Medicare open enrollment begins on October 15th and runs through December 7th. It’s an opportunity for people to switch to Original Medicare (Parts A and B) if they’re already on a different Medicare plan, like Medicare Advantage (Part C). Open enrollment is not a call for people to sign up for their first Medicare benefits. Your clients might not know that.
This is just one of many points clients need to understand when preparing to navigate Medicare decisions. Others may revolve around when to sign up, how much it will cost, and what’s covered under each part of the Medicare program. Let’s review some points covered in a recent webinar presented by our Training Team:
Which expenses does Medicare cover?
Medical costs are the second-largest expense in retirement, trailing only housing costs. According to a 2021 study conducted by Fidelity Investments, an average healthy 65-year-old couple will need $300,000 to cover medical expenses for the rest of their lives. Medicare was put in place to help mitigate some of those costs. It’s divided into four "parts".
Medicare Part A - Hospital Insurance: No out-of-pocket premium, but it does have a deductible and coinsurance requirement. A stay of 1-60 days comes with a $1,556 deductible. Days 61 to 90 have no deductible, but there’s a $389 per day coinsurance. Days 90+ are $778 per day coinsurance. A 90-day stay could cost $13,226.
Medicare Part B - Medicare Insurance: Covers non-hospital medical coverage except vision and dental (unless opted in). Has an annual deductible of $233 and a 20% coinsurance on doctor’s visits and outpatient care. Premium costs range from $170 to $578 per month based on IRMAA (income thresholds).
Medicare Part C - Medicare Advantage: Provides all Part A and B coverage. Offered by a private company that contracts with Medicare. Optional add-ons include vision, dental, and hearing coverage. Medicare Advantage can be an all-in-one solution. Premiums vary by plan and are typically higher than Part B coverage.
Medicare Part D - Prescription Drug Coverage: Covers the first $4,430 of drug costs with a maximum deductible of $445. Beneficiaries pay 100% out of pocket after that with discounts. Premiums range from $12.40 to $77.90 per month. Catastrophic coverage kicks in after $7,050 out of pocket. Beneficiaries then pay no more than 5%.
The Medicare and Inflation Reduction Act of 2022 may change some of the numbers in Medicare Part D over the next few years. It limits sudden price increases on prescription drugs (effective 2023), caps out-of-pocket expenses for patients (effective 2025), and allows the government to negotiate prescription drug prices (effective 2026).
Medicare beneficiaries can also sign up for Medigap. These are supplemental insurance plans offered by private insurance companies. They can be paired with Parts A, B, and D to cover gaps in Medicare. Medigap cannot be used with Medicare Part C (Medicare Advantage) because they’re both private insurances and there would be redundancies in the coverages.
What Medicare decisions are clients facing?
For a more detailed explanation about how Medicare works, watch our full webinar or read this AARP article on the subject. If you’re a RightCapital subscriber, it’s a good time to log into our financial planning software. We’ll be referencing certain features as we go through these next few sections. Let’s begin with the first two options your clients are faced with:
Option 1 - Original Medicare (Parts A & B): Shortly before or at age 65, clients can sign up for Part A and B, then decide whether they need Part D and Medigap. This gives the Medicare beneficiary three separate policies to review.
Option 2 - Sign up for Medicare Advantage (Part C). Clients can sign up for Part C, which usually includes prescription drug coverage from Part D and doesn’t require Medigap supplemental insurance. This condenses everything into one policy.
The decision isn’t as simple as choosing one policy over another. Medicare Part B comes with a premium that is based on your retirement income. RightCapital can help you create a retirement drawdown strategy that can make your distributions more tax-efficient. That could offset some of the costs of Plan B or the higher premiums of Medicare Advantage.
Another factor to consider when choosing between the two options above is the lifestyle of the beneficiary. Retirees who travel, such as "snowbirds"—common in the Northeast—can get locked into a specific doctor’s network like a PPO or HMO with Medicare Advantage. That’s not an issue with Original Medicare.
When should clients enroll in Medicare?
Enrolling at the wrong time can lead to higher premiums. Initial enrollment starts three months before your client turns 65 and lasts seven months total. If the individual is collecting Social Security on their 65th birthday, they will automatically be enrolled for Medicare Parts A & B. RightCapital’s notification center can keep advisors up-to-date on important client milestones such as reaching 65.
If a person or their spouse is still working at age 65 and covered under a comprehensive employer-sponsored health plan, they may be able to decline Part B and delay enrollment to Part D and Medigap. The special enrollment period to opt back into Part B extends eight months past the end date of the employer policy. The special enrollment window for Part D is 63 days after the policy ends.
Making sure clients enroll in Medicare on time and planning for tax-efficient distributions can help clients implement more dynamic retirement spending strategies in their golden years. Medicare can cover roughly half of that $300,000 in medical expenses we referenced above. Retirement planning should account for the other half. RightCapital is the tool to help you do it.
How can RightCapital help with Medicare decisions?
RightCapital simplifies Medicare for you and your clients. Advisors can account for client locations, health statuses, and risk tolerances, then see a list of action items so that no critical enrollment deadlines are missed. The parts of Medicare your clients are eligible for will display and there are additional tips within the software to demonstrate further how Medicare works.
The process of navigating Medicare decisions can be difficult and complex. It comes at a time when clients may already be experiencing a major life change, such as the transition from the working world into retirement. Health care coverage is a primary concern at that stage of life.
RightCapital can help answer questions about plans and coverage, keep clients on track for enrollment periods, and provide peace of mind at a time when clients need it the most.