From the December 2016 issue of Investment Advisor • Subscribe!

Moeller on Medicare: Advisors, Beware of Land Mines on Timing, Coverage

Medicare expert Philip Moeller says the program is monstrously complicated

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Medicare is messy, complicated and critical to clients' retirement planning. Medicare is messy, complicated and critical to clients' retirement planning.

Mighty Medicare, the biggest component of U.S. health care — and the most complicated — needs to be addressed, discussed and explained to clients because as advisors’ client base ages, health care plays an increasingly larger role. Consequently, decisions concerning medical insurance greatly affect their financial future.

So says Medicare expert Philip Moeller, in an interview with ThinkAdvisor.com. He is author of “Get What's Yours for Medicare: Maximize your Coverage, Minimize Your Costs” (Simon & Schuster). The release of Moeller's book on Medicare was timed to coincide with the program's open enrollment period, Oct. 15 through Dec. 7. Since Medicare is an annual plan, recipients have the option each year to re-evaluate their coverage and, if desired, change it.

“Dante had nine circles of hell. Medicare has only five,” Moeller jokes in his book. Since it was created a half-century ago, Medicare has grown monstrously complicated with more and more intricate rules, more buzzwords to learn and more decisions to make.

Moeller, who has covered Medicare for decades, writes about retirement for Money magazine and conducts the online “Ask Phil” Medicare column for PBS NewsHour's “Making Sen$e.”

What are the most significant points about Medicare that financial advisors should impart to clients?

That unexpected medical expenses are the biggest retirement surprise most people have. So you need to pay attention. You have to sign up for it at the right time, make sure you purchase the right package of coverage for your situation and then use the insurance you’ve purchased.

What do folks need to keep top-of-mind concerning the part of Medicare that covers prescription drugs?

You need to pay particular attention during the [annual] open enrollment [period when coverage changes are permitted] because formularies [lists of covered drugs and prices] change every year.

What's one big way advisors can help clients with Medicare?

There's a series of high-income surcharges for Medicare premiums [monthly charges deducted from Social Security payments] called IRMAA [Income Related Monthly Adjustment Amounts]. These amounts can be increased substantially, to the tune of hundreds of dollars, for higher-income individuals. But clients might be able to make some adjustments to minimize them. For tax-planning purposes, be aware that there's a two-year lag. So, 2016 tax returns will determine 2018 IRMAA.

Why should folks consider Medicare Advantage plans?

They’re the cheapest by far. You can [even] get a Medicare Advantage plan and pay no premium at all. So if you’re really healthy and don't take meds, it's very tempting to get one. And [unlike traditional Medicare] some plans cover vision and hearing, and also health clubs. Maybe more than half of all new Medicare plans are Medicare Advantage plans.

What are the disadvantages to these?

They use health care provider networks, and that allows only a certain number of doctors, hospitals and caregivers in their networks. So if at some point the doctor you want to use isn't in the directory, you could be a very unhappy camper. If you’re in a hospital because of an emergency, some Advantage plans might say that hospital isn't in their network — and therefore you won't be covered. Provider directories can change during the year. That's another reason to pay attention to open enrollment.

Why doesn't Medicare itself act to lower prices?

It's against the law for Medicare to negotiate with pharmaceutical companies to reduce drug prices. Insurers can negotiate; but Medicare, which is the 800-lb. gorilla in health care, can't use its tremendous market leverage to negotiate lower pharmaceutical prices!

How does the Affordable Care Act affect Medicare?

One of the ways is a provision that will do away with the “donut hole” [coverage gap] by 2020. Everybody hates the donut hole because it's confusing: Medicare Part D plans stop covering drug costs after payments reach a certain level every year and then resume after the recipient's spending has reached a different […] level. Under the Affordable Care Act, the donut hole is becoming smaller and smaller.

What about Medigap supplemental policies?

The most popular Medigap plan is Part F because it provides the most comprehensive coverage. It's also the most expensive. You can't get a Medigap plan without getting Medicare Parts A and B. And Medigap has its own six-month window that begins after you get A and B. Make sure clients don't miss the enrollment period because that's when there's guaranteed access to Medigap policies, and you can get the best prices.

Be aware of the underwriting terms of the Medigap policy their customer is purchasing because this has implications for the future: Premiums are increasing. You have to shop for premiums — there's substantial price variation. Be aware that Medigap doesn't work with Medicare Advantage plans.

Please talk about the “hold-harmless” rule.

This means that [most] Social Security beneficiaries who have Part B premiums taken out of their payments cannot be asked to pay a higher premium when Social Security's annual cost of living adjustment [COLA] is zero or small because to do so would cause their benefits to decline. However, other Part B users who are not held harmless include higher-income beneficiaries. Part B expenses are going up, and [the very modest] COLA [next year probably] won't cover the increase in Part B expenses. Tax payers pay 75% of Part B expenses.

--- Read Medicare Premiums, Deductibles Rising for Many in 2017 on ThinkAdvisor.

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