By: Dan Darchuck, Co-founder & CEO
For many years, I’ve sat alongside business owners as they begin to navigate programs like Social Security and Medicare and “ease” into senior life.
Recently, I’ve arrived – somewhat reluctantly – at this stage myself, and have gone through the experience of trying to figure out AND optimize Medicare for my wife and me.
As a CFP© professional (Certified Financial Planner), this type of planning was part of the core curriculum. I’ve also taken additional courses on these programs so that I can stay on top of changes to help guide clients as they transition into this stage of their lives. With all of this training, you might think that this type of decision making would be a breeze.
Not by any stretch…
Despite all of the theoretical knowledge I’ve built over the years, never did I think it would be quite so complicated. This has caused me to realize that it must be that much more difficult for many others, and I hope this brief article can help shed some light on some of the complexities.
I chose to get some support from the insurance agency that has helped Topturn with our employee benefits since our inception almost 15 years ago. They actually had a specialist in Medicare, and while helpful, some of the information they provided me with was not completely accurate.
All that said, let’s make a run at this maze…
We learned in working with this specialist that there are two primary tracks that people can take when it comes to senior healthcare.
There’s Original Medicare, which has three different components, known as Part A, Part B, and – oddly – Part D. I’ll get to Part C in a minute, but leave it to the government to do their best to create confusion right out of the gate!
Further complicating things, many people who choose original Medicare also opt for a supplemental or “medi-gap” plan to cover healthcare costs that fall in “the gap” between coverages. If you guessed that this is sometimes referred to as Part G (for gap?), you guessed right.
I’ll get into a little more detail about each of the original parts a bit later, but first let’s talk about the elusive Part C, which is referred to generically as a Medicare Advantage Plan. These plans are offered by private insurance companies approved by Medicare. One perceived “advantage” to these plans is that rather than messing around with Parts A, B, and D, all components are bundled together into a single plan – sort of like when your home internet, telephone, television, and alarm system are all bundled into a single payment.
Current statistics show that approximately 48% of medicare recipients are now enrolled in one of the advantage programs, and experts are predicting this will likely surpass 50% as we roll through 2023 and beyond.
Why are so many people opting for Medicare Advantage?
It’s a good question! Does the enrollment indicate that there really is an advantage to Medicare Advantage? As a self described “hired skeptic” I decided to peel away the layers of the onion, and what I found was that – not surprisingly – the reasons for the choices people made were often as unique as they are.
Here are just a few of the reasons I found for people choosing the option of using a Medicare Advantage Plan:
Lower Premiums …
For some people, because these plans are income tested, a Medicare Advantage plan can come with no premium at all. Although those with Original Medicare might avoid paying any premiums on Part A (Hospitalization), Part B (Doctor Visits), and Part D (Prescription Drugs), along with any supplemental “medi-gap” plan they choose will each come with additional costs. This might make advantage plans feel like the least expensive option.
However, what many people don’t realize is that you’re still on the hook for copays and deductibles. While your health care needs might be lower when you are in the early part of your senior years, as you age, it’s common that those needs increase significantly. Of course, even the youngest seniors could end up in an accident or with an unforeseen illness which drives up your need for care considerably. In those cases, you end up being subject to the rules and relationships governed by the Medicare Advantage Plan you have chosen, and once you’re there, it can be very difficult to make a change.
Simplicity
Determining how to put together the components of a health care plan, especially when it’s not your field of expertise, can be daunting. Often, when people are overwhelmed by choice, they will aim for something that seems easier to understand. Medicare Advantage plans can provide just that.
It doesn’t mean it’s the best possible plan. It does mean that you have some kind of health care coverage, and you’ve managed to make a decision.
Stigma
This one is tough. Admitting that I’m “of a certain age” isn’t fun for me. My wife and I are both very active, and working hard to defy gravity. Being on “Medicare” is like a label that screams to the world “I AM OLD!” Me no like!
Medicare Advantage plans, because they’re run by smart folks who understand psychology and marketing, rarely put the word “Medicare” on the cards people carry or the marketing materials they use. It’s just an Advantage plan, and that can feel like we’re hanging on to our youth just that much longer.
Availability Bias
This is a technical term for our very human tendency to rely on information that comes readily to mind when evaluating situations or making decisions. You may have noticed that each fall, every other TV and internet advertisement is by a Medicare Advantage provider. From the middle of October through early December of each year, there is an open enrollment period. Each year, the insurance companies that sponsor Medicare Advantage Plans bombard us with cleverly concocted ads. So if the “DY-NO-MITE” guy from the sitcom Good Times says this is a good plan…
All things considered, which avenue did I choose? (drumroll please)…
A Quick Look at Why I Chose Original Medicare…
Let me start by saying that what is deemed to be right for me, may not be right for you, and I have no bias either way. That said, when I was talking to Greg about my experience recently, he said, “People really will want to know.”
Original Medicare absolutely is more complex to work with, and we needed help to make the right decision for us. We also needed to understand what the various parts of Medicare were going to do for us.
Part A – Hospitalization
This component covers you if you need to go into a hospital (and, of course, specific items related to hospitalization, not absolutely everything that might happen in the hospital). Part A has no charge . It’s built right into the retirement system. Provided you’ve worked enough quarters to qualify for Social Security, there’s no cost to you for Part A.
Part B – Doctor Visits
If you qualify for Part A, you also qualify for Part B. However, Part B comes with a cost. If you’re already receiving Social Security, then that cost is automatically deducted from your monthly benefit. If you’ve decided, like I have, to defer Social Security to a later date, then you’ll be getting a bill every quarter. The good news is you can easily set this up on an automatic payment plan through your bank account or credit card (for an unpleasant surprise about the cost of Part B, read on).
Part D – Prescription Drugs
You absolutely need to have this and, yes it comes with a premium too, which I found was not too expensive. But it’s one more bill and people don’t really like getting bills. Can also be set up with auto-pay.
Part G – Supplemental or Medi-Gap Plans
As I mentioned, this is the additional coverage that you might decide to purchase to fill the gaps between your various plans. Knowing which one to choose can be tough, because of course that means understanding what the components of Medicare do and do not cover. It means thinking about what your health care needs have been, and what they might need to be in the future. Then, it means thinking about whether the cost makes sense.
Decision Complexity
It’s a big decision but you only have to make it one time with Original Medicare.
As I mentioned earlier, each fall, every other TV and internet advertisement is a Medicare Advantage provider. One reason for this is that just because your doctor may currently be accepting a given advantage plan, doesn’t mean that they will continue. Doctors come off and on these plans. They may have an experience with a particular insurer they didn’t love, or they can’t find a way to negotiate, and suddenly, the doctor and the plan provider aren’t working together anymore.
Which means that if you want to keep your doctor, the one you’ve built a relationship with over the years, you might have to shop around for a new plan that your doctor is now contracted with. Each year, on a Medicare Advantage Plan, it’s important to review your plan to make sure it covers what you want, and contact your doctors to find out whether they’re still contracted with the plan you have.
With Original Medicare, Part A is… Part A. Each component simply is what it is. The complexity in decision making is definitely higher in the beginning, but after that it seems to me to be a great deal simpler.
What’s important for each person making a decision about their own health care is to remember that health care is designed to give you peace of mind during catastrophic events that you may not have been able to predict. It’s a way to ensure you’ll be taking care of yourself and your family during a time of great stress.
A Word About Income and Part B…
Something interesting for business owners who have the ability to plan their income in a way that employed people do not is the income-test for Part B Medicare.
There’s a base premium required for Part B, but a surcharge gets added if your adjusted gross income (AGI) is above a particular level. The Social Security system, which governs Medicare, reviews your last two years’ tax returns, and if you’re fortunate enough to have an AGI above a certain threshold, you’ll be paying a higher premium for Part B Medicare.
A word to the wise: If you’re deferring social security until age 70, you’re probably trying to dial your adjusted gross income in the direction that will provide you with the maximum benefit, so you probably don’t want to dial that backwards to avoid paying a higher premium for Medicare Part B. It’s a bit of a conundrum, and one to be aware of.
There’s even a way for your business to reimburse you for your out of pocket medical expenses with dollars that are tax free to you, AND deductible to the business, but I’ll save that conversation for another time.
