Medicare and Social Security. Having a birthday? Turning 65? Did your Medigap rates increase? Medicare open enrollment? This is a good time to review your plans and make changes where possible. Are you collecting Social Security or have you deferred your benefit? When is Medicare Part A free? Can you collect Social Security if you refuse Medicare? When can you enroll in Medicare? Do you need Medicare Part A and B? If you have an employer health insurance plan, do you still need Medicare? What are the Medicare penalties? Should I file for Social Security early or wait? Medicare and Social Security, like a horse and carriage, you can’t have one without the other. Medicare Part D, the most overlooked piece of the puzzle and often the most costly.
Medicare looks complicated but is reasonably simple, once you understand how it all works.
Social Security looks simple, but is complicated.
I believe the government does it this way just to test our resolve.
Table of Contents
Social Security
At one time Social Security was simple. You turn 65. You collect Social Security.
Then they changed the rules.
Congress spent all the money they took from our paychecks during our working years and spent it. Yes, they told us it was in a trust fund, but the truth is they BORROWED against the fund and replaced it with IOU’s.
In order to keep the promised benefits they had to change the rules. They did this in 1983 when most of us weren’t paying attention and some of us thought we would never live to 65.
Baby Boomers
For the Baby Boomer generation (born between 1943 and 1954) collecting FULL Social Security at age 65 isn’t possible. We have to wait until age 66 before we can get our full benefit. We can still collect at age 65 but our benefit is 7% less than it would be at age 66.
We can still go on Medicare at age 65, earlier if disabled, but if we want the full retirement amount we have EARNED we have to wait until age 66.
We can collect Social Security as early as age 62 if we don’t mind taking a 30% pay cut. If your Social Security benefit at age 66 is $1200 per month your age 62 benefit will be $840. Other than COLA increases, or if you continue to work while receiving Social Security, your pay cut will remain in effect for as long as you live.
Should you collect your benefit early?
It depends on how long you are going to live.
If you started receiving Social Security at age 62 it will take you (on average) to age 80 to collect the same total amount if you had waited until age 70 to receive benefits.
Up to 85% of your Social Security benefit can be taxed if you have other income. Social Security benefits are also subject to an earnings test and your benefit can be reduced if you have other income. If you have a spouse you may want to consider a file and suspend
What happens if you are receiving Social Security and you want to opt out of Medicare at age 65?
You forfeit your Social Security benefits. The courts have ruled you cannot collect Social Security if you refuse Medicare.
If you have coverage through an employer group plan that continues past 65 you may not want or need “automatic” enrollment in Part B.
Don’t allow your current health insurance carrier to auto-enroll you in a Medicare plan they have “chosen” for you.
Medicare
Most people will qualify for Medicare at age 65, and for most, Medicare Part A is “free”.
Well, not really free. You paid for it all the years you worked but the government still tells you it is free.
And they say that with a straight face.
Medicare Part A is free, but Part B isn’t.
In case you missed it earlier, not only did Congress spend most of the money in the Social Security trust fund, they also mismanaged our Medicare taxes.
In 2014 your Medicare Part B premium is $105 ………… unless you earned a lot of money 2 years ago …………… then you pay more.
This is another trick cooked up by Congress to collect more tax dollars to make up for the ones they wasted studying the sex life of termites in Africa.
What does Congress consider rich?
Medicare Penalty Tax
If your MAGI (Modified Adjusted Gross Income) from two years ago was $85,000 or higher ($170,000 if married filing jointly) you pay a penalty tax in addition to your Medicare Part B premiums. In 2014 your wealth tax could be as much as $231 in addition to your Part B premium. Ask your tax preparer about what is counted in your MAGI.
You will also pay more for Part D. Your wealth tax for your drug plan can be up to $66 in addition to your regular Part D premium
These amounts are DEDUCTED from your Social Security check.
If you have income after age 65 your wealth tax could continue for as long as you live.
There is also a penalty tax if you do not enroll in Medicare Part B and Part D when the government says you must. It’s called an LEP (late enrollment penalty). There are ways to get around the penalty if you know the rules.
When to Enroll in Medicare?
If you qualify for Medicare and are not working the simple answer is age 65. But if you have coverage under an employer health plan the answer is, it depends.
If your employer coverage is a retiree plan, Medicare pays first. If the coverage is for an active employee (you or your spouse) Medicare might pay first, or your group plan might pay first.
It depends.
If you have double coverage (employer health plan and Medicare) you may not need Part B or D.
It depends.
You might be able to delay Medicare Parts B and D without penalty.
It depends.
Confused? Go ahead. Pour a glass of wine. You might need it.
Medicare supplement or Medicare Advantage?
Now the real fun begins.
Original Medicare or private insurance?
Some enroll in Medicare Advantage because of the low premiums. Nothing wrong with that as long as you understand what lies ahead. Advantage plans are high maintenance and require you to review your plan every year and every time you move. When your plan is discontinued if you don’t pick a new plan within the prescribed time frame you are automatically enrolled in original Medicare.
Advantage plans have moving parts and limited networks. Many doctors and some hospitals do not participate in any Advantage plans. Most cancer treatment centers, many skilled nursing facilities and most psychiatric professionals do not accept Advantage patients.
Original Medicare typically does not have those stumbling blocks. Most providers have no problem accepting Medicare. When they accept Medicare they also will accept ANY Medicare supplement plan.
Medicare is simple. No networks. Keep your existing doctor(s). Very few changes from year to year and if you pick the right Medigap plan, most of the changes are nominal or are absorbed by your supplement plan.
There are over 170 different Medigap plans in Georgia from roughly 40 different carriers. Picking the right one is not as easy as it seems, but it is very easy to make the wrong choice.
My rule of thumb is this. Avoid any carriers that have not been in the Medigap business at least 5 years. Avoid the “big name” trap. All plans with the same letter are identical in every way except price. When you pay more you don’t get more, you simply paid too much.
Conversely, a low premium may be only temporary. Some carriers are notorious for offering low “sucker” rates that blow up on you in two years.
Medicare + Medigap is the perfect choice for some people and for others Medicare Advantage is the right choice. Understand the merits and costs of each before forging ahead.
It’s OK to ask your friends for advice but keep in mind they probably bought what their friends suggested. A plan that works for Alice may be totally wrong for Mary.
Almost everyone we talk with had bad advice, do not really understand what they have, and in the case of a Medigap plan, are paying way too much.
Don’t make the same mistakes!
Medicare Open Enrollment
Every year, beginning on October 15th and ending on December 7th (unless the government decides to change the dates), Medicare open enrollment comes around. Take advantage of this time to review your Medicare Part D drug plans or your Medicare Advantage coverage.
Advantage plans come and go. What you had this year may not be available next year. New plans may crop up in your area ……… or not.
Both Advantage plans and drug plans have sneaky provisions so you must be careful. Premiums may rise or fall and lull you into a sense of security.
Don’t fall for it!
The premium you pay for your Advantage plan or drug plan is insignificant. The REAL cost associated with these plans is how much you pay for care and your medication.
Doctors, hospitals and other providers are routinely dropped from Advantage networks. Do not assume that, just because a provider you use is in network this year they will be in network next year.
Drug plans have preferred pharmacies. Changing pharmacies can alter your copay’s up or down by quite a bit. A simple change in your drug or Advantage plan can save or cost you hundreds or thousands of dollars over the course of the year.
Some plans will offer the Lantus SoloSTAR for less than $25 while others will charge you over $170 for the same pen.
We ran a report for one of our diabetic clients and found his annual cost ranged from just over $3,000 to almost $9,000 for the exact same medications!
Review plans carefully for changes and pay extra attention to your out of pocket costs. Failure to do so can put a severe dent in your wallet.
One of the free services available for clients of Georgia Medicare Plans is an annual review of your drug costs. Savings can range from a few hundred dollars to thousands.
Open enrollment is also a good time to check your Medigap plan premiums. If you bought from a carrier that was new to the market last year and offered a low, introductory rate you may be surprised to find your renewal premiums are no longer competitive.
Two new carriers, Omaha Insurance Company and Manhattan Life entered the Georgia market in 2013 with very competitive rates. In some cases they are so far below market they will be forced to increase rates to make up for losses. Shop and compare your Medicare supplement plan now. We have access to over 170 different plans, many more than you will ever find by yourself, and we also track 5 year renewal rates to see who is stable and which carriers are subject to wild rate increases.
Questions that need answers
If you have coverage through an employer group plan that continues past 65 you may not want or need “automatic” enrollment in Part B.
Don’t miss your enrollment periods, especially for Advantage or Medigap.
Understand the limits of Medicare plans if you travel outside the country.
Make plans for paying for Part B if you are not receiving Social Security.
Know exactly when your Medicare benefits begin so you don’t overpay for double coverage.
In addition to the publications from Medicare, this booklet from SSA sums up Medicare in an easy to follow form.
If you need to enroll in Medicare Part B only, you cannot enroll online.
Don’t underestimate your total maximum cost for health care, especially if you choose an Advantage plan.
Annual enrollment is only for certain plans. Some Medicare plans have only one “free” enrollment period.
When considering Advantage plans, look beyond the low premium.
All Medicare drug plans have donut holes. Understand the ways to work around or completely avoid the donut hole.
Do you need extra coverage to fill the gaps in Medicare Advantage? If you think you do you probably don’t really understand what you are buying.
When you turn 65 and go on Medicare you may only have one chance to set up your coverage correctly. Choose wisely.
Medicare Part D
Medicare Part D is the red-haired stepchild of the Medicare puzzle.
Most agents avoid discussing it.
Most retirees take it for granted.
The truth is, researching Medicare drug plans can be time consuming and offer little reward for the agent. Very few agents will take the time to truly compare plans for their clients. There are more than 40 different drug plans in Georgia with monthly premiums ranging from less than $20 to over $100. The agent certification process is time consuming and repetitious. Most agents will certify for a couple of plans and those are the only ones they will recommend.
When they do recommend a plan the compensation averages around $2 per month.
Georgia Medicare Plans earns $0 on recommended drug plans but we save our clients an average of $1,000 per year. You can save even more with a donut hole work around.
Last year we saved one client over $7,000 per year in drug costs and cut his premium from $115 to $56.
We show you where to find the lowest prices for medications including some you can get at no charge.
Ready to shop?
If you are ready to shop for plans, we have a convenient quote engine for our visitors. Shop and compare plans online in the comfort of your home. Instant quotes. Click the image below to get started.
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