05 Sep Helping clients make sense of Medicare
Medicare is a complex program with many rules, regulations, and moving parts. If clients fail to enroll at the right time, they can face serious penalties. If they don’t buy sufficient insurance to cover the program’s many gaps, they may be hit with heavy out-of-pocket expenses.
Many clients have gotten their insurance through their employer, and in most cases they have no idea how health insurance works because their premium just gets taken out of their paycheck. That can be a recipe for confusion. However, as CPAs we can help our clients make sense of Medicare’s many options and help them avoid costly mistakes.
As CPA/financial planners, we offer suggestions on the key issues below.
Ensure that 65-year-old Medicare enrollees know they need to enroll.
Eligibility for Medicare starts at 65, even though the full retirement age for Social Security is now between 66 and 67, depending on birth year. That means that if you’re getting Medicare at 65, it can’t come out of your Social Security check because you don’t have one. Planning for that payment is a must for clients.
Make sure clients don’t miss the enrollment window.
Unless clients have employer-sponsored coverage, they have a seven-month window to sign up for Medicare, consisting of the three months before they turn 65, the month they turn 65, and the three months after. If they don’t sign up during this period, they will incur a late-enrollment penalty of 10% for every 12-month period they don’t enroll. The same is true for Part D drug coverage and Medicare Advantage plans with a premium component. In this case, the penalty is 1% of the national base premium ($35.63 in 2017) for each month that beneficiaries go without coverage. These penalties remain in effect for the rest of their lives.
Help clients enroll for all the parts of Medicare that they need.
Medicare isn’t just one program. It comprises many parts, starting with Parts A and B, otherwise known as original Medicare. Part D, available through private insurers that contract with the Centers for Medicare & Medicaid Services, covers prescription drugs. As CPAs we advise that, even with Part D, prescription drug costs can be considerable. Working with an insurance agent is key to navigating these choices correctly.
Help clients decide how best to cover Medicare’s gaps.
To cover Medicare’s many gaps (deductibles, copayments, coinsurance, and limits), it’s recommend that clients choose a supplemental plan. A lot goes into making that decision.
There are 10 standard types of Medicare Supplement Insurance (Medigap) plans. Each provides a different level of coverage. Plan F, available through private insurers, is the most popular option, though it is the most expensive. These plans pay for most things Medicare does not, including coinsurance and deductibles.
Each Medigap policy’s coverage is standardized, so one insurance company’s Plan F plan covers the same benefits as another company’s.
Advantage plans are often cheaper than traditional Medicare. But under HMO Advantage plans, coverage is limited to the plan’s networks of providers. PPO Advantage plans allow beneficiaries to use out-of-network providers, but beneficiaries need to pay more of the cost if they do so. Patients covered by Advantage plans may also have to pay hefty out-of-pocket expenses beyond the premium—something that Medigap enrollees won’t have to.
On the other hand, many Advantage plans include Part D prescription drug coverage, and they may include other perks like vision care, hearing aids, and even reimbursement for a gym membership. Clients and their advisers can compare plans at the Medicare website.
Be sure clients know that Plan Fs and Plan Cs won’t be an option after 2019.
Starting in 2020, new enrollees will no longer be able to sign up for Plan F or Plan C Medigap plans. These plans are being phased out because they both cover the Plan B deductible, which lawmakers believe encourages beneficiaries to use more health care services than they need, thus driving up health care costs. However, people who enroll in Plan F or C before 2020 will be “grandfathered in” and still be allowed to use the plans.
Even though Medicare is complicated—and getting more so by the minute—it still forms the backbone of retiree health care coverage. Careful planning can make a dramatic difference in out-of-pocket costs. Our clients need a knowledgeable partner helping them evaluate all the options to keep their costs down.