In today’s episode, you’ll learn more about:
- Why the lowest monthly premium isn’t always the best deal.
- What to review when comparing Medicare Advantage and Original Medicare with Medigap.
- How prescription drug coverage changes can affect your costs.
- Why switching Medicare coverage isn’t always as simple as it sounds.
- How retirement income, Roth conversions, and IRA withdrawals can affect healthcare costs.
- What to check before the Medicare open enrollment deadline.
Listen Now:
The Smart Take:
Medicare open enrollment is here, but automatically renewing your current health insurance could be a costly mistake.
Your monthly premium is only one piece of the equation. Changes to prescription drug coverage, provider networks, deductibles, and out-of-pocket costs can significantly affect what retirees pay for healthcare.
In this episode, Tyler Emrick, CFA®, CFP®, discusses five important things retirees should review before selecting their 2027 health insurance coverage.
The plan that worked well for you this year may not be the right plan next year. Taking time to review your coverage can help you avoid unnecessary costs and make sure your healthcare decisions fit into your broader retirement plan.
Go Inside the Episode:
0:00 – Intro
4:30 – What are you actually paying?
7:57 – What will still be covered?
9:20 – Can you reverse your decision?
13:00 – Does retirement income affect insurance costs?
16:23 – What to do before open enrollment
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Walter Storholt:
Hey, Tyler, it’s Medicare open enrollment starting this week. For somebody who’s happy with their health insurance, is there any reason to really shop around, or can I just repeat from last year?
Tyler Emrick:
No, absolutely there is, Walt. I mean, I think it’s one of the biggest mistakes retirees can make. Just because your coverage worked for you this year doesn’t mean it’s going to work for you in the upcoming year.
Walter Storholt:
Even if they’re planning on keeping the same plan exactly?
Tyler Emrick:
Totally. I mean, your premiums can change. Your prescriptions might be different. Your doctor could leave a network. There’s all sorts of cases that could come up that might make your plan not as advantageous next year.
Walter Storholt:
All right. So what should retirees actually be reviewing then?
Tyler Emrick:
Well, that’s what we’re going to cover today, Walt. We got a handful of things that a retiree should be checking as they come into renewal season this year and a few planning decisions every retiree should keep in mind.
Walter Storholt:
Welcome to another episode of Retire Smarter. I’m Walter Storholt, alongside Tyler Emrick. He is a certified financial planner, a chartered financial analyst, and one of the wealth advisors at True Wealth Design.
Great episode today, Tyler. Although I’m not of Medicare age, I am going through the open enrollment with my family and trying to figure out what we’re going to do for healthcare next year. I’m sure some of this would translate to our younger audience, but we’re really zeroing in on retirees today and the Medicare open enrollment part.
Tyler Emrick:
You are correct. It is open enrollment season. And for some of those early retirees, pre-65, we’re right on the heels of open enrollment for marketplace plans as well. But, no, you’re right. We’re going to focus on Medicare today. Open enrollment on the 15th of October is when it starts and runs through December. So I’m sure for anybody who’s on Medicare already, you’ve already gotten your renewals, or if you haven’t, they’re probably going to be coming in the mail.
So we wanted to take some time to just go through a handful of items that should be on your mind as you approach this renewal season. And, hey, even if you haven’t started Medicare yet and you have it coming up, there should be some good tidbits for you here throughout the pod today.
Walter Storholt:
Well, I know every time we go through open enrollment and do this reevaluation for ourselves, I always learn something new about how healthcare works, just the system. It’s so deep in so many layers. And it may have-
Tyler Emrick:
Wait, wait, you mean other than just the price keeps going up? Because it seems like inevitably, the price just continues to go up in premiums.
Walter Storholt:
For sure. Yeah. Never expect to see that number go down.
Tyler Emrick:
No.
Walter Storholt:
That’s for sure.
Tyler Emrick:
Against the rules, it feels like.
Walter Storholt:
But I always feel like I learned something every year because some new thing happens in your life that you now got to look up and be like, “Oh, that’s how it works. Oh, interesting. Okay.”
Tyler Emrick:
No, absolutely. And to that point, I mean, maybe it is … Sometimes when I’m talking to families about Medicare, we always do start with a little bit of a high level, especially for those listeners that are maybe getting a jump on Medicare. Maybe you’re looking to retire next year or you’re looking to apply for Medicare in the upcoming year.
Understanding just the basics, too, on like, “Well, hey, what should we know about Medicare?” I mean, I always say there’s a few parts to Medicare. Your old Part A, Part B, Part D, which is prescription drugs. And then there is the choice that all Medicare-eligible individuals will face, whether they choose a Medicare Advantage plan or a Medigap plan, which is often referred to as a supplemental plan. So you have your Part A, which generally covers hospitalizations. Most individuals aren’t making a monthly premium to that.
We have your Part B, which there is a monthly premium to that, which the cost of that does vary based off your income. That’s the old IRMAA that we talk about all the time, Walt, where if your income’s too high, your Part B premium might be a little higher. The last news I heard with the trustees report, they were thinking Medicare Part B premiums were going to jump to around 210 a month or right around 202 right now. So that’s going to be potentially the starting point, which is a little bit lower of an increase than what Social Security.
I don’t know if you … You’ve seen Social Security came out actually today with their cost-of-living adjustment pretty high, 3.6%. So the Part B premium increase they’re expecting is going to be a little bit lower, but we’ll see. It hasn’t came out yet, but obviously, that Part B premium, everybody’s going to have to pay in some way, shape, or form. Generally comes out of your Social Security wall. So some people don’t even see it, right?
Walter Storholt:
Yeah. That’s part one of the puzzle is just like, what am I paying for the coverage in the Medicare system?
Tyler Emrick:
You nailed it, right? So everyone’s got that Part B premium, but then the question becomes, and when everybody is getting inundated with mail on and all that good stuff is, well, how are you going to fill in the gaps, and what type of coverage are you going to be choosing to cover those gaps? So generally, you would either go with a Medicare Advantage option, which, generally speaking, can be a little less than a monthly premium. We have Medicare Advantage plans in the area here that have no monthly premium, but obviously, the coverages tend to be a little bit different.
Maybe the networks are a little different, your copays, your deductibles, out of pockets, things like that might be a little bit higher. Or you can choose and go with a true supplement plan or a Medigap plan, sometimes referred to, where if you ever heard of the good old Plan G or Plan F, the old alphabet soup is how these come out, but those plans are very comprehensive, very minimum deductibles, but you’re going to be paying a little bit more on a monthly premium to go that route.
So, Walt, there’s definitely pros and cons to what type of plan is going to work for you, your family, and your specific situation. So it’s not just the premium, which is what I wanted to get at here. You got to look at your total cost of what your comprehensive coverage is going to be. What’s your out-of-pocket for your drugs, what’s your out-of-pocket for deductibles and copays and things like that? And how much are you expected to use of that medical, right? Just like you went through probably or getting ready to go through an open enrollment while you were employed.
The concept’s no different. Well, the concept is no different. So that first thing is to get a handle on like, “Well, hey, what am I actually paying for? What do the premiums look like? And what are my expectations on usage over the upcoming year?”
Speaker 3:
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Walter Storholt:
Yeah, because you may find that the more expensive option saves you money in the long run. It’s similar to the math you were doing probably through your open enrollment in the marketplace with employer, those kinds of things. Hey, we’re thinking of having a baby next year. So should we go to the higher plan that’s got the more expensive premiums, but you know how often we’re going to be in the hospital and what could go wrong with treatments and how expensive that can get?
Maybe we should pay more attention to the out-of-pocket max versus the premium number, and what’s our worst-case scenario, and how do those things shake out? Yeah. Sometimes it’s hard to do all that math, though, and all of those what-ifs and filling in all of those pieces.
Tyler Emrick:
No, it absolutely can. Well, and this is where I always recommend, there are many professionals out there that would be there for you to help wrap your arms around that. I mean, even medicare.gov is a wonderful website to get in and maybe get your initial thought on what options are available to me in my area, which brings me to my next thing to consider is like, “Well, hey, are my doctors, hospital scripts, has there been any changes with that on my current plan?”
We’re finding a lot of times this year when I’ve talked to families that have started to get their renewal letters is the benefits are actually changing, which is not uncommon. Doctors might lead networks. We see it a lot with your scripts. If your scripts have changed throughout the year, it’s definitely good to rerun your formulary and take a look and say, “Hey, am I on the right prescription drug plan?” Because depending on how your drug coverage categorizes the drugs you’re on, hey, what tier are they? Some might have different drugs in different tiers and it’s very common for our families to maybe switch drug plans from year to year because their scripts and their needs change.
Walter Storholt:
Yeah. You’re not talking about something, “Oh, it’s $5 on this plan and $10 on this plan.” It could be, “Hey, you’re paying the $250 price over here.”
Tyler Emrick:
Correct. Absolutely.
Walter Storholt:
With a little bit more premium, you could get that for free or whatever the case may be.
Tyler Emrick:
Yeah. And you would be surprised, too, unlike the doctors and the hospitals that change in plan and go in network, out in network, it is not uncommon for that to happen at all. So definitely make sure that when you’re looking at your renewals, and you’re going in and saying, “Hey, has anything changed in my circumstance where this plan might not be as effective or efficient as it was in this particular year?” Right?
Walter Storholt:
Okay. Makes sense.
Tyler Emrick:
And the other thing or the third thing that I wrote down here was be mindful of, am I making a decision that’s difficult to reverse? So the reason why I wrote that down is because I get this question a lot of like, “Well, hey, can I switch between plans? What options do I have to switch between plans?” And this goes back to that original choice that we talked about earlier, Walt, where it was, “Hey, when you normally go through your initial enrollment period, or you first sign up for Medicare, you’re not going to have a choice right around Part A and Part B. You’re getting Part A, you’re getting Part B, you’re going to pay the Part B premium.”
The choice comes into play again on those gaps. Do I choose an Advantage plan or do I choose a Medigap or supplemental plan? And which one do I go with? And a lot of times, people get tripped up on the fact that, “Hey, if you choose an Advantage plan off the rip, off the beginning,” you don’t always have the ability to then go and say, “You know what? Hey, I chose the Advantage plan because it was a zero premium per month. I wasn’t using much medical at the time. Now I have actually maybe a surgery coming up. I’m probably going to use a little bit more of the medical. I’d like to maybe switch over to a more comprehensive Medigap plan that’s going to have a lower deductible and maybe have a little bit more options that are in my network.”
That switch, you have to actually go through underwriting to be able to do that. So there’s no guarantee that you would be able to go from an Advantage plan over to a Medigap supplemental plan for that better coverage. So it can be difficult to do that. Going the other way, Walt, isn’t as big of a deal. What I mean by that is you don’t have to go through underwriting to get back onto an Advantage plan. So during that initial enrollment period, the first time that you get onto Medicare, if you choose that Medigap supplemental plan, you can always switch over to an Advantage plan without necessarily going through underwriting.
So that switching from year to year, hey, we’re telling you to look at those renewals and you need to make sure you also have a grasp of like, well, hey, what options are going to be afforded to you if you decide like, hey, we see it all the time. Individuals that choose a supplemental plan at the beginning, lower deductible, really, really good coverage, they progress into retirement. Now they’re in their late 70s, and they’re going, “Boy, my premium for my Plan G is a lot. I can switch over to an Advantage plan and do it.”
And so the economics change as you age through retirement and your needs change, and we see some individuals considering going back over to Advantage plans later in life because those premiums become so high. So just making sure that if you’re considering a change like that, or if your broker recommends a change like that, just being mindful of like, “Well, hey, is this a one-way road? If I make this change, am I going to be able to go back and switch and so on and so forth?”
Walter Storholt:
So with normal enrollment into healthcare plans, you get a redo every year. Are you saying with most of these Medicare decisions, you’re setting it up at the first time you elect, and then you’re locked into those things, and if you want to change, it may be difficult because you might go through that under? You’re not getting this yearly redo. Okay.
Tyler Emrick:
100%. Now you can switch between company’s Advantage plans or company’s prescription drug plans and things like that once you chose that path. Yeah, to go from Advantage to supplemental plan, yeah, you might have to go through underwriting even if it’s at the same company because United, ARP, Aetna, all the big names in the industry, they have Advantage plans and these supplemental plans. They have both those paths. So really, it’s like, “Hey, what path am I on?” will dictate maybe what options that you have within that.
Be careful on making a decision that you might not be able to easily reverse. The fourth thing I had on here is what we’ve talked to all the time here on the podcast is, how does my retirement plan affect my health insurance cost? And this goes back to that old, hey, your Part B premium, you said it was roughly going to be, we’re thinking around 210 for the 2027 year. Well, if your income goes too high, that can rapidly go up. It could double, it could be quite a bit if you start going up into these IRMAA tiers.
So when you are looking at these plans, we’re at the end of the year, right? I mean, we’re in October. You’re probably looking at, “Well, hey, at the end of this year, are there anything I need to do with my retirement plans, distributions, things like that?” Being mindful with your financial advisor, your tax professional, on, “Hey, how much have I pulled out this year? Where’s my income likely going to fall? Am I creeping up close to one of these IRMAA brackets to where I’m going to get a letter coming at the end of next year saying my 2026 income was too high and now instead of paying a couple hundred bucks for my Part B premium, I’m paying a few hundred for both me and my spouse?”
So we don’t want to get caught into one of those sticky situations to where you go up too high, and you’re increasing your cost a couple years down the road because it isn’t an immediate thing. Well, they look back two years on that IRMAA calculation to decide what your Part B premium is. So we’re at the end of 2026. Well, your income this year will affect your 2028 Part B premiums and Part D because it affects your script plans as well. So you wouldn’t necessarily get a letter that, “Hey, you went too high in income,” until the end of next year, where they are giving you quotes for your upcoming 2028 premiums, and then you would go from there.
And the other reason I wanted to bring this up, too, Walt, is because if this is your first year on Medicare, hey, you might have just retired, your income might have been high while you were working, but now you have this upcoming year in ’27 where your income is going to be lower because you’re not working. Remember, you can’t appeal those IRMAA charges. So those of you that made too much money in 2024, because, again, we’re going back two years, you’re probably going to get your letters about your IRMAA charges for 2027 coming up here towards the end of the year. I said 2024, excuse me. It should be 2025 income for ’27, two years back. So correct that.
Walter Storholt:
We’re tracking.
Tyler Emrick:
Yeah. Gotcha.
Walter Storholt:
This is Retire Smarter. We got a smart audience.
Tyler Emrick:
It’s fair, it’s fair, it’s fair.
Walter Storholt:
They’re with you, Tyler.
Tyler Emrick:
I can talk in circles a little bit here, too. You got to keep me straight. But those letters should be coming out here pretty soon, in the next month or two. Take a look at those letters. Just don’t assume there’s nothing that you can do about it. If you had a qualifying event, you can appeal that. The appeal process is very straightforward.And then if that appeal goes through, then they’ll lower you back down to the normal Part B premium. Retirement is a qualifying event. Cutting hours back, all sorts of things can be qualifying events, death of a spouse, things like that. There’s a whole list of them that they give us that you can use to appeal that IRMAA charge. So just be mindful of if you get one of those letters, do you have any options available to you to appeal it?
As we’re winding down here, Walt, I think the last thing I just wanted to do is I got a little bit of a checklist. Just, hey, what should you actually be doing before open enrollment ends? We covered a lot of these, but just as our quick snapshot here, it’s a, hey, the first is if you’re already on Medicare, review that annual notice. If you see a big increase, or even if you don’t, still go through and confirm your doctors are still in plan, your specialists, your hospitals, your pharmacies, your scripts, and make sure that that plan is still going to work for you. And if it’s not, make sure you’re speaking with a professional or going out there on medicare.gov, running a search, and seeing what plans are going to be better to meet your needs.
And then also while you’re going through that, “Hey, how did it work this year? What was my total cost under that plan this year? Yeah, I paid this much in premium, but what were my copays, my deductibles? What did I have for an out-of-pocket? If I have a similar year next year, what was that total cost, and should I consider to switch to a plan that maybe has more of a monthly premium, but has a little bit better coverage on the backend?” So those are the big things, I think, individuals that are on Medicare should be looking for.Those of you that just got on Medicare or had high income, pay attention to those IRMAA letters and know that you can appeal and make sure you’re looking for them. Those are the big things that I would want to leave everybody with to make sure that you’re thinking about as you’re getting these renewals and starting to make any changes for the upcoming year.
Walter Storholt:
Yeah. It’s easy to see why you want to put a lot of time and energy and effort into this part of the process and this part of the retirement plan because it’s going to have big impacts that last a long time, and most important takeaway for me today, hard to undo some of those aspects, or without consequence.
Tyler Emrick:
Sure.
Walter Storholt:
And so we’ve got to be aware of those nuances. So make the right choices out of the gate when you can. And, hey, a little pre-planning. It sounds like it can also go a long way to save a few dollars as well.
Tyler Emrick:
Sure. Well, and a lot of families, they don’t have it on their mind when they’re thinking about healthcare like, “Ooh, does my distribution plan need to worry about it? My tax situation, how does that play in?” So keep in mind, this is where everything is … All these different levers affect different things, right? So make sure that you don’t lose sight of that IRMAA. It’s a big one, and it’s a nasty surprise if you get it.
Walter Storholt:
Okay. Excellent. Well, hey, if you have any questions about this, if you’ve not walked through this kind of planning as you get ready for retirement and your financial future, and you’re just trying to figure all of these moving parts out related to retirement, including Medicare and IRMAA and all of those other moving parts, it definitely is worth having a conversation. You can have a great conversation with one of the wealth advisors on the True Wealth Design team very easily.
All you have to do is go to truewealthdesign.com and look for the Let’s Talk button, or we’ve got it linked in the description of today’s show where you can go and schedule your time to visit. It’s about a 20-minute discovery call. See if you’re a good fit to work with one another, see where some of those gaps in your plan might exist, and how all of this is going to get pulled together to solve those problems, answer those questions, and get your financial plan and retirement plan in place. So if you just want to explore if you’re maybe a good fit to work with the True Wealth Design team for you and your family, click that link in the description or, again, go to truewealthdesign.com.
Tyler, thanks for the great episode today. Have a good rest of your week and good luck navigating people through open enrollment.
Tyler Emrick:
You got it. We’ll be doing it. We’ll catch you on the next one.
Walter Storholt:
All right. We’ll see everybody soon right back here. Retire Smarter.
Speaker 4:
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