Most people rely on Medicare to cover their health expenses during retirement, but it won’t pay for everything. Here are 5 things that Medicare doesn’t cover.
Deductibles, coinsurance and copayments: Depending on the type of Medicare you choose, you’ll still be responsible for certain premiums, deductibles, coinsurance and copayments. For example, Medicare Part A is usually free, but you’ll pay a $1,364 deductible for each benefit period and if you’re in the hospital for more than 60 days you’ll pay a coinsurance amount for each day. Beyond a certain number of days, you are responsible for all costs. Part B has premium costs, a $185 annual deductible and 20% coinsurance on most services. Parts C and D have costs as well.
Prescription drugs: Original Medicare (Parts A and B) doesn’t cover prescription drug costs. To get that coverage you need to purchase a Part D plan.
Routine vision care, dental care and hearing aids: Original Medicare (Parts A and B) doesn’t cover things like eye exams, most dental care, dentures, hearing aids, acupuncture or routine foot care. Medicare Advantage (Part C) may cover some of those things, but you need to pay extra for Medicare Advantage.
Long-Term care: As people age, they often need help with daily activities like eating, dressing, bathing and using the restroom. You can get help with these types of things by moving into an assisted living facility, but Medicare typically will not cover any of those costs.
Medical care overseas: Medicare will typically not cover medical costs you incur while traveling outside the U.S. and its territories. There are a few exceptions, such as when you’re on a cruise ship in U.S. territorial waters or if you’re traveling to or from Alaska via Canada and the closest hospital that can treat you is in Canada.
These uncovered costs can add up to hundreds of thousands of dollars over the course of your retirement, so you’ll want to plan accordingly. Earmark a portion of your nest egg for health expenses and then seriously consider purchasing additional insurance, such as long-term care insurance or a Medicare supplement plan, to cover anything not covered by Medicare. For more information on Medicare, visit www.medicare.gov.
Quick Note: Sorry things have been quiet around the site for a few weeks. I was on vacation with family and friends and prior to that I was scrambling to get things wrapped up at the office. I’m home and caught up, so it’s back to regularly scheduled programming. Thanks for your patience.
Being on the road made me think of a question that clients often ask me:
“Does Medicare cover me when I travel?”
The answer, of course, depends. And it would be bad enough to get sick or injured on vacation without also finding out that Medicare won’t cover the expenses, so let’s take a look at whether your Medicare will travel with you.
What type of Medicare do you have?
Coverage varies depending on whether you have original Medicare or Medicare Advantage. Original Medicare is just Parts A and B (hospital and outpatient services) supplemented with a Medigap policy. Medicare Advantage is when you have Parts A and B and then also purchase Part C, which is coverage provided by Medicare approved third-party health insurance companies. Each of these types of Medicare works differently depending on where you travel.
Where are you going?
Original Medicare is extremely flexible within the U.S. (which includes all 50 states as well as Washington D.C., Puerto Rico, U.S. Virgin Islands, Guam, American Somoa and the Northern Mariana Islands.). There are no networks or preferred providers with original Medicare, so you can get care at pretty much any facility that accepts Medicare.
Medicare Advantage is a bit less flexible. Coverage is most comprehensive if you get care within the network of the private health insurance company that is providing you Medicare Part C. Generally speaking, the closer you are to home, the better your coverage will be. Having said that, if you’re having a medical emergency you can use your Part C pretty much anywhere in the U.S. and it will be covered. Call your insurance company if you’re unsure if a particular provider is “in network” or “out of network.”
Except in very limited circumstances, neither type of Medicare (original or Advantage) will provide coverage while you’re traveling outside the U.S. They may cover certain services while you’re on a cruise ship or while you’re traveling across Canada on your way to Alaska, but that’s about it. Some Medigap policies cover emergency medical services while traveling abroad, but there are limits to the coverage. They generally pay for 80% of covered services after meeting a $250 deductible with a lifetime maximum of $50,000. Bottom line—if you’re planning a trip abroad, it’s best to buy a separate travel insurance policy with generous health coverage. It’s also a good idea to get a policy that includes evacuation insurance. As you might imagine, it would be very expensive to pluck you from the bottom of the Grand Canyon or from the rain forest in Costa Rica if you are sick or injured. Those costs can run into the tens of thousands of dollars and neither Medicare nor Medigap covers the cost of a medical evacuation.
So before you hit the road, do a little research to make sure you’re covered and your trip will be a lot more enjoyable. Bon Voyage!
Congress just passed a law that made some changes to Medicare so I wanted to give you a quick summary of those changes and how they might affect your retirement plans.
Doctor Pay. The law repeals the physicians payment cut that had many doctors seriously considering whether they should stop accepting Medicare patients altogether. The law also institutes annual payment increases to doctors for certain Medicare services. This is good for Medicare patients because it will increase the likelihood that they will continue to have access to their doctor of choice.
Health Care Quality. The law also instituted new quality measures for doctors and hospitals which reward them for providing high quality care. This is obviously another plus for those on Medicare.
Identity Theft. If you’re currently on Medicare, you probably raised an eyebrow when you first got your Medicare card and saw your Social Security number printed on it. This obviously opens the door to identity theft if your card is lost or stolen. The new law stipulates that all new cards must come without Social Security numbers printed on them by April 16, 2019 and existing cards must be reissued within four years after that.
Means Testing. As the financial difficulties of Medicare and Social Security become more acute, one of the first “fixes” that Congress will likely reach for will be some form of means testing. This is already starting to happen in Medicare. For example, the law increases the amount that high-income beneficiaries will pay for Part B (doctor’s insurance) and Part D (prescription drug coverage).
To understand how premiums will increase, we need to understand how the premiums are calculated. Basically, the government calculates an overall premium based on the cost of the program and then they pay part of that premium and individuals pay the other part. Your income level will determine how much of the premium you will be required to pay.
Most people currently pay a premium of $104.90 per month for Medicare Part B, which equates to about 25% of the premium cost. High earners, however, pay an Income Related Monthly Adjustment Amount (IRMAA). The higher your income, the more you pay. This has been the case for many years now, but the new law reduces the income limits, thereby subjecting many more people to higher premiums.
Here’s what people are paying currently:
Less than $85,000
$85,001 to $107,000
$107,001 to $160,000
$160,001 to $214,000
More than $214,000
And here is how the income limits will adjust:
Less than $85,000
$85,001 to $107,000
$107,001 to $133,500
$133,501 to $160,000
More than $160,000
Notice that many more people fall into the “high income” category and will thus be responsible for a larger percentage of the premiums. It’s difficult to put a specific dollar value on these increases, because we don’t yet know what the premium costs will be in 2018, but here are two things we do know: 1) the premiums will be higher than they are now, and 2) those with higher incomes will be required to pay a larger percentage of the premium. I have seen some estimates that a person in Tier 4 or 5 might pay around $3,500 more per year ($7,000 per couple) than they would if they were in Tier 1 or 2.
Are there ways to avoid these increases? Yes! The increases won’t happen until 2018, but they will be based on your Modified Adjusted Gross Income in 2016 and beyond. Those who are retired (or close to it), should keep that in mind. Your adjusted gross income is made up of things like wages, taxable interest, dividends and distributions from IRAs. During retirement, you can control several of those things. When deciding which accounts to pull from first, how much to pull from your IRAs or whether or not to work part time, consider how those decisions will affect your income and whether or not that income is enough to bump you up into a higher Medicare bracket. If so, it might be wise to forgo part-time work or delay distributions from IRAs until the following tax year.
I know Medicare discussions can be a little dry, so I’ll leave you with a fun photo from over on our Facebook Page:
Chances are good that you’ve seen or heard something about Medicare open enrollment recently. What is it? You become eligible for Medicare when you turn 65. You have a seven month window to enroll in the program. The window opens three months before the month you turn 65 and continues for three months after the month you turn 65. If you are already collecting Social Security before you turn 65 you will automatically be enrolled in Medicare.
Once enrolled, each year you have an opportunity to make certain changes to your coverage. That period is called the open enrollment period. It begins next Monday (October 15) and runs through December 7. Any changes you make will take effect on January 1, 2013.
During the open enrollment period you can:
Change from Original Medicare to a Medicare Advantage Plan (or vice versa)
Switch from one Medicare Advantage Plan to another
Switch from a Medicare Advantage Plan that doesn’t offer drug coverage to one that does (or vice versa)
Join a Medicare Prescription Drug Plan
Switch from one Medicare drug plan to another Medicare drug plan
Drop your Medicare prescription drug coverage completely
You can review and compare coverage options at www.medicare.gov or by calling 1-800-MEDICARE. Also, feel free to call or email me if you have any questions.
Photo by Ben Lyon. Used under Creative Commons License.
Quick Summary: The basic information you need to know about Medicare.
If you (like most) plan on using Medicare as your primary source of health care coverage during retirement, you should have a basic understanding of how it works. Unfortunately, according to a recent study by the National Council of Aging and UnitedHealthcare, a majority of baby boomers don’t. So here’s a short primer to bring you up to speed on the essentials.
What is Medicare?
Medicare is a government health insurance program that is typically available to people sixty-five and older, or those with certain disabilities or diseases.
How do I apply?
If you are already receiving Social Security or Railroad Retirement benefits, you do not need to do anything to enroll in Medicare. You will automatically become entitled to the benefits on the first day of the month you turn sixty-five. The government will mail you your Medicare card about three months prior to your sixty-fifth birthday.
If you have not started claiming your Social Security or Railroad Retirement benefits by the time you turn sixty-five, you will need to apply for Medicare. You can do this up to three months prior to the month you turn sixty-five, but not later than three months after the month you turn sixty-five. If you miss this initial window, you will likely have to wait until the next general enrollment period, which runs from January 1 through March 31 of each year (Beware that penalties apply to those who sign up after their initial enrollment window.). You can make certain changes to prior elections during the open enrollment period each year from October 15 through December 7.
You can enroll online at http://www.ssa.gov/. You can also enroll by phone or in person at any local Social Security office. If you don’t know the number to your local office, call the Social Security Administration directly at (800) 772-1213 or use the office locator at http://www.ssa.gov/.
What are the “parts” of Medicare that I have heard mentioned?
Medicare has four parts: A, B, C, and D. Think of Part A as hospital insurance. It covers all or a portion of the expenses associated with hospitals, critical access hospitals, skilled nursing facilities, inpatient psychiatric care, hospice care, and home health care.
Part B covers physician services like doctor fees, outpatient services, lab tests screenings, and ambulance services.
Part C is also referred to as Medicare Advantage and is a way to combine the benefits received under Parts A and B, as well as receive additional benefits. To be eligible for Part C, you need to be eligible for Part A and enrolled in Part B.
Part D provides prescription drug coverage. If you are eligible for Medicare, you are eligible for Part D. There are two ways to get Medicare prescription drug coverage. If you have Parts A and B you can sign up for a Medicare approved drug plan offered by an insurer in your area. If you have Part C, drug coverage is probably included in your plan.
What are the costs for each part?
There are no premium costs for those eligible for Part A. If you are 65 and not eligible, however, you can still purchase coverage by paying a monthly premium. The 2011 monthly premium for Medicare Part A is $450 for someone with 29 or fewer Social Security credits, and $248 for someone with 30 to 39 credits.
Part B is optional for those eligible for Part A, but those buying (i.e. not eligible for) Part A must also buy Part B. The 2011 premiums for Part B are $96.40 per month. If your income exceeds certain amounts (currently $85,000 for single tax-filers and $170,000 for joint filers) your premiums will be $110.50 per month.
Part C is provided by private health insurance companies that contract with the government. Because of that, the cost of Part C plans varies from state-to-state and insurer-to-insurer. To enroll, you need to be enrolled in Parts A and B, which means you will need to pay your monthly premiums with Part B as well as any premiums charged by the private insurer for your Medicare Advantage Plan.
Costs for Part D will vary. If you have Part C, chances are that prescription drug coverage is already a part of your plan. If you have Parts A and B, you can sign up for a Medicare approved drug plan offered by an insurer in your area. Premiums and medications covered will vary by plan.
What are the deductibles and or co-pays for each part?
Part A deductibles are based on the length of your hospital stay. For 2011, the deductible for hospital stays is $1,132 for the first sixty days. For days sixty-one through ninety you will be required to pay a co-pay of $283 per day. After ninety days, you have a lifetime reserve of sixty days that you could choose to use. If you decide to use the reserve days, your co-pay would increase to $566 per day. You are responsible for all costs beyond 150 days.
Part B has a $162 annual deductible. Once you reach your deductible, Part B covers 80 percent of the cost of covered services. To help cover the remaining 20 percent, you may want to consider purchasing a Medigap policy (discussed below).
Part C co-pays and deductibles vary by plan.
Part D co-pays and deductibles also vary by plan, but in general, the average premium is $30 and the annual deductible can be as much as $310. Once you’ve reached your deductible, you typically need to cover 25 percent of the costs up to a certain threshold. Once you reach that limit, which is about $2,840 in 2011, you become responsible for 100 percent of your costs up to another limit. After that higher limit is reached ($4,550 out-of-pocket for 2011), your coverage kicks back in and Medicare picks up most of the additional cost.
What is Medigap?
As you can see, Medicare doesn’t cover everything. To fill some of those gaps, there is Medigap. Like Part C, Medigap is provided by private insurers. There are twelve kinds of Medigap plans that cover a variety of different services. This could include coinsurance, additional hospital days, deductibles, preventative care, skilled nursing, and hospice care. If you have Medicare Advantage or qualify for Medicaid, you probably won’t need a Medigap plan. Not every state offers all twelve plans, so call 1-800-MEDICARE or check http://www.medicare.gov/ to find out what is available in your area.
What is Medicaid?
Medicaid is a program administered by the states and is designed to assist those who can’t afford to pay for their medical care. You can qualify for Medicaid if you belong to a certain category (disabled, elderly) and you are financially needy.