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The Smart Take:
Healthcare is a primary concern, especially for retirees. Transitioning from employer-provided coverage you’ve been on for decades is stressful. Now you have more complexity and choices than ever before.
Listen in to hear Kevin and health insurance expert Zig Novak discuss Medicare-related topics. What will it cost? How may costs change as you age? What are the pros and cons of supplemental and advantage plans, and how do you decide which may be better for you?
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Timestamps:
2:56 – Special Guest Zig Novak
5:18 – Alphabet Soup Of Medicare
8:09 – The Costs Of The Different Parts
21:28 – Services That Medicare Doesn’t Cover
23:24 – Advantage Versus Supplemental Plans
33:25 – Switching Between Plans
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The Host:
Kevin Kroskey – About – Contact
Announcer: Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.
Walter Storholt: Welcome to another edition of Retire Smarter, Walter Storholt here alongside Kevin Kroskey, President and wealth advisor at True Wealth Design, serving you throughout Northeast Ohio and Southwest Florida. You can find us online by going to truewealthdesign.com for more information, to listen to past shows, to subscribe, and for lots of other great resources and information.
Walter Storholt: Kevin, great to be with you this week. How are you, my friend?
Kevin Kroskey: Walter, I am fantastic. It’s been a while since we spoke, and it feels like I don’t want to say an eternity, but just a lot has transpired. I believe one of the last times we talked, my daughter was just getting ready to start school, and it was in a virtual environment, which is what my wife elected. I checked in; I think midday, maybe around 10:30. There were tears from my six-year-old at the time. I checked back in around noon, and there were tears from mommy.
By the end of the day, she’s going to school tomorrow, so the whole virtual thing literally lasted one day. We’ve been doing in school for, I don’t know, probably about six weeks at this point, five weeks, and nobody’s come home with COVID. Nobody, at least to our knowledge, has had COVID in her class. She loves her teacher. She has a couple of friends in her class, and everybody is much happier, so things changed quite quickly.
Walter Storholt: Oh, that’s good to hear. Are they having to social distance in class? I mean, how is that whole deal going with keeping kids from getting too close to one another? I got to imagine that’s a challenge.
Kevin Kroskey: Sure. Our almost seven, or she’s seven now; she just had a birthday yesterday. But she’s a very responsible seven-year-old. I’m a guy, so I’ll pick on guys for a moment and little boys because I once was one, but I think they just listen better than most little boys. She definitely fits that, so she wears a mask. She washes her hands. She has good hygiene. We’re not necessarily worried about her, but I think the school is doing the best that they can. The communication has been good. No breakouts yet. It’s probably inevitable but so far, so good, anyway.
Walter Storholt: Well, that’s good to hear, and best of luck as the rest of the semester plays out. It’ll be over before you know it, and we’ll be on to new challenges and issues in 2021. But at least, maybe 2020 will wrap up on a positive note for the kids getting back in school and getting things straightened out.
Well, speaking of healthcare and medicine and those kinds of issues, that’s going to be the major focus of our show today. It’s going to include a special guest as well. We’re going to be talking all things Medicare on today’s episode. Kevin, we’re excited to have a special guest joining us.
Kevin Kroskey: Yeah, so I believe this is the first guest that we’re going to have beside myself, Walter, since you’re the host, but Zig Novak is a local insurance agent that we’ve worked with in Northeast Ohio for a few years now. He does a great job, just really working one-on-one with our clients that need help on individual medical plans, also on Medicare supplemental or advantage plans, which we’ll talk about the alphabet soup of Medicare today. We’re recording this podcast at the very tail end of September and right on the cusp of an enrollment period for Medicare.
Going into the fourth quarter, we’ll talk about Medicare today. Then, in the next episode, we will talk about health care for earlier retirees so before Medicare, so that’s how we’ll break it up. But, one of the reasons we’re talking about health care is because it’s one of the key concerns for all retirees. You’re working for a company for 30, 40, maybe 50 years, you’re on the group health plan, and they take care of it for you, right? Maybe they give you a couple of choices to pick from during your open enrollment in the fourth quarter of every year, but it’s pretty much done.
Now, when you are no longer with that employer, and you’re making choices over, “Well, am I going to go on COBRA? Am I going to go on an exchange plan? Do I have a retiree medical option?” A lot of those are going away these days and have been for quite some time, and then once you are 65 and better and you’re eligible for Medicare. There are all these different transitions as it relates to health care. It is a big concern. Certainly, we want to make sure that we have, hopefully, good health, and health care is certainly related to having good health.
Those transition aspects always create stress for people. Our goal is really to make sure that we take some of the stress out of those transitions and help people become a little bit more informed and make smart decisions on their healthcare, so that’s why Zig is joining us today.
Zig Novak: Yeah, it’s good to be with you, guys. Thank you so much for having me.
Kevin Kroskey: Zig, what I thought we would do is really just talk through some big picture items, and then we’ll take it down from the clouds closer to the runway. But Medicare, I mentioned, has this alphabet soup, A, B, C, and D, as well as all kinds of other letters that are associated with some supplemental plans. Maybe we can just talk for a couple of minutes and just give a brief overview of the different parts of Medicare, and then we’ll transition and start talking about maybe, say, like, initial enrollment, and then this open enrollment or this election period that we have each year.
Zig Novak: Yeah, sounds good. What I typically say to clients is, you’ve paid into Social Security and Medicare while you’ve worked, when you’re turning 65, in other cases sometimes, but you’re becoming Medicare eligible. You’ve paid into that benefit. Now, it’s time for you to take that benefit out. We start basically with Medicare Part A is the hospital portion; there’s a schedule of benefits. When I sit down with clients, we review the basic schedule of what that entails.
Then Part B is typically considered the medical portion. That’s a little more prevalently used, I guess. That’s your doctor visits, inpatient, outpatient, and it has a schedule, but essentially, you’ll hear people call it 80%, and that’s true. Most of the Part B expenses are 80%, with 20% falling to the client, or if they have a plan, the plan may pay for that.
Part C is a Medicare Advantage plan, and those are private insurance companies that you would hire to take over your medical plan instead of Medicare Part A and B. Part D is the prescription drug portion of that, and in our area in Akron, Ohio, there are 28 plans right now. We’ll see how many there are here in a couple of days, October 1st when all the new plan information is released.
There’s an alternate option from the Part C, the Medicare advantage, there’s a Medicare supplement. Those are the two typical paths we discuss, med sup versus med advantage. Anymore, I’m starting to hear that called Part E, but I don’t think that’s really caught on or has been designated at this point, but we are hearing it a little bit. So those are the main parts.
Kevin Kroskey: Part A, that’s your hospitalization, and if anybody looks at their pay stub, you have 1.45% being deducted and contributed to Part A for Medicare. Your 6.2%, you have those two together, and those are the payroll tax deductions you have, but the 6.2 is for Social Security. For most people, when they get into retirement, they don’t have to pay for anything for Part A. However, just a quick tangent, if for some reason you didn’t qualify for Medicare Part A, you can actually buy it, it costs a certain amount of money that you would have to pay out of pocket for it. But, for most people, Part A is going to be free. Part B, Zig, is there cost associated with Part B?
Zig Novak: Part B’s standard premium is $144.60. I would need to reference it. As you said, Part A, if you have to buy it, don’t quote me on this; I think it’s $452 right now. But yeah, the Part B premium is $144.60, subject to IRMAA, and that is, off the top of my head, couples that make more than $174,000 would pay more for their Part B premium.
Kevin Kroskey: Yeah, well, that’s a great point. We’ll talk a little bit more about IRMAA and planning towards the tail end of today. Let’s assume that Part A for hospitalization is free. Our outpatient for Part B, we’re paying, I’m just going to use round numbers here, $145 a month. We’ll get into some details of the Medicare supplemental plans versus Medicare advantage plans. But if you were just to put maybe an average cost for people that you’re working with, what are you seeing that they’re paying for one of those if you just, because that part is really just filling in some of the gaps of that other 20% or so that the Medicare Part B isn’t providing for. It’s just filling in the gaps of A and B. Is that a decent way to think about it, Zig?
Zig Novak: Yeah, in addition to Part A and B, so supplemental two is typically how we say, but it is called a Medicare gap policy, but it is secondary coverage typically. I say that Medicare supplements start around $100 so that’s an addition, as you said, Kevin, to your $145, your Part B, and then the supplements start around $100. Typical is around $110, and they go up from there. Typically, annually, as we get older, they go up anywhere from $3 to $5 a month in premium.
You can get an advantage plan that is a zero-premium plan, including your medical, your prescription, and some additional benefits. Typically, I say zero to $20 to $30 on those advantage plans.
Kevin Kroskey: Okay, so if I do some quick math here, so for around $145 for Part B, we add on a typical supplemental plan that you’re seeing, so now we’re up to about $245 per month, and I’ll just stay there. It could be a little bit less if we go down the advantage plan route, so we’ll talk about that in a moment. Then, Part D for the drug plan, what are you typically seeing there, and can you tell me a little bit more about Part D?
Zig Novak: Yeah, for Part D, that’s the add-on to the Medicare supplement. Around $110 for the supplement, add on a prescription drug card, typically starting around $15, give or take. Those can go up to $50, $60, even $100, depending. Again, there’s almost 30 of them in our area right now. It comes down to the particular client’s needs. What is their formulary, what prescriptions do they take, and which carrier is going to offer them the best benefit on that prescription card? But most of the time, a $15, $20, or $25 drug card is very serviceable for the client’s needs.
Kevin Kroskey: Okay, so if we then continue on $145 for Part B, about $100 for a typical supplemental plan, maybe another $15 or $25 for the drug plan, so now we’re looking around maybe $260 or $270 a month. If I put all that together, and we still may have some out-of-pocket costs, but do you have maybe a ballpark of what you typically see for a client? Zig, maybe we think of somebody who’s more of an early retiree, so somebody that’s maybe just in their 60s going on to Medicare or even just a few years into it. I think we all know that we consume more health care as we age, and you’ve already indicated that, hey, those premiums are going to go up a little bit as you get older.
But when you think about an out-of-pocket cost for those average plans that you mentioned for supplemental as well as for Part D, what should somebody expect? Of course, we don’t know how much we’re going to consume. But if you’re just saying, “Oh yeah. Hey, on ballpark, you should probably expect about X,” what might X be?
Zig Novak: On a supplement side, again, you’re paying, let’s say, $110 a month for the additional coverage. You’re only out of pocket with our typical selection, Medicare supplement Plan G’s my typical go-to, your only out of pocket right now is $198 annual deductible. The Part B deductible is all that you would have as far as medical expenses for the year.
Kevin Kroskey: You mentioned Plan G there, and we won’t get into all the details on the supplemental plans just yet, but safe to say Plan G is going to cover a fair amount, maybe a little bit more of a benefit-rich plan than not. That’s why you’re saying, at least in part, that there’s going to be fairly limited out-of-pocket cost if you’re selecting that kind of plan. Is that a fair statement?
Zig Novak: That’s correct. The 198 is your out-of-pocket cost. For Medicare-covered services, as we said, on Part B, Medicare already covers 80%. You buy the Medicare supplement, it covers 20%, with the exception of a 198 deductible right now. As far as Part A goes, where the schedule leaves off for part A Medicare coverage, the Medicare supplement comes in and starts supplemental to your schedule of benefits and picks up 100% up to what, I say, is the Medicare limitations.
There are some limitations on the length of service, but most people aren’t going to get there. Yeah, the supplement does come in and pick up additional to Medicare. As a supplemental client, your only out-of-pocket expense on an annual basis is $198 deductible.
Kevin Kroskey: Okay, and what about drugs? Is it possible that you might see much higher costs fall under the drug part of the plan?
Zig Novak: We do have some people. The example I’ll give is I have had some clients that do take some fairly expensive prescriptions that are covered a little better under potentially their employer plan or even under an Obamacare individual plan. A gentleman comes to mind. He had a prescription that he took that was about $10,000 a month. When we get to Medicare, there is no cap like he had on his Obamacare plan. Sometimes, depending on the client’s issues, there can be times when Medicare is a little tougher, but most people do benefit by getting to Medicare.
The costs go down, and the coverage goes up. But there are certain times when certain prescriptions maybe aren’t covered as well. Back to your point, with the prescription card, there is no ceiling. If you take prescriptions and you have to buy them throughout the year, there is no cap where Medicare covers 100%. Somebody that gets to the coverage gap or the doughnut hole as people call it, it can get a little more expensive for your prescriptions. Now, that has been closed, but it’s not gone away, per se.
But then when you do get to catastrophic coverage, your copays should go down, your costs should go down, but they’re never going to end if you are buying prescriptions throughout the year.
Kevin Kroskey: Okay. I’m glad we have you on our network. But a lot of these terms, and I’m a pretty detailed guy, but it’s, candidly, I don’t know, for me, it’s like health insurance has always been like fingernails on the chalkboard experience. I’ll look at this from a different angle, but when you look at the cost that we talked about for part B, for a supplemental plan, as well as for Part D plan, ballpark, we’re about 250 a month or a little bit more than $3,000 a year.
The out-of-pocket’s pretty limited. Sure, there could be some drugs that could be expensive. I think we’re all aware of that, and there is no cap on that, per se under Part D, so it could get pretty pricey. I can tell you from our client base; we’ve been doing tax returns for more than ten years now, and at least up until 2017, it was very beneficial for our retired clients particularly to go ahead and give us all of their medical information for a potential itemized deduction on their tax return.
Whenever tax reform happen, starting for 2018 tax year because the standard deduction was substantially higher, a lot of people just couldn’t itemize anymore. But out of the 200 or so clients that we have, we have a fair amount that are retired and a fair amount that are on Medicare, and whenever I explain Medicare to a client or somebody’s getting ready to maybe meet with Zig or what have you, I’ll often give a ballpark and say, “We typically would see if somebody’s getting a supplemental plan, when you add in all of their costs, maybe it’s about three grand per year or so per person.”
The numbers that you just gave to me match up with what we saw from the tax returns that we did over time as well as from just what I would explain based on that experience. I think that’s maybe a simple takeaway. You have all these different things that can come into play. Medicare covers services or formulary, or doughnut hole, this and that. But when you simplify it and really look at what’s our total costs, what’s our total exposure here, I think $3,000, at least as a starting point for somebody that’s in decent health in their mid-60s going on to Medicare is probably a good place to be.
Sure, there’s always going to be outliers, and sure, your health care costs are going to comprise a bigger portion of your income as you age. In fact, before we started recording today, I was just looking at an old article that I wrote a few years ago about how health care costs and how it relates to your spending throughout retirement. This was a study that I had seen, and it said okay, at age 60, health care costs consume about 5% or so of your total expenditures. But when you get up to age 80, they’re consuming about 15% of your total expenditures.
Part of that is you’re using more of it. The other part of it is, candidly, you’re doing a little less. This is the old 60s or the go, go years, 70s or the slow go, 80s are the no go. Again, that keeps getting pushed back as we can live longer and be healthier. But I think we know all that, so the $3,000 per year seems like a pretty reasonable starting point. The only other thing that I would say and Zig, please chime in if you know any differently, but you’ll see a lot of these studies that come out, and we use one part of our financial planning input. It’s from a big healthcare consultant called Milliman. There are other studies that are done by Kaiser Foundation, by fidelity, by Vanguard, about the cost of retiree health care, and you’ll often see about $5,000 per year throughout retirement.
We just went through and did a simple example and just added up those premiums, added out the out of pocket, and we came up with a number around 3000, but these studies are saying around five. When I looked into those studies, Zig, what I’ve found is that there tends to be a pretty big dispersion between you have maybe an average or a good health person and then maybe some people with chronic conditions that really consume a lot of health care and probably skew those averages. Would you agree with that statement? Have you seen any of those studies or read any of those studies?
Zig Novak: I haven’t read what you’re talking about. I’m thinking about what you’re saying, and I do agree. Like I say, with the supplemental side, it is closer to 3,000 overall. Because it’s mostly premium, you have very little out-of-pocket medical expenses. Now, again, there could be some prescription expenses on top of that. On the advantage side, which I assume we’ll talk about a little bit, but the out of pocket on some of those medical plans can be around six, almost $7,000. If somebody really has a bad year, you’re talking about copays and coinsurances of up to $6,000, so I think that’s the other side of it.
Kevin Kroskey: No, great point. I completely agree with that. The other thing that you mentioned and probably bears worth elaborating on is Medicare-covered services. In our experience, I can think of several tax returns that we looked at and said, “Wow. Hey, we got 15, $20,000 in health care cost this year.” When I would talk to those clients, most oftentimes, it would be things like, “Oh, yeah, we had to get a lot of dental work done. We had implants. We had to get our hearing aids, and those things aren’t covered by Medicare.” It always would seem to us that things like vision, dental, and certainly, the hearing aids, there are certain things that as you get older, you’re going to need, but those things aren’t going to fall under that Medicare-covered services. Would you agree with that, Zig?
Zig Novak: Yeah, those, typically dental, vision, hearing, the plans, a lot of them do have options. I would tell you, on the supplement side, around $30; we have an option a lot of people take advantage of. Those benefits can be built into some of the advantage plans, or sometimes they’re optional supplemental benefits that you can purchase to help you with those scenarios: dental, vision, and hearing.
Kevin Kroskey: Okay, so some of those and I guess in my experience and one of the reasons why the fingernails on a chalkboard analogy were used, it’s like it’s always… whatever the language is, it’s, and I can’t say this definitively because I don’t have first-hand experience of it, but secondhanded from clients, maybe there’s certain benefits that were included, but they wanted a different level of an implant or of a hearing aid or something of the sort. But it gets pretty complicated, to say the least, and that’s certainly why you want somebody, in my opinion, like Zig that is informed and can help you work through all of this as far as what’s likely to be best for you.
I guess if we transfer over and transition over to that choice between advantage plan and supplemental plans, we can talk through that. I guess one of the things I would say as a preface to this is, and it’s just a basic principle of insurance, so again, I’m not a Medicare expert, I’m not a healthcare expert at all, it’s a very important part of retirement planning because we need a good cost estimate and we need to be able to project that over time. I would say I’m theoretically informed, and I’ve gotten practical experience, really over the last 15 or 20 years, in just working with people and then figuring it out as we go and working with people like Zig. That’s where you get a little bit more of a pragmatic experience.
But insurance, if everybody thinks about the insurances that they have, you can think about your house, your car, particularly you buy life insurance when you’re younger, and you’re working, and you have a family and an income to replace if something were to happen to you. Those are all examples of a potentially large loss for what is probably a very low probability event. That tends to be a good thing for insurance. “Hey, if this loss is really going to harm my family and me, but I can pay the insurance company some premium amount to transfer that risk, so my family and I don’t have financial ruin. Well, hey, that’s probably a pretty good trade-off.”
But whenever you transfer that risk, it always comes at a price. You want your insurance company to be around, to be in business, to be responsive, to provide good service, to pay claims. When you transfer risk, you should expect to lose money on average. What’s always been interesting to me about healthcare is, some of these things you’ve talked about were going to a doctor and paying, even if you had to pay out of pocket $100 for a doctor’s visit, that’s a high probability event, and it isn’t really a large loss. It always was a bit of a head-scratcher because I understood the principle of insurance, but it just didn’t really make sense to me why it was showing up the exact opposite in health insurance. But I always sarcastically said that “Well, that’s why health insurance is so screwed up.”
I went off on a tangent there, but I think that principle comes into play when, at least in my mind, when you think about like Medicare Advantage or Medicare supplement. The way that I understand it, Zig, is if you go to the supplemental route, oftentimes you’re getting more of a benefit-rich plan, and the advantage plan is going to be a little bit more of a cost savings aspect to it, but you have more risks. Is that a good starting point? Or am I thinking about that incorrectly?
Zig Novak: Yeah, I believe you’re correct. I mean, we look at the supplemental plan, you are paying over $100 a month, and you do. We hear people say in the market pay now or pay later. The supplemental plan would be the pay now. You’re paying a little bit higher premium for a better benefit. Again, you only have around $200 annual deductible from your medical expenses. Quick additional benefits to the supplement, they do travel a little better, we say. You can see any provider nationally that accepts Medicare. For some people that live in multiple locations or travel frequently, those can be a better option.
The advantage plans are going to be a little bit lower cost. Again, zero, 20, 30 bucks, but they do have copays and coinsurances as you use them. They do have more strict networks. Typically, HMO, some are PPO plans, but the most that we use are HMOs. Some of them with very good extensive networks, so the HMO aspect of it doesn’t matter too much. But you’re going to have to use those doctors, but they do add some supplemental benefits in there too, that we maybe can’t get on the supplemental side, or we have to pay extra for on the supplemental side.
Yeah, like I say, pay now or pay later, but the supplemental plan, typically, we do think of as the little bit. If you look at it in pure numbers, the supplemental plan is more cost-effective for people that are going to use it.
Kevin Kroskey: Yeah, that’s a great point. If you’re a big consumer of health care, if you have a chronic condition, if you’re something of the sort and you know you’re going to use it then, and you run the numbers, I think that’s a great way to look at this, and certainly, that’s something that Zig has helped our people, our clients go through.
Then, on the other hand, we’ve had a lot of clients that they’re going onto Medicare for the first time, they’re healthy, they feel good, they haven’t consumed a lot of health care, and they look at the cost differential. “Okay, I’ll just start out with a Medicare advantage plan, and I’ll just roll with it.” At least as long as I’ve been practicing, so far, you probably have more experience than I do, at least as it relates to Medicare, Zig, but we haven’t had anybody that has really had any regret candidly over either path that they picked.
Usually, in my experience, somebody has retired early, and they were not on Medicare and then once they were able to go on to Medicare, they were very happy that they were able to go on Medicare, whichever plans that they pick because the coverage was a lot better at a much lower price. The transition aspect always created some stress, but once they got there, I had one client say it was like the pearly gates of healthcare opened up, and they were admitted, and they were quite happy about it.
Zig Novak: I agree, we hear that quite frequently. A lot of people are just trying to get to Medicare. Examples we’ve had in the past, people are paying, or employers are helping pay eight, $9,000 or more sometimes for a health plan for somebody, and then when they get to Medicare, Kevin, to summarize what you were saying, I typically say when quickly asked about $300 a month for supplemental and about 175 or so for the advantage plan. A self-employed person that’s buying an Obamacare plan for eight, $900 a month, when we get them to Medicare for $175 or $300, they’re ecstatic, and they’re typically going from a high deductible plan to again, with the supplement, a very low deductible, really rich health benefit. Even on the advantage side too, the benefits are typically a major upgrade from what they have previously.
Kevin Kroskey: Okay, a couple of other questions, and we can wrap up. But when we’re going into this open enrollment, and let’s skip the initial enrollment period. Well, you may need to mention a little bit. But what about switching between Medicare supplemental plans as well as Medicare advantage plans? Can you maybe just comment on that? I know there are some things you need to be mindful of there.
Zig Novak: Yeah, sure. Initial enrollment can simply be thought of as when you’re approaching age 65; you’re approaching your initial enrollment period. The annual enrollment period is coming up here from October through December 7th, and that’s technically when we can take applications to change plans would be October 15th through December 7th. Here on Thursday, October 1st, we can start evaluating all the new options that will be effective for January 1st.
What are the client’s options? If you’re on a Medicare supplement, your supplement isn’t going to renew per se. That renews every 12 months from when you signed up, but your prescription card, you can now look at options for starting January 1st, 2021, and again, there are about 28 drug cards right now, depending on the county that you’re in and there’s going to be more for next year. We have to see what those are. Again, on October 1st, we’re going to sit down and take a look at all the options.
With the supplement, if you wanted to switch over to a different carrier, that would be a medical application, it would be medically underwritten, who would be accepted or declined. Then the prescription portion of it is guarantee issue annual enrollment. You can change for January 1st if there’s a better option.
Kevin Kroskey: When you say medically underwritten, so I’ve seen some of these Medicare advantages and have big applications and information booklets that the carriers will put out. I don’t know if they’re all the same, but I’m going from memory here, and I could see maybe just three or five questions medically underwriting, are you contemplating some sort of surgery or something of the sort? You’re not actually going through and getting blood drawn, pee into a cup medically underwritten, and you’re just maybe answering a few questions along those lines. Can you elaborate a little bit on that?
Zig Novak: That’s correct. It’s a basic medical application, typically one to two pages. I do a lot of those electronically, and they’re going to be gatekeeper questions. If you’ve had cancer or heart attack or something like that, it’s going to automatically decline from a lot of the carriers. There are other carriers that will offer you a modified plan, but they’re typically not cost-effective. Yeah, it’s a basic medical application. We’ve got plenty of people rewritten. If we find a carrier that’s maybe offering a little bit lower rate, we can take a medical application, send it in, and the carrier comes back, accept or decline. We’ve had some accepted that we weren’t sure if they would be, and we’ve had some declined, obviously, that we thought potentially would be accepted.
There is no physical. It is going to go off the medical information on the application. They can ask for additional physician’s records if they want them, though.
Kevin Kroskey: If you have somebody that is maybe coming into 65 and they are healthy, they’re active, they haven’t had any major issue, they’re going to their doctor and what have you, and they look at this choice about supplemental or advantage plans. If they choose the advantage plan route, then maybe they’re availing themselves of that, of the lower premiums for years, everything is still all fine and good, but then, maybe something is changing in their life. If they wait too late, so to say, or, as you said, if it’s cancer or something and they say, “Hey, I’m going to consume a lot of health care now,” then they can’t just switch back over. They still have to pass that medical underwriting, but they may be able to, and this is a question, but maybe they go on for the first ten years, and they say, “Hey, I’m getting older. I have a little bit more concerns, and I’ve availed myself of these lower premiums for the first ten years of retirement, so from say, 65 through 74. Now, I’m going to try to go ahead and just flip over and go on a supplemental plan.”
Is that because I’m getting older, I’m going to consume healthier, maybe not this year or whatever. But is that a reasonable strategy in your mind?
Zig Novak: It can be. I typically think of it the opposite, but yeah, it depends on every client’s different. They have different needs, and if they say, “Yeah, I’m getting older, I’ve been on advantage plan. It’s done well for me. I’m concerned that I’m getting older, may have more medical coming up, so yeah, let’s look at a supplement.” We don’t have it that often. More often, I have people that were on a supplement, went to an advantage plan, and say they want to go back. Honestly, not that often but it does happen.
As far as, yeah, going to the supplement, again, as long as we can qualify medically, we can do that. Suppose you’ve been on an advantage plan for ten years and want to try the supplemental side. But what I see, Kevin typically is somebody that maybe was on a supplement; keep in mind, the supplemental costs are going to go up as we get older too. When you start looking at a plan where you started, let’s say, 110 or $120, and now it costs you $200, I see people, they’re not traveling as much, they’re more localized, so the extensive network of the supplemental side is limited. I do see people moving to advantage plans from supplement more often than the opposite.
Kevin Kroskey: Interesting, probably because maybe the cost differential in percentage terms could still be similar, but the dollars are just larger, and so maybe they have a pain threshold. I would suspect that that maybe makes them more of a move. Because when you’re thinking about where we started today, and I’ll try to put a bow on this, but if you’re looking at, say, a $20 per month premium for an advantage plan or $100 for a fairly benefit-rich supplemental plan, there’s probably a lot of people that are tuning in saying it’s not that big of a deal.
It’s about 1,000 bucks a year. They’re right in saying that, and I think, in my mind and one of the things that we’ve always prided ourselves on doing is like, “Hey, let’s do the math first, and then we can figure out more of the qualitative benefits, how do we feel about this or that” because there’s a lot of people that I’m sure that you meet with, Zig, that they’d rather just pay for the supplemental plan, know that they don’t have to worry about it. But also, they don’t have to make a cost-benefit decision out of whether they want to go see a doctor or not.
I can think of several clients that have expressed something similar to me. They’d rather just pay for it and just go and use the doctor whenever they need to. Then you have other people that are; frankly, they can afford to self-insure, or to a certain extent, they can afford to take a higher out of pocket, they’re healthy, they say they don’t use the doctor that much, and they’re on the opposite end of the spectrum.
One of the important things to remember is when you look at this in aggregate, from an insurance company perspective, they have thousands and millions of people actually that are in these plans, so they have a lot of large numbers on their side. As a husband and wife that’s going on to Medicare, we have a sample size of one household, basically. You don’t exactly know how it’s going to play out for you. But if you’re going to take that risk and have maybe a lower premium, but potentially higher out of pocket, you just have to make sure that you have the resources to do it. It is a bit of you can make an informed decision, but you don’t really have a lot of large numbers on your side to rely on making sure that the probabilities are truly going to be in your favor, I guess, is the way that I would frame it.
Does that make sense, Zig, or anything that you would add to that?
Zig Novak: I concur. I agree with what you’re saying.
Kevin Kroskey: We’ve talked about Medicare now for more than the 30 minutes we were targeting. Ballpark, somebody’s going on Medicare, maybe around three grand, $300 per month is the number that Zig was using as a good starting point. What we use for financial planning purposes is a little bit higher, like around 5,000, but we just always say we’d rather be a little bit more conservative. Then if you’re not spending on health care, you’re spending on something more fun.
The other thing I would say too is just Medicare; we’re all aware of government debt issues that we have, particularly in light of COVID this year. Social Security, Medicare, all these entitlement programs. In my mind, we’ve talked about this before, Walter, in past episodes, but Social Security is an easier fix. Medicare and healthcare, in general, are a little bit more difficult. But at least we got a snapshot of where we’re at today. Certainly, these programs are going to have to change over time. But we ran out of time, I think, to talk about IRMAA. We have talked about that in prior tax planning podcast episodes, but that’s been one way that the government has come in and, really, I would say means-tested Medicare. The higher your income, the more you’re going to pay for Medicare.
Ballpark, if you meet that first threshold, there are five tiers, and think of it as an add-on to your regular Medicare Part B and Part D premiums. It starts, that first tier is about $70 per month or $840 a year, but if you’re Warren Buffett or somebody like that, you’re paying an extra. It’s about $420/$430 a month, and that’s a good way to go ahead and means test some of this, and if you have a lot of means, then it’s a social insurance program, and it helps with the funding of it. Even though we have this IRMAA means testing, it’s still not really adequate to put it in a more of a solvent position for the long term.
At least we know where we’re at today. Again, for our firm, we’re using about 5,000 per month. A lot of those healthcare studies that I mentioned, Fidelity, Vanguard, Milliman, what have you, you’ll see, it’s about $5,000 or so per year. That can vary widely based on, again, just how healthy you are, if you have any sort of chronic conditions that you’re dealing with. It also varies quite substantially by state. We have a lot of clients that are in Florida, a lot of clients in Ohio. Ohio is a lower premium state than Florida. All these little nuances come into play. When you get into healthcare and make these choices to go on to Medicare, in my opinion, and I get no benefit from this, we’re just trying to help out our clients.
Zig or somebody like Zig does a really good job just sorting through all these complex decisions. Your drug list is going to change, the block of business for that insurance company that you joined for, whether it was an advantage plan or supplemental plan, you’re going to have cost increases over time. All this stuff is a moving target, so we generally recommend at least every couple of years, relook at your Medicare plan, make sure it’s still befitting for you today, and you can maybe save some money if it makes sense to change.
But we’ve always been a proponent of just thinking about every couple years and relooking at things because your health is going to change, these plans are going to change, the cost is going to change, life changes. We are just going to at least take a snapshot of it every couple of years to make sure that the plan is still most befitting for where you are today in light of all those changes.
But Zig, just to put a bow on today, I really appreciate you joining us. I know you’re going to come back for, I think, that talk about pre 65 here for our next episode as well. But healthcare is a complex thing, for sure. You got this whole alphabet soup, but there are people like Zig, and there’s some good information out there that you can avail yourself of to be more informed and really know what’s important. Then maybe where you don’t have to go into the weeds, you can rely on somebody like Zig to navigate you through it.
Walter Storholt: Usually, the phrase, seeing the sausage gets made is not a positive one, but I actually think it is appropriate for today’s episode because you guys peeled back the layers and really showed us, I think, something very valuable and that’s the level of detail and the level of thought that goes into helping people make these decisions as part of their financial and retirement plans.
You’re not just pulling a cookie-cutter book off the shelf to say, “Okay, you’re this old, and here are three little facts about you. Okay, it spits out the answer to this is what you should do.” You guys really look deep into all the different possibilities, and it’s neat to see the science and the thinking behind why you would direct a client in a certain direction, how these answers vary from person to person. I think it’s very helpful just to see the level of detail that goes on behind the scenes in these conversations, in addition to hoping that some people learned a few things about Medicare on today’s show, but I think ultimately, really helpful to see the thought process behind it all.
If you want to get in touch with Kevin Kroskey, talk to him a little bit about Medicare, your overall financial plan, any questions that you may have, here’s how you can get in touch with the show. You can call 855-TWD-PLAN. That’s 855-893-7526 or go online to truewealthdesign.com, and you can click on the Are We Right for You button to schedule a 15-minute call with an experienced advisor on the True Wealth team. Again, that’s at truewealthdesign.com, and we’ll put links and contact info in the description of today’s show.
Well, thanks for being with us on today’s program. For Kevin Kroskey and, of course, also joining us today, special guest, Zig Novak, who will join us again on another episode to talk about the pre 65 health care conversation for retirees, I’m Walter Storholt. Thanks for being with us. We’ll talk to you next time right back here on Retire Smarter.
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