They’ll ask you for your Social Security numbers, you plug that into the system, and again make sure you’re going to the right website. It’s SSA.gov. Keep going through there. They’ll ask where you’re born. It’ll ask do you want to apply for Medicare only. If you click yes, it’ll take you down the Medicare path. If you write no, I want to apply for Social Security, it’ll take you down the Social Security and Medicare path in terms of the split off there. It’ll ask to give you a reentry number. Make sure you write that reentry number and then it’s going to get to the Part B question. So, it’s going to say, “Do you want to enroll in Medicare Part B?” If you click yes, it just continues. If you click no, just a heads up, it’s going to have a pop-up box and it’s going to give a warning saying that you may have penalties that would apply. But if you are on an employer group health plan through your active employment or you’re on a group health plan through your spouse’s active employment, those penalties do not apply. It’ll ask a few questions regarding where is your current coverage, where did you get it from, and then you hit submit.
[00:17:10] Andrew: Okay. So, that’s important too because if you were eligible and you didn’t enroll, that penalty itself it’s still 10%?
[00:17:18] Michael: Correct.
[00:17:19] Andrew: And is that for the rest of your life?
[00:17:23] Michael: Unfortunately, ignorance is not an excuse in the eyes of Medicare, so you…
[00:17:29] Andrew: So, not like if you forgot your wife’s birthday or anniversary, we can plead complete ignorance. In this, listeners, we can’t.
[00:17:38] Michael: Right. So, it is a 10% penalty and it is for life and let’s kind of give a couple of examples here. So, I’ve run across a couple of scenarios. So, one that came up last year, we had a person that was 75. They owned a company. They sold the company as part of the buyout provision. That person was then going to be covered under the group health plan for the next I think it was 18 months. So, they stayed on that group health plan. They had Part A only during that whole period of time and they did not enroll in Medicare Part B. So, they came to the end of the 18 months. They said, “Well, I’m on an employer group health plan. It’s now time to enroll in Medicare Part B because I need to know it’ll pick up that extra benefit. The timeframe that their plan ended was October. They gave us a call and we had to give them some bad news. He said, “Unfortunately, you weren’t actively at work. Yes, you are on an employer group health plan, but you weren’t actively employed so therefore you cannot enroll in Medicare Part B right now. You’ll have to wait until the general election which runs between January 1 and March 31 of every year and the plan won’t be effective until the next July 1st. This person got diagnosed with cancer. Unfortunately, this is going to wipe out their savings because they’re going to have to pay cash. So, not only do you have a penalty, but you can’t – there are no exceptions. That is what the rules are and unless you qualify for special election period, which this person does not, almost nobody does in that scenario, that’s what the rules are. So, you need to make sure that you, listeners, you need to make sure that you are well-advised of what you need to do and when you need to do it.
[00:19:37] Andrew: Yeah. Don’t be a martyr. I mean, you live and breathe it. With all the changes, it’s complicated for everybody. So, make sure you get good advice just like with financial planning, just like with tax planning. Make sure you talk to people that are on your side that are looking out and educating you on what’s right and wrong, not just trying to sell you something.
[00:20:00] Michael: So, Andrew, think of it this way. So, for your entire life up until you hit 65, for your entire life the decisions on your health insurance had been made for you, for the most part, for most people. Your parents made it for you when you were young. Your employer made it for you while you were working. And then you get to the end and they say, “Here’s a Medicare, a new book. Go figure it out. Oh, and by the way, if you make a mistake the penalties last for the rest of your life. And, oh, by the way, you’ve got all the sharks swimming around you trying to sell you something. So, just be careful and go figure it out. Good luck.”
[00:20:40] Andrew: Unbelievable.
[00:20:41] Andrew: That’s the world we live in. It’s not that much different than in your world. You‘ve been given – your financial needs were taken care of as a kid. You then started your retirement planning. A lot of us started when we were young, but our employer made those decisions, right? So, we had a 401(k). We contributed to the plans that was offered to us. They made most of the decisions. I mean, yeah, maybe we’ve made some of those decisions based on the plans or the funds that were offered to us but then we get to the end and we’re like, “Okay. Now we have to figure out what we do with this chunk. How do we make this last the rest of our life?” Those are big decisions and people take it lightly.
[00:21:20] Andrew: Yup and it cost them tens if not hundreds of thousands of dollars especially on the Social Security side. So, when we look at premium costs and let’s say somebody’s eligible that Part B, so we hear about these penalties right or not penalties, but we make too much income. We get penalized. So, what’s it going to cost us when we do trigger Part B?
[00:21:41] Michael: So, the base premium in 2018 for Medicare Part B is $134 a month. That is for anybody that is making under 85,000 filed single or 170,000 filed married joint.
[00:21:57] Andrew: Okay. And they’re still looking backward two years?
[00:22:00] Michael: Correct. So, 2018 they’re looking at 2016 tax returns.
[00:22:07] Andrew: And how are they – is it just the IRS is providing that information on what you filed back in 2016 as your adjusted gross income?
[00:22:17] Michael: Yeah. So, Medicare just goes and gets it for Social Security I should say. It just goes and gets it because Social Security is the collector of premiums for Medicare, so they’ll patch into the IRS system and it’s whatever your modified adjusted gross income is.
[00:22:31] Andrew: And then anything above that 170 now your monthly amount will increase. And so, what’s the threshold there? We don’t have to go through all four because we’ll have that in the show notes but what is the max amount right now that somebody could pay on a monthly basis?
[00:22:48] Michael: So, it can get up to because it’s changed in 2018 when we expected to change in 2019 so that the top income earners can pay upwardly of $516 a month per person.
[00:23:04] Andrew: That’s some big dollars there.
[00:22:06] Michael: Yeah. So, if you have a couple, yes, $1,000 a month.
[00:23:11] Andrew: Okay. So, we got to be careful on that. We got to know those numbers obviously on the planning side that something that if we understand how that works then there’s things that can’t go backwards and say, “Hey, last 2016 I wish I had less income,” but there may be some things you can do especially if you’re a business owner but there may be some ways to defer some of your income and that’s an important component here to look at and understand how that works.
[00:23:35] Michael: Correct. So, one thing though is that when a person retires, typically speaking, their income is going to go down. You’re not working anymore so you don’t have a salary. So, what you can do is if you do get an income-related monthly adjustment, that is what they call it, income-related monthly adjustment or an IRMA, if you get an IRMA notification and they’re looking back two years, but you say, “Hey, well, wait a second, don’t charge me based on what I made two years ago. In the future, I’m not going to be making that much money,” you can actually go into the Social Security office and file an appeal based on a lifestyle adjustment. A lifestyle adjustment would be is, “I retired,” and then you would have to give them a forecast as to what your income would be. Now, some of your higher income listeners are going to want to think in terms of, “Well, geez, okay, I’m not going to be working anymore,” but they will want to think in terms of deferred compensation. So, if they had deferred compensation, this is going to be taken at a later date. Maybe you have some individuals that are going to convert a 401(k) to possibly a Roth IRA. So, you want to make sure after those conversions take place because those are all income hits, you want to make sure that you go and file an appeal after those things take place.
[00:24:56] Andrew: So, what they’re looking at with this income it’s not just earned income. It’s income that you pull out from retirement accounts that flows down as ordinary income?
[00:25:05] Michael: It’s your modified adjusted income. So, it’s all in, all in.
[00:25:11] Andrew: Okay. And that’s important especially if we’re going to look at doing like you stated some Roth conversions which can be a fabulous way to limit taxes later on, especially with where we are with the Tax Cuts and Jobs Act, but we have to know how it’s going to affect. We don’t want to have that surprise two years from now and say, “Hey, I didn’t know my Medicare Part B was going to jump up by a few hundred bucks a month,” because that could then defeat the benefit of positioning money into the Roth. So, again, it’s not cookie-cutter. Everyone should do X, Y, or Z. Everybody, as we say, has their own story and we have to weigh out the pros and cons of that. Real quick, Michael, on Medicare Part B, what is that getting me once I am taking it?
[00:25:52] Michael: So, that’s going to be for your outpatient services, so a lot of people say, “Well, then define what outpatient is.” Well, outpatient is everything that I didn’t have inpatient, right? So, if I didn’t stay the night 24 hours then it’s considered outpatient. So, if I went to the hospital on an emergency room visit, if I went to a doctor visit, lab work, X-rays, MRI, CT scan, outpatient surgery, anything that is outpatient, that’s covered under Medicare Part B as in boy.
[00:26:17] Andrew: Okay. Very important there. So, should we talk through on Part D or should we jump into supplemental plans and Medigap? What do you think would make the most sense?
[00:26:27] Michael: So, we probably want to go down the path of talking about the different types of health care programs that are available to a person once they get both Medicare A and B.
[00:26:36] Andrew: Perfect. Let’s do it.
[00:26:38] Michael: So, when you’re going down the path and trying to decide, oftentimes it looks like there are hundreds and hundreds of different options that are available to you, and there are. But if we bucket those decisions into one of two buckets, it makes it a little bit easier to understand what my choices are. So, there’s one bucket that’s called a Medicare Advantage Plan. There’s one bucket that’s called a Medicare supplement plan and they are different in how they work. So, the first bucket, Medicare Advantage Plans, you think the easiest way to understand a Medicare Advantage Plan is what you sign when you signed on the dotted line and what you’re signing is what’s called the statement of understanding and that statement says in simple English, “I understand that I’m going to give up my rights to file a claim directly with Medicare. I’m going to file all of my claims through whatever carrier that I elect.” So, let’s just say hypothetically you elect Humana or United Healthcare or Blue Cross Blue Shield. It doesn’t matter who the carrier is. They all have the Medicare Advantage Plan.
It just says, “I agree to file all of my claims with that carrier. I’m going to also allow Medicare to start paying that carrier monthly.” So, if you went and filed a claim directly with Medicare, Medicare would say, “Uh-uh, not our responsibility. We already paid the carrier you picked. Go file your claim with them.” It also says that you’re on the hook for the different co-pays and out-of-pocket expenses and being that most of them available throughout the country are going to be HMO plans or health maintenance organizations. That means that there’s a specific list of docs that you say I agree to go to these docs and if I go outside of that list, I don’t have coverage. So, pros and cons. So far everybody’s like, “Well, geez, where’s the pro portion of this? I’m not hearing the advantage portion of Medicare Advantage. I’ve got a limited list of docs, I’ve got co-pays as I seek services, I’ve got to file all of my claims through that one carrier, and I’ve got these roles and responsibilities that I have to follow.”
[00:28:39] Michael: Generally speaking, though, most of the premiums are going to be zero so there’s no additional premiums for the plan. All you pay is your Medicare Part B premium. That’s in most major metropolitan areas throughout the country. So, you’re trading. So, I’m trading zero premiums or, in other words, zero fixed cost for variable cost rules and regs and co-pays and out-of-pocket expenses. Make sense?
[00:29:11] Andrew: And then one of the key components you said there is we got to make sure whoever, whatever doctor or facility, physician that we want to see that they’re going to be part of that advantage plan?
[00:29:22] Michael: Yeah. You would want to look up everything. You would want to look up your medications. You’re going to want to look up your doctors. You’re going to want to look up your specialists because what the rule states is that you’ve got to get all of your services done within the service area. Service areas are filed by county, not by state. So, Andrew, where we live in Maricopa County in the Phoenix metropolitan area, all of the services have to be done within Maricopa County. The only thing that would be covered elsewhere is urgent or emergency services only. So, if you have a Snowbird that let’s say has a house someplace else, oftentimes, this type of a plan will not work for them very well because if you’ve got a house here in Phoenix and you’ve got a house in Detroit, when you’re in Detroit, the only thing that’s covered is urgent and emergency services only. So, broken arm, major cut, heart attack. That’s it.
[00:30:18] Andrew: And so, is this where because this seems that if we’re going to take this plan, we’ve got to really understand the ins and outs. I mean, I could go on and do it on my own but is this where you really need some guidance if you’re going to go down this path from somebody that can talk you through the pros and cons?
[00:30:36] Michael: Yeah. So, unfortunately, when you go in you’ve got all of these people advising you, “Well, geez, I bought this plan and I don’t pay anything from Mary Lou down the street.” Mary Lou doesn’t make the difference in terms of your decisions, so this is your healthcare costs. Remember that this is not a healthcare decision. This is a financial decision, so health insurance is not healthcare. Health insurance is how do I finance my healthcare and there’s a big distinction there. And so, you need to make sure that you’re making decisions based on what your desires are. And, yes, having an expert opinion on this can help. When you’re looking for expert opinions, you got to be cautious because oftentimes the, let’s putting quotes around it, the “agents and/or brokers” that are out there will contract with one or two carriers within their area and unfortunately, that makes them biased so they can’t give you an honest opinion about whoever the carrier is.
So, that creates one bucket. Let’s go to the other bucket, Medicare Supplement Plans. So, Medicare supplement plans are also called Medigap plans. So, Medigap, Medicare Supplement terms are interchangeable. By definition, they supplement Medicare meaning that Medicare pays the claim first. The remaining balance goes over to the supplement and they pay their portion. Plan designs are done by letters. Letters A through N. Each letter designates an out-of-pocket expense to you. So, if you bought the highest level of benefit that there is available out there which is a plan F, F as in Frank, that’s the highest-level benefit at least today in 2018 then you would have 100% coverage for all medical services.
[00:32:33] Michael: The rule also states that you can go to any doctor anywhere in the United States that accepts Medicare. Currently, that is 93% of all doctors and 100% of the hospitals within the United States. So, you can basically go to any doc you want almost, any hospital you want. There are no restrictions. There’s no rules or regulations. There’s no pre-authorizations or primary care physician referrals. None of that exists. You go to pretty much any doc you want, whenever you want, wherever you want, and if you’re on this Medicare Supplement Plan F, it pays all of your medical bills in full. No co-pays, no co-insurance, no deductibles, no nothing. That’s the pro. So, what’s the con? Con is it runs anywhere from $150 to $200 a month to buy the plan in addition to your Medicare Part B so we kind of looked at both sides. Medicare Advantage, you don’t typically pay a premium, but you’ve got co-pays, out-of-pocket expenses, rules and regulations to follow, and the specific list of docs to go to.
Medicare Supplement Plans would be the other side of the coin, which is saying, “I can do whatever I want, whenever I want, wherever I want, but I got to pay this premium to do it.” Does that make sense?
[00:33:46] Andrew: To me, it does. Listeners, your head may be spinning a little bit but we’re going to help you out. This is all going to be in the show notes. There’s no quizzes I promise you, and you’ll have the ability to talk with our team to help you out. Now, on that front, let’s say I make a decision and then I realize a year later this was the wrong decision. Am I locked into an Advantage or Supplemental Plan?
[00:34:08] Michael: You are and you’re not. So, there are some changes coming down the pike. Medicare Advantage Plans, it’s easy to go from Medicare Supplement to Medicare Advantage. You just need to do it during the open enrollment period. Actually, let me rephrase that because it’s no longer called the open enrollment period. It’s called the annual election period. So, the annual election period runs in the fall of each year. It runs from October 15 through December 7 of each year. That is been in place for some time, a number of years. It is changing, though. Starting this January 2019 there’s now going to be what is called the open enrollment period. During the open enrollment it is going to run from January 1, 2019 through March 31, 2019 and during that period of time, you can go from Medicare Advantage to Medicare Supplement. You can go from one Medicare Advantage to another Medicare Advantage. Basically, I think of it is the oops period, “Oops, I made the wrong decision.”
The one thing you cannot do is you cannot change your prescription drug plan and you cannot change from Medicare Supplement to Medicare Advantage Plans. So, you can go Medicare Advantage to Medicare Supplement or you can go Medicare Advantage to Medicare Advantage. And that’s a brand-new rule that’s in effect starting on January 1 and again it will last through March 31, and you can make one change during that period of time.
[00:35:35] Andrew: And so then like a firm like yours that knows the nuances, the ins, and outs, what would that look like? You’d have a conversation with somebody who’s already selected one from previous years and then you just walk them and learn a little bit more about their situation? But how does it work? Are you able then to guide them through and tell them, “Here’s the pros and cons of making the changes?”
[00:35:55] Michael: Correct. So, we’re going to first do a needs analysis. So, we take a four-step approach, education being the first step. So, you should know what you’re buying and also, and more importantly, why you’re doing it, and then we’re going to do a needs analysis. We’re going to go way deep into the weeds. We’re going to go who your docs, what are your meds, how often do you go, what conditions do you have that will say that XYZ or amount of claims are going to happen. We try to do that deep dive. The answer may be, “No, you’re actually on the right plan. You should not change,” and the math for us is going to dictate what a person should do. So, we’re going to go through the full math formulas and say, “All right. You should do XYZ,” and it will either be one of two things. You should stay where you are and do nothing, or you should move to this other plan and it will save you X that’s where we come into play.
[00:36:49] Andrew: And is that something in the industry that you see that type of needs analysis that deep dive is where a lot of these individuals don’t get that type of education before they make a decision?
[00:37:00] Michael: I think so because a lot of times people are just trying to sell them a plan, so they can make a buck. They prey on the elderly and it’s unfortunate. So, with our clients what we do is we try to get our folks to say, “We need to review this annually.” We have a full database and we try to keep as much information on this person as possible within the database. So, as an example, we’ll keep a list of their doctors. We keep a list of their medications. We update those annually, making sure that the person is still on the right plan for the future. So, we try to stay in touch with our clientele throughout the process. Then, of course, they can always call back to us for service.
[00:37:38] Andrew: So, listeners, you’ve got some time each year to make changes and that’s where it’s important critical to understand if your situations change, if the plans have changed, and just knowing where your dollars are heading out. So, as we then I think the Part D is confusing for a lot of people. So, let’s jump in there and talk throughout how that works, what to look for some of the mistakes that you’ve seen.
[00:38:04] Michael: So, the biggest mistakes we see people do is they go and enroll in a plan and they just, “So, I’m on this plan and therefore I’ll just stay on this plan,” and that is not necessarily always what somebody should do. Plan designs have been improving year-over-year based on the Affordable Care Act. The out-of-pocket expenses have gone down so the amount that a person is responsible for has gone down every year. So, this next year they’re going down even a little bit further so there’s quite a bit of savings. Now, unfortunately, the pharmaceutical companies have responded and what they’ve done is increased the actual raw cost of the medication. So, unfortunately, for them to hit their profit margins that they’re trying to hit, they’ve gone and increased the cost of the medications. A lot of this has been in the news. This isn’t anything new. So, insulin was a big target. So, if we had let’s say – and I’ll just throw out a name of a medication.
So, let’s say Lantus. Lantus is a very common insulin that is used. It’s a name brand medication, “In the past, a vial, say like three, four years ago, a vial of insulin would run about $250, maybe $200 to $250 right around there in the United States. That same vial of Lantus is now about $500 to $600. So, it’s almost got up at 100% the last four years. So, unfortunately, a lot of people are getting hit with higher expenses on prescription drugs so that even though their coinsurance amount or the amount that the percentage that they’re responsible is going down, the cost of the medication is going up at astronomically high rates and it’s happened in across the board with all medications. Even let’s take one that’s very common. So, a medication by the name of Levothyroxine. It’s generic, Synthroid.
[00:40:04] Michael: Many women take Synthroid/Levothyroxine because it’s for hypothyroidism, which oftentimes your thyroid gets knocked out during pregnancy. It’s a common occurrence. Levothyroxine four years ago was about $3 to $4 cash price if you just went to the pharmacy, you had a prescription, you went and bought it. It’s now $15 to $20 depending on the pharmacy you go to. So, a lot of people say, “Well, geez, that’s not – it only went up from $4 to $15. That’s not a lot of money.” In reality, as a percentage increase, do the math on that. It’s a 400% increase. So, unfortunately, we’re seeing these types of increases across the board and until we as a government go in and step in and start negotiating with the pharmaceutical costs or put caps on what they can make like other governments do throughout the world, we’re going to find some challenges within the prescription drug plans.
What we recommend is every year you should look at your prescription drug plan. Don’t get locked in on the premiums. Look at the total cost and have someone do the total cost evaluation. The best place to go to figure that out is Medicare.gov. The system can be a little bit complicated, so you’ve got to be careful with it to know where you’re going within that system, but that is the best place to go and figure out what plan you should go on to the next year. You can do full cost comparisons on Medicare.gov and it will tell you, it’ll give you a full forecast as to what they think your annual spend will be.
[00:41:48] Andrew: And another mistake that we sometimes hear about is if somebody’s healthy as can be and are not on any prescription drugs that they fail to take Part D, is that a mistake?
[00:41:59] Michael: It is. So, unfortunately, if you go when you buy a Part D plan at a later date, one, you will have a penalty but think of it bigger than that. So, the lowest price premium within the State of Arizona, within Maricopa County is $12.70 per month. That’s the lowest priced cost plan. If you annualize that, let’s just say that that’s, what, $150 a year. Let’s say hypothetically at some point in time during the middle of the year you get prescribed a medication. Let’s say hypothetically that medication is going back to what we just talked about with the escalation of the prices. Let’s say it’s $500 a month. So, you just bet $150 which now is going to cost you in that scenario, was that $6,000? No, $7000, No, $6,000 for the year so you just bet $150 which cost you $6,000. That’s not a good bet. And you can have a penalty on the backside for the rest of your life. So, we say buy the prescription drug plan when you become eligible if you do not have an employer group health plan.
[00:43:13] Andrew: Okay. And then can I make changes to that or can I ever go off of it? I don’t think you probably want to go off of it but is that something that they have that ability?
[00:43:20] Michael: Every single year between October 15 and December 7 of each year you can either elect to choose a new prescription drug plan, you can drop off of the prescription drug plan, so you can make those changes during that period of time of each year.
[00:43:38] Andrew: Okay. So, listeners, as you’re hearing here with all the different Part A, Part B, Part D, Medicare Supp, Advantage, for most of these, you can do an audit, you can do a check-up. I mean, listen, how many of us go to the doctor once or twice a year? We’re getting a checkup. You got to make sure that you’re doing an audit of where you are, what’s changed, and that’s a key component here. You’re not locked in. You don’t want to put your head in the sand. In some cases, like when you make Social Security choices and turning that on, most of the time you’re stuck. Now, there’s sometimes where you can back in and make some changes, a do-over, but when it comes to Medicare, you got to stay proactive just like with tax planning instead of being reactive, and that’s probably from your standpoint dealing with hundreds and hundreds and hundreds of people, probably some mistakes you see. It’s just not understanding or not taking the time to understand and research.
[00:44:34] Michael: Agree. I’ll give you one example. So, we had a person that bought a Medicare Supplement Plan, was told by the agent that they didn’t need to take a prescription drug plan because they didn’t take any medications. I’m assuming the reason why that agent may have said that was because maybe they weren’t certified and trained because, by the way, yes you have to take annual certifications and trainings for all of the Medicare Advantage, Medicare Supplements, and prescription drug plans and it’s a lot of work, but they didn’t take it. They got prescribed the drug by the name of Humira. Well, guess what Humira runs a month? $3,000 a month. So, that just is a big mistake. That’s $36,000 mistake. How many years can you go and afford that kind of a hit? Now, this was a wealthy individual, but still, $36,000 is a lot of money no matter who you’re talking to.
[00:45:27] Andrew: No question. No question.
[00:45:29] Michael: So, again, get good advice and I know, “How do you make sure that you’re getting good advice?” That’s always challenging. Think of it in terms of here are my needs. You can even do the needs analysis yourself. Make sure that all of your doctors are covered. Make sure that it’s the lowest out-of-pocket expenses. Make sure that this is something that I can afford on a monthly basis. Make sure that you do not have any holes that put you up for risk. We’ll give another example of risk. A person let’s say goes to a doc that does not accept Medicare assignment. Well, that doc is allowed to bill an extra 15%. 15% of a small number is a small number but 15% of a big number becomes a big number really, really quick. And when you’re dealing in medical expenses, all of them are big expenses. They’re all big numbers.
So, if you happen to buy a plan that doesn’t cover this extra 15%, you’re on the hook, unlimited. Yeah. You heard that right. No cap. So, you have to be careful on what you buy. Don’t buy a plan just because, “Oh, it’s the cheapest plan.” You have to look in terms of what your needs are and who you get access care from.
[00:46:50] Andrew: Right. And don’t buy it just because your golfing buddy bought one or your family member says you got to buy this one. You got to do the needs analysis. You’ve got to see what works right for you. Michael, the other I think we get this a lot in that scope of not truly understanding what benefits are, as we start closing in on today and we’ve done a lot of high-level view of things. As the listeners know, this isn’t an easy and simple topic. Complex. The show notes is going to detail a lot of the stuff out. But, home health care, assisted living, one of the biggest concerns that we all face as we’re living longer, lots of confusion on that but in the scope of Medicare in most cases, is it accurate to say that Medicare isn’t going to cover an assisted living, a home health care situation?
[00:47:38] Michael: So, they will cover the medical portion only. No custodial services are covered. No custodial services are covered. So, they may cover a nurse coming in at a home health care to change a bandage out, but that’s it and unfortunately one of the biggest gaps within the United States is long-term care insurance coverage and, Andrew I know that you specialize in that. We do not, but we know a lot about it but we will say that long-term care is not covered under any medical policy. It doesn’t matter if it’s from your employer group. It doesn’t matter if it’s Medicare. It is not covered. The only thing that Medicare will do is it will cover a skilled nursing facility stay after a three-day inpatient stay that will cover skilled nursing facility charges for 101 days. If somebody has a stroke and they’re in there say six months, Medicare covers three of the first base for three months, a little over that and then you’re on your own dime.
[00:48:52] Andrew: And that is the part that could derail any retirement plan. So, again, we don’t know if we’re going to need it, but I think each of us have to understand what’s our risk. Can we self-fund? Should we buy a traditional policy? What about these hybrid policies that enable if something doesn’t happen and you don’t get sick for you to have some return of that money to the family? So, there’s lots of different variations. But just like anything else, we have to wait it out and understand in the scope of Medicare what you get, what it’s going to cover, and then outside of that, what are the potential risks of being able to afford the care that you want. And we always talk about not just outliving your money, but you don’t want to outlive your lifestyle, and that includes not just when you’re healthy, but it means when you’re sick, getting the care that you rightfully deserve.
[00:49:42] Michael: Yes, agreed.
[00:49:43] Andrew: Wonderful. So. Listeners, we covered a lot, Michael. We talked about important deadlines. We went to the alphabet soup from Part A all the way to part D and even F as in Frank, Medicare Supps, Advantage Plans, penalties. We could probably sit here for another three hours, but I know that even though we’re pretty entertaining, I think will probably have a couple listeners fall asleep. But, Mike, did we miss anything as we end the show today?
[00:50:12] Michael: I don’t think we necessarily missed anything. If they would want to reach us, they can look at our website, SGIAINC.com. It’ll also I’m assuming it’ll be on the podcast. They can call us at 888-284-3314 and one of our staff will be able to help and answer some questions if anybody does have any questions and we’d love the opportunity to help. Just to let you know, we are licensed in all 50 states. We’ve got contracts with every major carrier in the United States and being that all of us used to work on the health insurance side. We used to work for these carriers. We understand their world as well, so it gives us a little bit of a view into what they do and how they do things and we think that it actually gives us a leg up.
[00:50:56] Andrew: Yeah. It’s great. I think you guys found a niche that is needed, and you guys take that right approach, that education approach, the needs analysis. So, not only with regards to the phone number you gave out but there’ll also be in the show notes here the ability for you to put your information in so that somebody from the team can contact you or you can contact them directly. So, once again, listeners, Your Wealth & Beyond Podcast is aimed to provide you the right info so that you can make good decisions. Information is power. We appreciate the time, Michael. I appreciate the time. It’s always awesome talking to you. I know you’re busy. Good luck with the season coming up here. And tune in later this month for another episode of Your Wealth & Beyond. We’re signing off here from Scottsdale, Arizona. Thanks, everybody.
[00:51:43] Michael: Thank you,
Thank you for joining me for today’s episode of Your Wealth & Beyond. To get access to all the resources mentioned during today’s podcast, please visit Bayntree.com/Podcast, and be sure to tune in later this month for another episode of Your Wealth & Beyond.
Investment advice is offered through Bayntree Wealth Advisors, LLC, a registered investment advisor. Insurance and annuity products are offered separately through Bayntree Planning Group, LLC. Bayntree is not permitted to offer and no statement made during the show shall constitute legal or tax advice. You should talk to a qualified professional before making any decisions about your personal situation.