Understanding Medicare Benefits Brian Ellenbecker, CFP, CPWA, CIMA Vice President Senior Financial Planner Robert W. Baird & Co. November, 2015
Agenda Medicare Plan Details Parts Enrollment Costs Medicare Supplement Plans Medicare Advantage Plans Planning Opportunities 2
Medicare Parts
Four Parts of Medicare Usually Part A Part B Part C Part D Hospital Insurance Medical Insurance Medicare Advantage Medicare Prescription Drug Coverage Provided by Medicare Provided by private insurer that contracts with Medicare
Source: 2016 Medicare & You handbook. Page references made on this slide refer to this handbook. Two Options to Receive Medicare
Enrollment
Enrolling in Medicare Key Takeaway If you don t enroll in a timely manner, you WILL pay a premium penalty for the rest of your life. Make sure you avoid gaps in coverage. 7
Key Factors in Determining Enrollment Period Social Security Status Employment Status Covered by employer plan Size of employer Small employer = 19 or less employees Large employer = 20 or more employees 8
Medicare Enrollment based on Social Security Claiming Status If you are receiving Social Security when you turn 65: Medicare Parts A and B are automatic Can decline if don t want Part B Cannot decline Part A Coverage starts 1st of month you turn 65 Parts C and/or D are not automatic; must choose private insurer and proactively enroll 9
Medicare Enrollment based on Social Security Claiming Status If you are not receiving Social Security when you turn 65: Must sign up through Social Security Administration during a Medicare enrollment period Initial enrollment period: If you are not covered by a group plan at 65 Special enrollment period: If you are covered by a group plan at 65 General enrollment period: If you missed your initial or special enrollment period 10
Initial Enrollment Period
Initial Enrollment Period Initial Enrollment Period (IEP) First chance to enroll in Medicare Birth month and 3 months before & after (7 months total) You should enroll if you are not covered by an employer plan Parts A & B or Part C Part D Choose a Medicare Supplement plan 12
7-Month Initial Enrollment Period No Delay Delayed Start If you enroll in Part B 3 months before the month you turn 65 2 months before the month you turn 65 1 month before the month you turn 65 The month you turn 65 1 month after you turn 65 2 months after you turn 65 3 months after you turn 65 Sign up early to avoid a delay in getting coverage for Part B services. To get Part B coverage the month you turn 65, you must sign up during the first three months before the month you turn 65. If you wait until the last four months of your Initial Enrollment Period to sign up for Part B, your start date for coverage will be delayed. Source: Centers for Medicare and Medicaid Services (CMS)
Initial Enrollment Period Part A Most who turn 65 Small employer Have to enroll Medicare is primary over employer plan Large employer Medicare is secondary to employer plan Enroll in A to supplement hospital coverage Do not enroll if you have an HSA and want to continue to make contributions 14
Initial Enrollment Period Part B Enroll to avoid penalty if you: Don t have other coverage Have other non-employer coverage (individual policy, COBRA, retiree coverage) Employer Coverage Small employer Have to enroll Medicare is primary Large employer Medicare is secondary May enroll in B to supplement employer coverage 15
Initial Enrollment Period Part D Signed up for A or B Want drug coverage either now or in the future Can delay coverage without penalty if you have other creditable drug coverage 16
Special Enrollment Period
Special Enrollment Period Were covered as a worker or spouse of a current worker by a large ( 20 employees) group plan. Did not sign up for Parts B and D during initial enrollment period 18
Special Enrollment Period Special enrollment period for Part B: The 8-month period starting the month group coverage ends or Anytime before coverage ends Special enrollment period for Part D: Within 63 days after coverage ends or Anytime before coverage ends 19
General Enrollment Period
General Enrollment Period Missed the initial enrollment period Jan.1 March 31 Coverage starts July 1 Will likely pay a premium penalty May have coverage gaps 21
How to Sign Up for Medicare Parts A & B Go to www.ssa.gov and click on the Medicare tab. Call Social Security at 800-772-1213. For general information about eligibility, go to: www.medicare.gov/medicareeligibility 22
How to Sign up for Medicare Part D Decide if want original Medicare (Parts A & B + D) OR a Medicare Advantage plan (Part C) that includes drug coverage. If Part D plan is needed, apply for Part D through the private insurer or through Medicare at www.medicare.gov or 1-800- MEDICARE 23
Best Time To Enroll in Medicare To avoid late-enrollment penalties: Sign up during initial or special enrollment period To avoid gaps in coverage: Sign up before current coverage ends 24
Open Enrollment
Two Open Enrollment Periods Medicare Open Enrollment Medigap Open Enrollment 26
When is Medicare Open Enrollment? Fall of each year Oct 15 through Dec 7 Changes in coverage are effective on January 1 of the following year 27
What Changes Can Be Made? Make changes to your Medicare Part D prescription drug plan: Join a Part D plan. Switch from one Part D plan to another one. Drop your Part D plan altogether. Switch from one Medicare Advantage plan to another. This might involve switching from a plan without Medicare Part D prescription drug coverage to one that has it, or vice-versa. Switch from Original Medicare to a Medicare Advantage plan. Switch from a Medicare Advantage plan back to Original Medicare. Guaranteed issue on Medicare Supplement plan is often NOT available. See Wisconsin Guide to Health Insurance for People with Medicare 28
Medigap Open Enrollment Guaranteed issue period Have to sell you a policy regardless of health Cannot adjust premiums Cannot exclude pre-existing conditions 6-month period beginning with the month you are both: Age 65 and Enrolled in Part B 29
Costs
Definitions Premium Paid monthly, regardless of use Deductible Paid by patient, based on cost of services Co-insurance Cost is split between patient and insurance company/medicare 31
Costs of Medicare Part A No monthly premium if an individual or their spouse worked for 40 quarters (10 years) No cost to non-working spouse if: currently married to a spouse who is eligible for Social Security (age 62) and married for at least one year before applying, or Is divorced and the former spouse is eligible for Social Security (must have been married to ex-spouse for 10 years and not currently married), or Is widowed (and did not remarry) and they were married for at least nine months before their spouse died. 32
Costs of Medicare Part A Insurance Premium Benefit Period Deductible Hospital Co-Insurance Charges Skilled Nursing Care Co-Insurance Charges Work History of you or your spouse Monthly Premium Benefit Period Daily Charge Benefit Period Daily Charge <30 quarters $411 1-60 days $0 0-20 days $0 $1,288 30-39 quarters $226 61-90 days $322 21-100 days $161 40+ quarters $0 91-150 days (60 lifetime reserve days*) $644* 151+ days 100% of cost 101+ days 100% of cost * The insured may decide to forego using their lifetime reserve days during that benefit period, in which case they will be responsible for 100% of the cost. 33
Costs of Medicare Part B Modified Adjusted Gross Income (2014 MAGI determines 2016 premium) 2015 Medicare Part B Premium 2016 Medicare Part B Premium Single Married Filing Joint Held Harmless Not Held Harmless $85,000 or less $170,000 or less $104.90 $104.90 $121.80 $85,001 - $107,000 $170,001 - $214,000 $146.90 n/a $170.50 $107,001 - $160,000 $214,001 - $320,000 $209.80 n/a $243.60 $160,001 - $214,000 $320,001-$428,000 $272.70 n/a $316.70 $214,001 and above $428,001 and above $335.70 n/a $389.80 34
Costs of Medicare Part B Annual Deductible Medical Co-Insurance Charges* Type of Care Medical Services Patient Responsibility Assigned 20% Unassigned 20% + 15% over approved amount Out Patient Hospital Care Can t exceed Part A deductible $166 Out Patient Mental Health 40% Annual Wellness $0 Service providers may or may not accept Medicare. Service providers that accept Medicare may not accept the Medicare pre-approved cost for service. Under these circumstances, the service provider may charge up to an additional 15% out-of-pocket fee to the insured. * There is no Part B out-of-pocket maximum. 35
Part B Premium Penalty Penalty 10% for every year that you fail to enroll once eligible and do not have a Special Enrollment Period Penalty is charged to the base premium amount and then added to the actual premium amount If base premium increases, the penalty increases The penalty amount will carryover every year 36
Part B Premium Penalty Penalty Example: Single individual is eligible in 2014, but does not enroll until 2016 and has an AGI of $150,000 in 2014. Penalty = $121.80 (2016 base) x.2 (10%/year) = $24.36 2016 Premium = $24.36 +$243.60 (premium) = $267.96 37
Costs of Medicare Part D Base premium is $34.10 per month Can be higher or lower depending on coverage purchased 2016 US average premium information 1 US minimum premium = $11.40 US maximum premium = $174.70 US weighted average premium = $41.46 13% increase vs. 2015 Means-based increases if income is over $170,000 ($85,000 single) 1 Source: The Kaiser Family Foundation s Medicare Part D: A First Look at Plan Offerings in 2016 (Appendix) 38
Income-Related Monthly Adjustment Amount (IRMAA) Part D Modified Adjusted Gross Income (2014 MAGI determines 2016 premium) Single Married Filing Joint 2015 Medicare Part D Premium $85,000 or less $170,000 or less Your Plan Premium $85,001 - $107,000 $170,001 - $214,000 $12.70 + Your Plan Premium $107,001 - $160,000 $214,001 - $320,000 $32.80 + Your Plan Premium $160,001 - $214,000 $320,001-$428,000 $52.80 + Your Plan Premium $214,001 and above $428,001 and above $72.90 + Your Plan Premium The national base premium ($34.10 in 2016) is the amount that is used to determine the income-related monthly adjustments and the late enrollment penalty for Part D. Even if the plan you choose has a different premium, these two amounts will not change based on your plan s premium. 39
Part D Deductible & Coinsurance Medicare s standard benefit design; individual plans vary and may cover more Paid by Insured Annual Deductible ($360) $360 n/a Initial Coverage Period ($361- $3,310) Coverage Gap/Donut Hole ($3,311-$4,850) Catastrophic Coverage Starts when total out-of-pocket cost reaches $4,850 ($360 deductible + $737.50 initial coverage + $3,752.50 donut hole) Threshold 25% of $2,950 ($737.50) On the first $3,310 of drug expenses (not out of pocket costs) after the deductible 45% of Cost for Brand Name Drugs 58% of Cost for Generic Drugs Greater of 5% of drug costs or $7.40 co-pay for brand name drugs and $2.95 co-pay for generic drugs Lasts until out of pocket costs reach $4,850 (including deductible) On all out of pocket costs in excess of $4,850 ( 40
= Plan Pays Pay = You Source: The Henry J Kaiser Family Foundation, Medicare Part D: A First Look at Plan Offerings in 2016 41
Part D Premium Penalty Penalty 1% premium penalty for every month you are not enrolled (all other details are the same as Part B) The penalty amount will carryover every year Penalty increases if base premium increases Example: Single individual is eligible in April 2014, but does not enroll until January 2016 and has AGI of $150,000 in 2014. Penalty = $34.10 (2016 base) x.21 (1%/month) = $7.16 2016 Monthly Premium = $7.16 + $34.10 (2016 base) + 32.80 (income test premium) = $74.06 42
Medicare Supplement (Medigap) Policies
Medicare Supplement Policies Private health insurance for individuals Sold by private insurance companies Supplement Original Medicare coverage Parts A, B, and D Plans follow federal & state laws that protect you 44
Medicare Supplement Plans Medigap Benefits A B C D F G K L M N Medicare Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up Medicare Part B coinsurance or copayment 50% 75% Blood (first 3 pints) 50% 75% Part A hospice care coinsurance or copayment 50% 75% Skilled nursing facility care coinsurance 50% 75% Medicare Part A deductible 50% 75% Medicare Part B deductible Medicare Part B excess charges Foreign travel emergency (up to plan limits) Plan F also has a high-deductible option in some states. The deductible is $2,180 in 2016. Out-of-pocket limit for Plan K = $4,960, for Plan L = $2,480 MA, MN, and WI have different policies Sources: Medicare & You and CMS.gov 45
Example of Wisconsin Supplement Plan Option Prices from 2016 WPS Medicare Companion (Area 1, SE WI) 46
Total Medicare Costs Per Person at Age 65 MAGI Tier Part B Premium Part D Premium 1 IRMA A (B+D) Medigap 2 Total 1 $1,259 3 $497 $0 $2,259 $4,015 2 $1,462 $497 $737 $2,259 $4,955 3 $1,462 $497 $1,855 $2,259 $6,073 4 $1,462 $497 $2,972 $2,259 $7,190 5 $1,462 $497 $4,091 $2,259 $8,309 1 Weighted US average from slide 38 2 WPS policy premium at age 65, from previous slide; Wisconsin approximation of Plan F 3 Assumes Medicare recipient was held harmless for Part B 47
Medicare Advantage Plans
Medicare Advantage Plans All-inclusive plans Combine Parts A, B and usually D May cover services not covered by original Medicare Vision Dental Alternative care Gym memberships Emphasis on preventive care & staying healthy 49
Enrollment Process Enroll in Part A & B first Pay Part B premium Enroll in Medicare Advantage plan with private insurance company MA plan may charge it s own premium Most include prescription drug plan May not deny enrollment based on health status 50
Which option to choose? Benefit Original Medicare Medicare Advantage Monthly Premium (in addition to Part B) Yes, for Part D and Medigap Usually Copays Rarely Usually Annual policy changes No Usually Prescription Drug Coverage Extra benefits (Dental, visions, etc.) Network Must purchase separate Part D plan No National Any provider that accepts Medicare Premium changes annually Yes Yes Guaranteed issue For Medigap, only during first 6 months after enrolling in Part B Usually included, but plans are available without it Varies by plan Varies by plan Yes 51
Advanced Planning Concepts
Planning Opportunities IRMAA changes Hold harmless provision Working beyond age 65
IRMAA Changes on the Horizon Medicare Access and CHIP Reauthorization Act of 2015 (aka Doc Fix law) Changes the scale for Part B & D IRMAA adjustments New premium tiers take effect in 2018 Based on 2016 MAGI TAX PLANNING NEEDS TO START NOW 54
New MAGI Tiers for 2018 Premium Year 55
Hold Harmless Provision Protect Social Security recipients from a net decrease in Social Security (SS less Medicare premiums) Part B premiums cannot rise faster than the benefits Social Security pays out Applies to Part B only; Part D increases can cause a reduction Exceptions (those who will pay higher premium): Paying Part B, but not collecting SS Paying higher premium due to IRMAA (for 2016 plan year/2014 tax year) First eligible for Medicare in 2016 56
Impact to those not Held Harmless ~70% of Medicare enrollees have premiums withheld from SS Remaining 30% of enrollees bear 100% of the premium increase Result: Projected 2016 inflation-related increase of ~$15/month ~$40/month additional premium increase for those not held harmless ( spike ) 52% total increase in their premiums!!! 57
Premium Spike Averted Bipartisan Budget Bill of 2015 eliminated spike portion of increase. 70% still held harmless Base premium for other 30% is $121.80/month, includes $3/month surcharge Those subject to IRMAA pay additional surcharge Cost of this portion of Budget Bill will be paid by loan from Treasury, to be paid back over time by premium surcharge 58
Working past age 65 If covered by employer plan at company with 20+ employees, Special Enrollment Period (SEP) is available Contact employer s plan administrator Can spouse stay on plan when they reach 65? Enrolling during SEP avoids late enrollment penalty Be mindful of coverage gaps 59
Working past age 65 Make sure employer s prescription drug plan is creditable If plan contains HSA, enrollment in Medicare eliminates ability to make additional contributions (employee or employer) Forced enrollment in Part A when filing for Social Security Qualified distributions are still tax-free 60
Summary & Helpful Resources
Helpful Resources Online Resources www.medicare.gov www.eldercare.gov Useful Publications Publications by the Center for Medicare and Medicaid Services Medicare & You Understanding Medicare Enrollment Periods Choosing a Medigap Policy 62
Helpful Resources Plan Finders Medicare Advantage & Part D Plan Finder https://www.medicare.gov/find-a-plan/questions/home.aspx Medicare Supplement Plan Finder https://www.medicare.gov/find-a-plan/questions/medigaphome.aspx Resources offered by each state s Insurance Commissioner 63
Questions
Disclosures Robert W. Baird & Co. does not provide tax advice. Please consult with your tax advisor. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP, CERTIFIED FINANCIAL PLANNER and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board s initial and ongoing certification requirements. Investment Management Consultants Association is the owner of the certification mark CPWA and the service marks Certified Private Wealth Advisor SM, Investment Management Consultants Association SM, and IMCA. Use of CPWA or Certified Private Wealth Advisor SM signifies that the user has successfully completed IMCA s initial and ongoing credentialing requirements for wealth advisors. 65
Understanding Medicare Benefits Brian Ellenbecker, CFP, CPWA, CIMA Vice President Senior Financial Planner Robert W. Baird & Co. November, 2015
Costs of Medicare Part D Base premium is $34.10 per month Can be higher or lower depending on coverage purchased 2016 WI premium information 1 WI minimum premium = $18.40 WI maximum premium = $139.40 WI weighted average premium = $44.35 16% increase vs. 2015 in WI vs. 13% nationally Means-based increases if income is over $170,000 ($85,000 single) 1 Source: The Kaiser Family Foundation s Medicare Part D: A First Look at Plan Offerings in 2016 (Appendix) 67
Total Medicare Costs Per Person at Age 65 MAGI Tier Part B Premium Part D Premium 1 IRMA A (B+D) Medigap 2 Total 1 $1,259 3 $532 $0 $2,259 $4,050 2 $1,462 $532 $737 $2,259 $4,995 3 $1,462 $532 $1,855 $2,259 $6,101 4 $1,462 $532 $2,972 $2,259 $7,205 5 $1,462 $532 $4,091 $2,259 $8,310 1 Weighted WI average from slide 38 2 WPS policy premium at age 65, from previous slide; Wisconsin approximation of Plan F 3 Assumes Medicare recipient was held harmless for Part B 68
Helpful Resources Online Resources www.medicare.gov www.eldercare.gov www.dhs.wisconsin.gov Useful Publications Publications by the Center for Medicare and Medicaid Services Medicare & You Understanding Medicare Enrollment Periods Choosing a Medigap Policy 69
Helpful Resources Plan Finders Medicare Advantage & Part D Plan Finder https://www.medicare.gov/find-a-plan/questions/home.aspx Medicare Supplement Plan Finder https://www.medicare.gov/find-a-plan/questions/medigaphome.aspx Resources for Wisconsin Residences Wisconsin Guide to Health Insurance for People with Medicare 2014 Wisconsin Medigap Help Line (800) 242-1060 70