Medicare: Almost everyone over 65 takes it, yet clients and advisors alike maintain a variety of costly misconceptions about the government-funded coverage.
From bad timing and unnecessary penalties to doctors’ visits and hospitalizations, these misconceptions can significantly disrupt retirees’ long-term plans.
According to a study by the Urban Institute, in fact, for a 65-year-old of average income, the cumulative lifetime Medicare benefits are expected to surpass those of Social Security by 2055. Simply put, your clients are probably leaving money on the table if you’re not talking to them about Medicare. Poor planning could make it even more difficult for them to weather the effects of healthcare inflation.
The following are a few of the most common myths and misconceptions regarding Medicare. Clear up these confusions, and you’ll be well on your way to creating more realistic, sustainable retirement plans for your clients – not to mention furthering your reputation as a trusted advisor. Medicare is uncharted territory for pre-retirees, and still dangerous waters for current retirees. Becoming a resource is a surefire way to generate referrals.
MISCONCEPTION: Medicare will cover all medical expenses.
“People usually think Medicare will cover everything, and that doesn’t work out well for clients who aren’t healthy,” says Joanne Giardini-Russell, Medicare advisor with Financial Architects Inc.
“They really get surprised when they realize only 80 percent is going to be covered,” adds Ben Storey, Merrill Lync Director of Retirement and Personal Wealth Solutions.
That extra 20 percent can add up quickly -- and along with the need for dental, vision and hearing coverage, it’s one of the main reasons why people pursue supplemental insurance.
When it comes to additional insurance, clients can choose between Medigap and Medicare Advantage, though many don’t even realize they have a choice.
“Typically, if a client has a Blue Cross plan under their employer, for instance, their rep will just transition them to a similar Advantage plan without even introducing them to Medigap,” says Giardini-Russell.
The two operate completely differently, however, and can’t be held simultaneously. Advantage plans are private alternatives to traditional Medicare, and they offer the same or better coverage with annual out-of-pocket limits. However, they usually include deductibles, copays and additional premiums.
Medigap, on the other hand, covers most out-of-pocket expenses for traditional Medicare recipients but doesn’t include prescription drug coverage or other “extras” covered by some Advantage.
“You really need to tailor the choice to the client’s lifestyle, cost threshold and goals,” Giardini-Russell says.
Aside from supplemental and alternative insurance, many clients don’t realize they’ll have to pay on Medicare.
“People often assume they won’t have to pay a premium, or they’re surprised by the fact that their income impacts the premium,” says Storey.
While most people won’t pay a monthly premium for Part A (hospital insurance), premiums for parts B (medical insurance) and D (prescription drug coverage) vary by plan and income. The Part B standard is $134 in 2017, though the U.S. Centers for Medicare and Medicaid Services says most people who collect Social Security pay less -- $109, on average.
If these disappointing reminders leave your clients itching for some good news, consider this: The Affordable Care Act added coverage for an annual wellness visit and eliminated cost-sharing for most preventive services. These include mammograms, bone mass measurements and screens for prostate cancer, colorectal cancer and diabetes, to name just a few.
“The goal of the preventive system is to avoid costs down the road, but people aren’t using their Medicare coverage enough for these things, says Giardini-Russell. “Especially when they’re used to poor private insurance. When clients get Medicare, I tell them to go to their doctors and get healthy.”
MISCONCEPTION: Medicare will cover long term care
Contrary to what many may believe, Medicare will not pay for long term care -- at least not in a way that’s meaningful to most retirees. What Medicare does do is cover up to 100 days of care in a skilled nursing facility -- provided the need is triggered by a hospital stay of at least three days – and pay for hospice care for the terminally ill. It will not, however, pay for care in a retirement community, nursing home or assisted living facility. What’s more, and only the first 20 days of a skilled nursing facility stay are completely covered. As of 2017, days 21 through 100 incur $164.50/day in coinsurance.
Why the confusion, given the growing need for long term care?
“I think the misunderstanding happens because clients confuse Medicare with Medicaid,” says Storey. “Medicare won’t cover long term care, and Medicaid will – but only after you’ve depleted your assets.”
MISCONCEPTION: I can enroll whenever I want
Every year holds plenty of opportunities for clients to sign up for Medicare, but enrollment is far from a free-for-all.
“Timing is one of the biggest problems,” says Giardini-Russell, “and so many clients aren’t sure how to sign up, when to sign up or whether they should sign up at all.”
First-time enrollees are eligible from three months before they turn 65 to three months after. Aside from this initial enrollment period (IEP), Jan. 1 through March 31 is general enrollment for parts A and B, and Oct. 15 through Dec. 7 is Part D open enrollment D. Moreover, traditional Medicare recipients can switch to Medicare Advantage (and vice versa) during open enrollment; from Jan. 1 through Feb. 14, Advantage enrollees can switch back to traditional Medicare without a penalty.
MISCONCEPTIOINS: I don’t have to sign up for Medicare
Speaking of penalties: Retirees often incur extra charges even after they think they’re in the clear. Workers over 65, for example, in employer-sponsored plans don’t have to sign up yet unless their company employs fewer than 20 workers; in that event, the employer-sponsored health plan automatically becomes secondary to Medicare at age 65, and the Part B penalty kicks in. For every 12-month period a client is Medicare eligible but unenrolled, their premiums can rise by 10 percent. That increase is good for as long as they’re enrolled. A similar penalty exists for Part D: 1 percent of the base premium, multiplied by the number of full uncovered months.
“COBRA doesn’t count as credible coverage, either,” says Giardini-Russell.
While COBRA may offer secondary coverage to clients for a year or more after retirement, retirees still have no longer than eight months to enroll in Part B without a penalty. A similar situation exists for small business owners and the self-employed, who must enroll during their IEPs to avoid penalties – even if they still privately purchase insurance for themselves.
Clearing up the confusion
Ultimately, informing your clients -- and yourself -- about Medicare will help you to create more realistic investment and drawdown strategies and establish yourself as a well-rounded expert. Unless they’ve already begun collecting Social Security, retirees aren’t notified told when they’re required to enroll in Medicare. And between late penalties and uncovered expenses, simple mistakes can lead to avoidable, portfolio-crippling medical expenses.
Where to start?
“First, understand that one type of coverage isn’t necessarily better than another,” says Storey. “You need to be able to look at individual situations and figure out which options make sense.”
To that end, he recommends the resources provided by the Center for Medicare and Medicaid Services, as well as the checklists, cost estimators and brochures available to many firms. Furthermore, he suggests starting the conversation early on.
“Think about what a client’s health care expenses will look like well before it’s time to enroll,” Storey says. “Once you can estimate those figures, you can help them plan for ways to cover premiums and other expenses.”
For many advisors, though, a strategic partnership with a Medicare expert may be the best bet.
“It’s imperative for advisors to align themselves with someone who knows what they’re doing,” says Giardini-Russell. “If you’re not talking about it with clients, you’re missing the boat, but most advisors don’t have enough time to really handle it. Clients are ready and anxious to have the information, and they’ll be appreciative to you for the recommendation.”