Interview: Medicare Expense Planning
If you are approaching the age of 65, you’ll soon be eligible for Medicare coverage. For many of us, this sounds like a respite from the annual changes to your health insurance. But what will a switch to Medicare mean for your budget?
We don’t sell health insurance at our firm, so I decided to ask an expert. Pai Gee has been an NYC Medicare health insurance broker for nearly a decade now. She knows the ins and outs of Medicare and the details which apply to our local area.
(Note: This is an updated version of a previous article, as the numbers change slightly each year.. Cultivating Wealth is not compensated in any way for providing this information).
I recently asked Pai some of the most common questions I hear about Medicare and health insurance costs in retirement:
1. What does Medicare cost?
First, let me explain the difference between Medicare Part A and B.
Medicare Part A is free for many thanks to taxes paid during the working years, which may include those paid by a spouse.
Those who do not qualify for free Medicare Part A can pay for it, a maximum of $471 per month. Medicare Part A is hospital insurance that helps cover inpatient care in hospitals, skilled nursing facilities, and hospices.
Medicare Part B covers outpatient medical, including primary or specialist doctor visits as well as outpatient surgeries, diagnostic testing like bloodwork, durable medical equipment, and some outpatient drugs.
A surprise for many who are newly eligible for Medicare, there is a cost for Medicare Part B even if you paid into the tax system (payroll FICA taxes). Medicare Part B is $148.50 per month (expected to be $158.50 per month in 2022) if individual income is less than $88,000 per year or less than $176,000 if joint tax return. It can be as high as $504.90/month if your individual income is $500,000 and above, or above $750,000 if joint tax return. There are four different income thresholds in between, where you could pay Medicare Part B of $207.90, $297, $386.10, $475.20/month for Medicare Part B in 2021.
The income figures are based on modified adjusted gross income from two years prior. Irregular income payments such as advances from book deals or divorce settlements can be counted in the income used to figure out Part B cost. If your income has decreased significantly due to certain circumstances, you can request that the Social Security Administration recalculate your benefits for certain Life Changing Events by submitting form SSA-44. For example, if you earned $110,000 in 2019 but your income dropped to $45,000 in 2021, you can request an income review and your Medicare Part B premium income surcharges, known as IRMAA/income-related monthly adjustment amount for 2021 could be eliminated. (You can note that Medicare Part D also has IRMAA surcharges when applicable.)
Original Medicare Parts A and B do not cover everything. Medicare Part A has an annual deductible of $1,484 (for each Benefit Period) and you pay 20% co-insurance for everything Medicare Part B. And there is little coverage for dental, vision, or prescription drugs. So many people tack on a private Medicare plan to get much better coverage…
In NYC the current range of premiums most people I assist, pay for an additional private Medicare insurance plan is $0 per month to $400 per month. This is in addition to what one pays for Medicare Parts A and B. This figure is the range for Medicare Advantage and Medicare Supplement /Medigap Plans and includes prescription drug coverage and may include preventive dental and vision in the case of Medicare Advantage plans i.e. Medicare HMOs and PPOs.
You may want to consider a Medicare PPO in lieu of Medigap Plan, at least for a few years, to reduce monthly costs if:
You are one of the higher income brackets for Medicare Part B cost.
You use a concierge doctor and already paying a few thousand dollars for medical services.
All or most of your doctors do not accept Medicare. Even under the higher cost Medicare plans, you still
must see doctors that accept Medicare.
2. How does this compare to what people are paying for health care BEFORE retirement?
In 2021, 62.7 million people in the U.S. were on Medicare according to Kaiser Family Foundation. It is larger than any employer plan group out there – Walmart has 2,300,000 and Amazon has 1,335,000 employees!
According to Kiplinger 2019: “Medicare could actually provide better coverage at a lower cost than an employer plan. Health care inflation has driven premiums skyward, which has caused many employers to shift costs to employees through higher deductibles and copays to balance the cost equation.”
Many New Yorkers are relieved to be eligible for Medicare because they do not have to pay for their expensive individual insurance coverage which can range $500+ /month for an HMO or PPO plan. Most people on employer plans that have the option of COBRA continuation of their health plan choose to move to Medicare. Without the support of their employer to pay a portion of the premium, sometimes a significant portion such as 80%, the cost under COBRA to continue the same plan can seem prohibitive even compared to top-of-the-line Medicare options.
Those with levels of income who pay the standard premium amount for Medicare Part B of $148.50/month in 2021, may pay between $148.50 to $248.50/month for a Medicare HMO or Medicare PPO plan which may be most comparable to the type of coverage they had under employer/group plan before retirement. Their employer plan may have in addition had a large medical deductible. Most Medicare HMO and PPO plans in the past decade in NYC have not had medical deductibles, although there is a trend that they start to have deductibles.
3. What is the Medicare Donut Hole?
The Medicare Part D Donut Hole is not to be confused with the Social Security Donut Hole.*
The Medicare Part D Donut Hole refers to the gap in coverage of prescription drugs under Medicare plans with prescription drug coverage. After the plan deductible and initial co-pays, both brand name and generic medications cost more in the coverage gap, if one reaches the gap – when what you and your plan have paid for your drugs reaches $4,130 in 2021.
The cost of covered drugs in the year 2006 when the Part D donut hole was implemented, was at full price to the consumer. It was thereafter 50% for the cost of a brand name coverage gap and the gap.
Thanks to the Affordable Care Act (ACA) in 2012, the gap was reduced yearly and the good news is that the Donut Hole officially “closed” as of 2020. However, the gap is closed to the level of 25%, meaning drug plan members will pay 25% of the cost for any prescribed medication from the time they meet the deductible until reaching the out-of-pocket spending limit ($6,550 in 2021) that leads to Catastrophic Coverage. In the Catastrophic phase, drug prices are low.
Depending on an individual’s medications, the donut hole may be still higher or lower than initial co-pays in the donut hole. Real 2021 examples:
Estradiol patches (female hormone for hot flashes, osteoporosis) has a $24 copayment. Once in the donut hole, one is responsible for 25%. Because the full cost of Estradiol is $66, the donut hole co-pay is $16.
Ozempic (used to help control blood sugar levels in type 2 diabetes) has a $47 copayment. Once in the
donut hole, one is responsible for 25%. Because the full cost of Ozempic is $920, the donut hole co-pay
is $230.Januvia (it helps significantly lower blood sugar in adults with type 2 diabetes) has a $35 copayment.
Once in the donut hole, one is responsible for 25%. Because the full cost of Januvia is $510, the donut
hole co-pay is $127.
Few Medicare beneficiaries know how their Medicare prescription drug costs are calculated across the payment phases. Many are surprised with their Medicare drug coverage when:
They get their first medication(s) of the year and find out they initially pay full price because their drug plan has a deductible – the defined standard deductible is $480 in 2022. Most Part D drug plans in NYC have deductibles that range from $100 to $480. Only four Part D plans in 2021 and also 2022 have $0 deductibles and you will pay about $72.70 to $94.80/month premium for those plans ($69 to $101/month in 2022).
And if they enter the donut hole once they fill their first of each different prescription medication at the
pharmacy.
On the Medicare private plan websites, you can calculate the total annual cost for drug costs. The Plan Finder at Medicare.gov is even better. This is a big part of what I help people do to find the most cost-effective plans. The best way to find the plan with the best drug coverage is to add your total annual drug costs (which can vary by plan) and your monthly premiums, as opposed to looking just at the monthly premium cost of Medicare plan which offers drug coverage. You can save thousands per year just on out-of-pocket drug costs by comparing plans.
* The Social Security 2100 Act would raise Social Security benefits for many while taxing some of the nation’s wealthiest. The bill calls for raising payroll taxes on wages over $400,000. Wages up to $137,700 are currently taxed in 2020. The gap between $137,700 and $400,000 is the Social Security Donut Hole. The Social Security Donut hole is essentially about the tax contribution base proposed to keep the Social Security system solvent.
4. Can you still use your “regular” doctor with Medicare?
Same as the pre-Medicare HMO or PPO plans most are used to, with Medicare HMOs and Medicare PPOs there are networks of healthcare providers including hospitals that are considered “in-network” for the precise plan you are in.
Unfortunately, even if your Medicare private plan provider is the same company as your pre-Medicare HMO or PPO plan, this does not guarantee that your existing healthcare providers will be also covered. In the case of the bigger name national plans, there is a higher chance your doctor or specialist or hospital or diagnostic laboratory for blood tests is covered as in-network, but there is no guarantee.
With Medicare PPOs, you can go out-of-network, however, this does not mean to ANY doctor, which is the case with pre-Medicare PPOs. Medicare PPOs still require you to go to doctors who accept Medicare and only if the doctor agrees to it. Otherwise, you can still pay full fees instead of the out-of-network rates under your Medicare PPO plan.
5. Where can you find private Medicare plans to cover the gaps in original Medicare?
I always strongly recommend that clients start planning at least THREE MONTHS before the expected start of health coverage under Medicare.
My favorite unbiased source is “Compare Drug and Health Plans” section at www.Medicare.gov. I spend a lot of time using this site to help my clients and their families navigate efficiently through their Medicare options.
6. What Medicare Plans can I choose from?
When one has health insurance through an employer, there are often just a few plans available to choose from annually from one or two insurances. Most often the choice is from the HMO or PPO plan available from one insurance company.
The options open up in the Medicare world, with the possibility to choose any of these plans:
In New York state, there are basically 11 insurers that offer Medicare Supplement aka Medigap plans. Each can offer multiple offerings such as the Plans F, G, or N.
In NYC, there are 28 Medicare Part D prescription drug plans, 52 Medicare Advantage plans (Medicare HMOs, PPOs, POS plans).
There are 30+ Medicare Advantage plans in addition, available for those who have both Medicare and Medicaid, also known as Dual Special Needs Plans.
With so many choices, it makes sense to consult with an expert for advice!
Pai Gee is an experienced NYC Medicare health insurance broker representing eleven major private Medicare plan insurance companies. For more than a decade now, she has worked compassionately to help people find affordable quality healthcare coverage and protect themselves from financial disaster due to healthcare. Her consultations are always free. She is fully licensed and can help people across New York, New Jersey, Connecticut and Florida.
