How To Respond To Proposed Changes To Medicare And Medigap?

ConversationLast week I was counseling a reader in Arizona.  He is about to turn 65 and wanted some advice about Medigap.  He sent me some links to information he had found and wanted to know my opinion.  Below is what I told him.

I know that asking an engineer to ignore small details and take a leap of faith is like asking the earth to stop spinning.  It just will not happen.  All I can do is share with you my observations.
I recommend that you put little to no consideration in that article from the National Association of Insurance Commissioners.  That group is made up of the 50 state insurance commissioners.  They are highly respected by the states but Medigap plans are developed by the federal government through CMS.  The PPACA only says that the Secretary of HHS is required to “consult” with NAIC but it does not require her to implement their recommendations.  Kathleen Sebelius has already shown that she is willing to ignore anything that comes out of the NAIC that she does not like.  For example, the NAIC recommended that agent’s commissions should be exempt from the MLR regulations a couple of years ago.  That recommendation was ignored.
In my opinion Plan F (High Deductible) is a wonderful plan but only in certain circumstance.  I only have one client who has that plan.  The average American retires with less than $70,000 in savings but has over $240,000 in medical costs during retirement.  Medigap is designed to close that gap for seniors.  I recommend Plan F only for people who have over $500,000 in savings and non-real estate investments.
For those who do not have sufficient savings, I recommend that they take a look at Plan N at the bare minimum, if they are looking to save on premium.
Many people do not fully understand the subtle differences between the Major Medical insurance they had when they were 64 and Medicare.  One of the biggest difference is in the way the Medicare A deductible is calculated.  Under your current group plan, it is likely that you have a single annual deductible.  Once you pay that amount out of your pocket, your insurance kicks in.  That is not the case with Medicare.  Medicare has 2 deductibles.  A deductible is charged by Medicare A every time you check into the hospital with a couple of exceptions.
  1. If you are readmitted to the hospital for the same condition within 60 days of being discharged, you will not have to pay a separate deductible.
  2. If you are kept in the hospital for “Observation” that bill is not subject to the Medicare A deductible but the Medicare B deductible and co-pay will apply.
The bottom line is that I am not a huge fan of the Plan F High Deductible.  Although I am not convinced that there is a great future for Medicare Advantage under our current political leadership, I would rather see my clients who have less than $500,000 go with a Medicare Advantage plan than the Plan F High Deductible.  Medicare Advantage has some strong points as well as some weaknesses. 
At the risk of confusing you further, let me throw another variable into your spread-sheet.  If you live in a large metropolitan area and only travel for a week’s vacation each year, you may want to look into a Medicare Advantage plan in your area.  You have 8 months to enroll in a plan when you first join Medicare.  After that, you are able to change plans every October and November.
During your first year with Medicare you are eligible for a “Trial Right.”  That means that if you elect Medicare Advantage and change your mind within 12 months you can return to Original Medicare and be guaranteed to get a Medigap.
The Medicare Advantage plan with which I work is through United Health Care and co-branded with AARP.  The plan that I use here in the Houston area got a 3 star rating last year.  If you think it will be an option for you, let me know your zip code and I will see if I am able to get any information about what they offer in your area.  If it is something you want to do, you can go ahead and enroll in that Plan F High Deductible plan to guarantee you have coverage while I work with AZ to get a new license and then we can move you to a Medicare Advantage plan.
Again, because of the amount of money at risk, I am afraid that, as a professor I had in college would say, people are majoring on the minor issues.  Yes, Medicare and Medigap are important but the real hardship, both financially and emotionally, to a family and friends are injuries and illnesses that are more common to seniors.  As people age, their bones become more brittle, changes happen to their body and brains, and severe illnesses, like cancer, are more common.
I understand that with the emphasis the press and politicians have placed on health insurance and Medicare, people tend to think about paying the hospital and doctor.  I agree, that is important.  However, the same intelligent people tend to ignore a risk that is almost as great.  Recent studies have confirmed that approximately 70% of people over the age of 80 need help with the Activities of Daily Living.  If people do not have a separate insurance policy to pay those expenses, their only option would be to “spend down” their life’s savings until they can qualify for Medicaid.  If the are single, that is not a problem.  However, if they are married, it could cause a major hardship for their spouse.
Ideally, when I am working with a couple, unless they have assets over $1,500,000 I recommend that they build their portfolio with either Medigap + Medicare D / Medicare Advantage AND either a Partnership Plan Long Term Care or combination Life and Long Term Care insurance policy.
In my opinion, as you approach age 65, you should not concentrate only on one type of insurance but build your entire insurance portfolio at this time.
In 2011 the Obama Administration was considering making sweeping changes to Medicare and Medigap.  This discussion forced me to review the proposals that were made at that time. As of today nothing has changed since 2010 but rumor has it that while the rest of the country is focusing on the imminent implementation of Obamacare for adults younger than 65, the Obama administration is quietly working a bipartisan deal to overhaul Medicare to force seniors to pay more.  The buzz-word in D.C., is to require Medicare beneficiaries to have “skin in the game.”
Each week I send an educational email to my clients.  In it I will share information about changes to Medigap in the future.  To subscribe, click on the banner below.

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