Danielle outlines the different parts of Medicare coverage, addresses common misconceptions, and offers advice to help investment professionals assist their clients ahead of potential Medicare changes in 2024 and beyond. She also explores surcharges that Medicare participants may need to pay in addition to their premiums—costs that can have a big financial impact on high-income earners in particular. Finally, Danielle discusses best practices for enrolling in Medicare, explains the options for clients who don’t retire at age 65, and identifies three Medicare missteps that people often make.
“Just like with taxes here in America, if you earn more, you pay more. There is a component just like this with Medicare. If you earn more, you're going to pay more for Medicare. In fact, in the March 2023 Medicare trustees report, they noted that around 7% of Medicare beneficiaries will pay more than that standard premium.”
—Danielle Roberts, founding partner, Boomer Benefits
About the Portfolio Intelligence podcast
The Portfolio Intelligence podcast features interviews with asset allocation experts, portfolio construction specialists, and investment veterans from across John Hancock’s multimanager network. Hosted by John Bryson, head of investment consulting at John Hancock Investment Management, the dynamic discussion explores ideas advisors can use today to build their business while helping their clients pursue better investment outcomes.
This material does not constitute tax, legal, or accounting advice and is for informational purposes only and is not meant as investment advice. Please consult your tax or financial professional before making any investment decisions.
This podcast is being brought to you by John Hancock Investment Management Distributors, LLC, member FINRA, SIPC. The views and opinions expressed in this podcast are those of the speaker, are subject to change as market and other conditions warrant, and do not constitute investment advice or a recommendation regarding any specific product or security. There is no guarantee that any investment strategy discussed will be successful or achieve any particular level of results. Any economic or market performance information is historical and is not indicative of future results, and no forecasts are guaranteed. Investing involves risks, including the potential loss of principal.
John Hancock Investment Management is not affiliated with Danielle Roberts or Boomer Benefits.
Hello, and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings, here at John Hancock Investment Management. Today is November 15th, 2023, and we will be talking about Medicare coverage, so that you can help your clients unpack the ins and outs of the process for 2024. We know that making sense of all the Medicare enrollment periods, rules, and plan options, can be overwhelming.
On this episode, you'll learn how to help your clients and prospective clients plan for Medicare decisions by learning more about how Medicare works, including the costs associated. We have Danielle Roberts with us today to walk us through it all. Danielle is a founding partner at Boomer Benefits, a leading national insurance agency specializing in Medicare since 2005. She's the author of the bestselling book, 10 Costly Medicare Mistakes You Can't Afford to Make, with nearly 40,000 copies sold and counting. She's a frequent source of major news outlets such as CNBC, FOX, Yahoo Finance, Kiplinger's, and MarketWatch.
Danielle's online following is comprised of over 1 million current and future Medicare beneficiaries. She has appeared on more than 200 podcasts, radio shows, and TV segments, to educate the public about Medicare. Danielle serves on the NABIP Medicare Advisory Group, where she advocates for Medicare beneficiaries, at a national level, to government organizations, including the Centers for Medicare and Medicaid. Danielle, welcome to the podcast.
Well, hello. My pleasure to be here. Thanks for having me.
You got it. Hey, Danielle, Medicare is an important part of many retirees' income planning. What advice would you give investment professionals to help them help their clients get ahead of this in 2024?
A good piece of advice for any advisor, at any time, in 2024 and going forward, is that starting at age 65 with Medicare planning is too late. It's really important that these conversations are happening earlier. If you want to get ahead of your decisions, you have to first understand what your original Medicare benefits provide, and then you need some time to decide which way you're going to go with your Medicare, whether you're going to continue working and have Medicare coordinate with your insurance, or whether you decide to go with a Medigap plan or a Medicare Advantage plan.
Those decisions take time, and you have to first understand those federal government benefits and what they are. We encourage people to start their research early. You can be having these conversations as early as age 60 to 62, because this is some big stuff. We're talking about a government program with four parts, 10 Medigap options, and literally thousands of drug plans and Medicare Advantage plan options. It's not something that people can learn overnight. If you're going to be looking at decisions, in 2024, you want to be looking at those as early as September every year, before the annual election period.
For someone new to Medicare, you want to be looking at that for the person, the individual should start their Medicare research no later than age 64. But of course, earlier is always better when working with your financial advisor, just being that some things that you do in your 60s, your early part of your 60s, can actually result in different premiums for you, and it can affect your Medicare premiums once you turn 65.
Okay. You mentioned numerous parts. Can you give a quick overview of Medicare and all the parts?
Sure. Medicare, original Medicare, consists of Medicare Part A and B, and this was rolled out in 1965. Part A is your inpatient hospital coverage, and Part B is your outpatient medical coverage. These two parts are critically important as the base of your insurance package that you put together for yourself. Those two parts, if you don't have any other type of coverage, such as you're still working and you have employer coverage, if Medicare is going to be your primary insurance, you need to have both A and B in place.
Then the two other parts of Medicare, Part C and Part D, are voluntary. These are optional products, and you would buy them through insurance companies, or through a broker, like us at Boomer Benefits. Part C is the Medicare Advantage program. This is a way that you can get your Part A and B benefits through a private insurance company that builds a network in your local area. We can talk more about that a little bit later in our conversation today, to get into the details. Then Part D is the outpatient drug program.
Now, for over 40 years, people on Medicare had no outpatient drug coverage. When Part D was rolled out in 2006, it was a sweeping change to Medicare, because now people can purchase insurance that's going to help them with the cost of their outpatient medications. However, it's optional, because sometimes people work past 65, and they still have drug coverage through an employer, or they may have another source of creditable drug coverage, like VA benefits, or Indian tribal benefits. That is why Part D is voluntary. However, it's an important piece, because we never know when we're going to get sick. If you don't have any other creditable coverage, we strongly recommend that you enroll in a Part D plan so that you have the coverage in place before you need it.
Adding to that, I've heard mentioned that a lot of individuals don't realize that Medicare actually has a cost. Can you tell us about that part?
Yeah, it's a common misconception, and there's probably a couple of reasons for that. First of all, Medicare is a national health insurance program. When we think about countries like Canada and Britain, we think of that as being free healthcare. Of course, they pay a lot in taxes for the healthcare, but I think people tend to think that if we have a national healthcare program here in America, it's probably also free. The other thing that happens is if you have worked at least 40 quarters, or 10 years in your lifetime, and you've paid FICA taxes during those years, when you sign up for Medicare Part A, your hospital insurance, you will get that premium free. It's a zero premium that you pay for Part A, not because the program is free, but because you've paid taxes toward that future Part A benefit.
Because of those two things, there's a misconception out there that people think, when they get to Medicare, that everything is going to be paid for. Really, learning about this at age 64 is too late, because there are premiums associated with Medicare. You do have to pay for Parts B and D if you're going to enroll in them, and you don't want to learn that too late, when you haven't saved enough money for retirement to account for those costs. In my book, Chapter 1, the Medicare Mistake #1, is Assuming that Medicare is Free.
Every year we have people that call us that can't believe they have to pay for Medicare. They've seen that payroll deduction, they've been paying it all their working years, and they think that they're going to be paid up when they get to Medicare, and then they find out that's only true of Part A. In 2024, the standard base premium for Part B is $174.70 a month. If you have, say, an average Social Security check of somewhere in the neighborhood of $1,500 to $1,800, and you have to pay $174 for your Part B, you're effectively spending 10% of that Social Security benefit back on your Medicare Part B, and that's before you add on additional coverage, like Medigap, to cover the gaps. Medicare does have costs, and the earlier that people can plan ahead for these with their financial advisors, the better.
Yeah, that goes directly back to your first point, getting ahead of this, so there's no surprises when you reach the age of 64. It's all part of a great retirement plan. Very helpful. I want to dig in a little bit deeper. A lot of the investment professionals listening, they have high net worth clients. I've heard you speak about something called IRMAA for high earners. Can you tell us, and the folks listening, on why this is really important?
Absolutely. I feel like the IRMAA is really where my world in Medicare collides with your listeners' world in the financial services, because if you have folks out there that don't even know that Medicare Part B costs money, and then they might find out that they're a high earner and they owe even more money on top of that. In my industry, we call this Meeting Ugly Aunt IRMAA. She is the income related monthly adjustment amount, and it is ugly, and nobody wants to meet her. Just like with taxes here in America, if you earn more, you pay more. There is a component just like this with Medicare. If you earn more, you're going to pay more for Medicare. In fact, in the March 2023 Medicare trustees report, they noted that around 7% of Medicare beneficiaries will pay more than that standard premium.
Again, for 2024, that it's going to be $174.70. They're going to pay more for that based on their earnings. This is something that really can impact what you pay for Medicare when you're 65 and 66. The decisions that you make when you're 63 and 64 can impact that. If you are someone that is a single filer, and you earn more than $103,000 on your tax return from two years ago, there's a two-year look back, you will end up paying more. If you're filing jointly, and you earn more than 206,000, you would end up paying more for your Medicare Part B.
The way this works is, let's say that you're new to Medicare, in the middle of the year, you apply for Medicare Parts A and B, Social Security is going to take a two-year look back to see what you were earning. If they're evaluating this, in say 2024, they're going to look back to see what you were earning in 2022. If your income was above those thresholds, they're going to send you a benefit determination letter that says, "Hey, we looked at your tax return. This is what we see that you earned, and therefore, now that you're enrolling in Medicare, here's what you're going to pay for Parts B and D, in terms of the income related monthly adjustment amount."
Now, a lot of people get this benefit determination letter in the mail, and it says you're going to pay the standard base premium and there's no IRMAA. But again, we have about 7% of these beneficiaries. I would say, since these are the higher earners, it's probably more likely that these are folks that are working with financial advisors. Financial advisors run into these high net worth individuals that have high incomes, and they can be advising them, at age 63, that decisions they make financially in that year will affect the Medicare Part B and D premiums that they pay when they're 65.
Whenever someone gets their benefit determination letter, whether it's right when they turn 65, and they're getting their first one, or if it's the annual one that they get thereafter in December, that says, "Hey, now we've pulled the next latest tax report from two years ago, and here's what you're going to earn," it's important to review that letter, and see exactly what you will be paying for Part B. If you earn less now than you did two years ago, perhaps because you've retired, you can actually send in an appeal with Social Security, and ask them if they would look at your evidence for the appeal and reduce that premium sooner, than you having to wait the two years for that income change to catch up with you. This is called filing a Reconsideration Request, and there has to be a valid reason for why your income went down that's qualifying per this form.
It's easy for financial advisors to Google. This form is SSA-44. On that report, when you pull it up, this form, you'll see that some of the reasons that you could appeal your premium, due to an income change, would be, of course, work stoppage, which is retirement. A change in your work hours; maybe you have gone from full-time to part-time. You may have had a change in income due to marriage, divorce, death of a spouse, sale of an income producing property, or a loss of a pension. All of those are reasons why you can apply for this reconsideration.
If someone, let's just say they had a piece of property, that was highly expensive piece of property, and they ended up selling this property, and there were some capital gains involved, that could be something that could affect the IRMAA that you pay. Likewise, if you had a giant severance at work, that you took when you were 63, that could potentially affect your income when you are 65. These are all things that you should be discussing with your clients, in those couple of years before they get on Medicare, to see if there's any type of planning that you can do. Maybe you sell that piece of property when you're 62, instead of 63, so that it doesn't impact your Medicare premiums.
This IRMAA for high wage earners, it's easy to find online, but on our website, boomerbenefits.com, you can find an IRMAA calculator, and you could read about the IRMAA. You can plug in your income, and it will give you an estimate of what your IRMAA would be. Financial advisors can also just use the basic chart, that you can find on medicare.gov, that shows your income level and what you might spend. This is really important, though, because people who are in those highest income brackets, the highest net worth folks, or the highest income folks, they could pay potentially almost $600 a month for Medicare Part B.
Imagine if someone didn't know this, and they came in thinking they're going to spend $174.70, this could literally be something that would alter your plans for retirement, and how soon you can retire, if you didn't estimate that very well. Again, this is information that not a lot of people know unless they're doing their research early, and something that can be so helpful for an advisor to mention when people are in their early 60s, and that planning can still take place.
Yeah, that is super helpful. My takeaways are watch out for Aunt IRMAA, because she can come and get you later in life. There is a number of great online resources, including your website, and there's a way out SSA-44. Google that to find out if you can reassess or readjust that impact of IRMAA. Okay, really great. Hey, a couple of basics that I wanted to hit on. How do you enroll in Medicare, and what should clients do if they're not retiring at age 65?
Okay. There's a group of people that get automatically enrolled in Medicare, and this would be anyone that starts taking their Social Security benefits prior to becoming eligible for Medicare at 65. If someone signs up for Social Security at age 62 so that they can get their benefits right away, maybe they don't want to wait until their full retirement age and they just need these benefits now. Well, when they turn 65, or they're approaching 65, Social Security is going to notice that, and say, "Oh, they're already taking retirement benefits. They probably aren't working, therefore they probably don't have health insurance, and we're going to automatically enroll them in Medicare," and these folks will get their card just showing up in their mailbox one to two months before they turn 65.
But financial advisors work with many people, who are doing very detailed planning, and some of those folks may be planning to wait until their full retirement age, or until as late as age 70, to get that larger Social Security benefit. When they become eligible for Medicare at 65, they aren't taking Social Security benefits yet. Those folks need to initiate their own enrollment into Medicare, which you can do at the Social Security website, which is ssa.gov, and this is something you can do quickly and easily. You don't need an agent's help with it. You can do it right from your own home, but you're going to enroll online in a seven-month window that surrounds your birthday.
This starts three months before your 65th birthday. It goes through the birthday month, and runs for three months after, and that is the time when you should enroll in Medicare. I highly recommend doing it online, because there is staffing shortages at Social Security. This has especially been an issue after the pandemic, where some of the offices took quite a while to open. If you go down and do this in person at the Social Security office, it might take longer. You might have to wait a little bit for an appointment, you're going to go down there and have that meeting. You're turning in a hard copy of paperwork. It's the slow way to enroll in Medicare.
Certainly, enrolling online is more efficient, although people certainly could choose between going in person and enrolling online. We recommend doing it online just for the efficiency, because it'll take a few weeks after you complete that online enrollment for your Medicare card to come in the mail. You don't want to wait until the last minute. This is going to be something that you want to get ahead of, and be doing as early as possible that three month window before your 65th birthday. However, you mentioned, "What should you do if people are not retiring?" Of course, this is happening so much these days, because our whole workforce has changed. We have jobs that are more sedentary. There are jobs that are in front of computers. Maybe the jobs aren't all as physical as they might have been back in the '60s, when Medicare was rolled out.
It's not unusual for us to meet people in their late 70s now, that are finally retiring because they just enjoyed their work, or they were able to do their work beyond, well, well beyond age 65. If they're not retiring at age 65, the size of the employer that they work for, or that they're getting their health insurance through, is what really matters. If you work for a large employer, with more than 20 employees, or your spouse does, and you have group health coverage through that employer, that coverage is actually going to be primary to Medicare.
What we recommend in that scenario, for most people, is you can go ahead and enroll in Part A, since Part A is premium free for most people, and because Part A will coordinate with your employer insurance, and can significantly reduce your spending in the event of an inpatient hospital stay. It doesn't hurt you to enroll it, and it will coordinate with that insurance. But you can delay enrollment into Parts B and D because those are parts that you would need to pay additional premiums for, and your employer group health insurance already has outpatient coverage and drug coverage, or at least most employer plans have that.
Now, occasionally, though, there's one group of people that we would recommend, that they work for a large employer, that they don't enroll in any part of Medicare when they turn 65. That would be folks whose employer coverage is a high deductible health plan that is compatible with a health savings account. If they plan to continue contributing to this HSA, or if their employer is contributing on their behalf, the IRS says that you cannot contribute into that health savings account if you have any other form of coverage active besides the high deductible health plan, and Medicare Part A is a form of insurance. So if you meet someone who has employer coverage, and they plan to keep contributing into their HSA, you would tell those folks just not to enroll in Medicare until a few months before they're getting ready to retire, so that they can continue those HSA contributions.
But everybody else that works for a large employer, they can go ahead and enroll in Part A at 65, and then later, when they get ready to retire, that's typically when they would reach out to a broker like us who can walk them through applying for Medicare Part B. Also, there's an employer verification form that they have to get from their benefits department, that they will turn into Social Security, that confirms that they've had this large employer creditable coverage. That's how Medicare knows that they aren't enrolling late, and there isn't going to be a late penalty.
Then on the opposite side of things, if you have folks that work for, say, a small employer, this is a company that has less than 20 employees, in that scenario, Medicare is primary, so you for sure want to enroll in A and B right when you turn 65, because if you don't, and Part B pays for 80% of your outpatient coverage, what happens if you go in and you need an outpatient surgery, but you never enrolled in Part B? Who's going to pay the 80%? Well, in many cases, and most likely, it's going to be you.
When they're not retiring, the size of the employer matters. Where you see people go wrong with this is someone who got advice about when to enroll in Medicare, that works for a large company, but they're talking to a friend that works for a small company. If they give advice that, "No, if you have employer coverage, you don't have to enroll in Medicare," they may not even realize that they're advising their friend wrong, because their friend works for a small company. When you enroll in Medicare truly depends on what kind of health coverage you have then, at 65, and the size of the employer that you are going to be working for until you retire.
That's really helpful. Danielle, last question. You often talk about the three Medicare missteps that people make. Can you walk us through those?
Sure. One of them, of course, is just they don't do their research, and they don't understand the differences between a traditional Medigap plan or Medicare supplement. Same thing, just two different terms, and the Medicare Advantage plans, which have really become quite popular. When someone is coming into Medicare, and Medicare is their primary insurance, they're typically going to choose either a Medigap plan or a Medicare Advantage plan to help them cover the deductibles, co-insurance, and copays, that otherwise they would be responsible for paying. Sometimes, folks can, maybe they get a postcard, and they like what the postcard said about this plan, and they just call and enroll. Or maybe they're watching television, and they see a commercial on TV, and it talks about all these great benefits, and they call and they enroll without doing any research beyond that.
If you don't understand the differences between Medigap and Medicare Advantage, you can end up in a plan that really doesn't suit your needs. Because with Medigap plans, you have, quote/unquote, Medicare's network. Medicare isn't a network, but let's say all the providers across the nation that accept Medicare, which there are over 1 million of them, when they have that coverage, their Medigap plan works anywhere they go, anywhere in the nation, with any provider that accepts Medicare. But when you enroll in a Medicare Advantage plan, now you are going to get your A and B healthcare services through an insurance company's plan, and that insurance company builds a network in your local area of providers.
We need to make sure, then, if you are going to consider a plan like that, that you're checking to see, "Does this plan have my providers in the network?" Many Medicare Advantage plans include Part D, which a lot of people like, because now we don't have to pay anything extra for Part D, and it's all built into our same insurance card, but does that Part D drug formulary cover the medications that you take? Because this plan may sound really good on the surface, but if you take a $600 medication, and it's not on the formulary, you're going to be at world of hurt when you go to the pharmacy in January and find this out. You should never take this decision lightly, and you should begin your research early, understanding the differences between Medigap and Medicare Advantage, so that you can ultimately choose the coverage that really suits you the best. It suits your needs, your budget, and it lets you have access to your providers.
The second misstep that we see people make is, and in my book, this is Chapter 8, we call it, The Big Mistake, is that when they first sign up for Part B, they have six months from their Part B effective date to enroll in any Medigap plan offered in their zip code. There's no health questions asked, there's no underwriting. They will automatically be approved as long as they meet the parameters, which is being eligible for Medicare and having enrolled in Medicare Parts A and B within the last six months. This is a one-time window for most people.
After that point, in many states, in about a handful states, or there's some exceptions, but in most states, once that six month window expires, now if you want to go and buy a Medigap plan, you're going to have to answer a whole page of health questions. There's going to be an underwriter that looks at your medical records, your medical history, your prescription history, and they can accept you or decline you for coverage. They don't have to accept you and issue a policy. That one-time open enrollment window, that six-month window, people confuse that with this annual election period that happens in the fall, from October 15th to December 7th.
The annual election period in the fall has nothing to do with Medigap plans. It is not a window when you can just go sign up for a Medigap plan, in most states, and automatically be covered. Instead, the annual election period is for enrolling in, or disenrolling from, Part D drug plans, and/or Medicare Advantage plans. We meet people every year who were pretty healthy at age 65, so they didn't enroll in anything, and now it's a few years down the road, and they're starting to have some health problems, and they'll give us a call on, or after, October 15th, and say, "Well, it's time for me to sign up for a Medigap plan."
They think that because it's the annual election period that the Medigap plan will have to accept them. Unfortunately, that's only the case in just a few states, where they have year round open enrollment, like New York. This can be a big mistake, because maybe you have a health condition now that is going to prevent you from being able to qualify for a Medigap plan, or get that plan at a decent price.
Then the last mistake that the big misstep that we cover in our Medicare 101 webinars, and of course for John Hancock Financial Advisors, is that they miss their initial enrollment period for Medicare, that seven month window surrounding your 65th birthday, and usually they miss it because of what I mentioned earlier. They didn't understand that either they had small employer coverage, and they needed to enroll in A and B right at 65. There's also several other groups of people that may not be aware that Medicare is primary when they turn 65, and this would include people who have TRICARE for life. Medicare is primary, TRICARE for life wraps around that, so you want to be enrolled in both A and B.
If they have private employer retiree coverage, most of the time, that Medicare A and B is going to be primary, and so you need to enroll in those when you turn 65. Then COBRA, as well, is secondary to Medicare. You may have been working for a large company, and while you were actively working, over 65, the company insurance was primary. But once you retire, if you elect COBRA, now that coverage becomes secondary. Of course you want to be enrolled in Medicare A and B, your primary coverage, so that your secondary coverage will coordinate the way it's supposed to, and not leave you with a giant amount of money out-of-pocket.
Those are just a few of the missteps, the mistakes that we cover in my book, and so you can see why people need the time. They really need time upfront to learn, and digest, and get all of this information, and understand it, so that they don't miss important enrollment windows, so that they don't enroll in a plan that they didn't understand, and so that they don't misunderstand what these enrollment periods can allow them to do, and what they don't allow them to do.
A lot of these concepts are the same that we talk about for investing. It's do your homework, have a plan, talk to a professional when you need to, and watch out for the enrollment windows, in this case for Medicare and Medigap. Danielle, this was super helpful. I want to thank you on behalf of our listeners for joining us today. We really appreciate it.
Thank you for having me.
Folks, Medicare's role in retirement income planning is just one example of the practice management resources, that we at John Hancock Investment Management offer, to help support your success through our Practice Management Network. For more information on our Medicare resources, and additional practice management network offerings, please reach out to your regional business consultant. They can answer any questions you have, and work with you to deliver this content to your clients. You can also visit our website, jhinvestments.com, and search our Practice Management Network resources there. As always, thanks for listening to the Portfolio Intelligence Podcast.