Senior Health Insurance How to End the Confusion and Select the Right Plan

Transcription

1 Senior Health Insurance How to End the Confusion and Select the Right Plan Provided to you by: Daniel R Chen x101 FPA

2 Senior Health Insurance How to End the Confusion and Select the Right Plan Written by Financial Educators Presented by Daniel R Chen x101 FPA Securities and Advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC. Cetera is under separate ownership from any other entity. No investment strategy can eliminate the risk of fluctuating prices and uncertain returns Update v.5.0

3 Introduction The health insurance scenario for seniors is scary. You read and hear a lot about Medicare running out of money and benefits being cut. Seniors have been asked to pay for more for their Medicare benefits. The good news is that through a better understanding of your options, you can secure some peace of mind knowing that you have selected appropriate health coverage. No senior (a term we will use in this booklet for anyone covered by Medicare and age 65+) should rely on Medicare alone. You must have supplemental coverage as Medicare typically pays 80% of your heath care costs. That 20% that you must pay can be a very large sum if you have a serious illness. Let's review your options and determine if you have the appropriate insurance protection. 3

4 Managed Care Plans vs. Medigap Insurance The AARP conducted a study titled: An Assessment of Medicare Beneficiaries 'Understanding of the Differences between the Traditional Medicare Program and HMOs'. The findings1 indicated that only a fraction of the total beneficiary population (11%) had "adequate" knowledge to make an informed choice between HMOs and regular Medicare. Therefore, it is important that you understand how you can receive proper medical coverage. Medicare offers different ways to get health care benefits. Once you understand what you get, you can then get the appropriate coverage for what Medicare does not provide. The Medicare coverage options depend on which plan you select. And based on where you live, you may have more than one plan to choose from (note that available plans can vary from zip code to zip code)! There are two basic Medicare health plans: Medicare + Choice plans include Medicare Managed Care Plans and Medicare Private Fee-for-Service plans. These plans provide care under contract to Medicare. They may offer benefits such as coordination of care or reducing out-of-pocket expenses. Some include additional features, such as prescription drugs. The availability of plans vary among geographic areas. Many people loosely refer to all of these plans as "HMOs." The Original Medicare Plan (sometimes called fee-for-service) -- everyone with Medicare can join the Original Medicare Plan that is available nationwide. Many people in the Original Medicare Plan also have a Medigap (Medicare Supplemental Insurance) policy or supplemental coverage, provided by their former employer to help pay health care costs that this plan does not cover. This supplement is a separate policy which we will discuss shortly. Costs Total Out-of-Pocket Costs Extra Benefits In addition to Medicare covered benefits. Doctor Choice Original Medicare Plan High None Widest Managed Care Plan Low to Medium Most May offer prescription drugs, eye exams, hearing aids, or routine physical exams. Some Medicare Advantage Private Fee-for-Service Plan Medium to High Some Possibly foreign travel or extra days in the hospital. Wide Choose any doctor Usually must see a doctor or Choose any doctor or specialist or specialist who specialist who belongs in who accepts the plan's payment. accepts Medicare. your plan. Convenience Varies Varies Varies Available Available in some areas. Available in some areas. May nationwide. May require less paperwork require less paperwork and have and have phone hotline for phone hotline for medical advice. medical advice

5 Managed Care Plans fill many of the gaps in the Original Medicare plan. These organizations contract with Medicare to provide health care services to Medicare recipients who have enrolled with them. For example, Medicare may pay the plan a flat $800 a month to care for your health needs. Based on this income, the plan attempts to cover all of their costs and make a profit. You can easily see how a $100,000 medical procedure can make you an "unprofitable" patient and why these plans must aggressively control their costs. You often must choose doctors, hospitals, pharmacies, nursing homes, and other providers from the firm's network. You generally cannot go to a specialist without receiving a referral. There is a fixed co-payment for each visit. But there is no yearly deductible before coverage starts nor are there any coinsurance payments. However, there could be monthly premiums and hospital deductibles. Most Managed Care plans are paid a set amount by Medicare for each member, regardless of whether the member is healthy or not. This means that the company assumes the risk that the individual could possibly cost more to treat than it receives, as explained above. Private Fee-for-Service Plans are offered by insurance companies, but are not available in all parts of the country. Fee-for-Service plans give clients the freedom to choose any doctor, specialist, or hospital that accepts the plan. These plans offer all Medicare Part A and B benefits with some extra benefits at additional costs. The beneficiary and the insurance company both pay for medical services. The insurance company outlines what and how much it will pay and how much the insured will pay. You pay the Part B premium (usually through a deduction of your Social Security benefits), any monthly premium the Private Fee-for-Service plan charges, and an amount per visit or service. Providers are allowed to bill beyond what the plan pays, and beneficiaries will be responsible for paying whatever the plan doesn't cover. The above options are comprehensive in that no other insurance or policies are needed. In effect, you "trade" your traditional Medicare coverage to be taken care of by a private insurance network or company. If you use traditional Medicare, you also want to buy a Medigap policy. A Medigap policy is a health insurance policy sold by private insurance companies to fill the "gaps" in Original Medicare Plan coverage. These gaps are largely the 20% that Medicare does not pay for a covered procedure and may also include reimbursement to your for co-pays and deductibles. As of June 1, 2010, there are ten standardized Medigap plans called plans "A" through "N" (because of changes in Medicare over time, plans labeled E, H I and J are no longer available for purchase). The front of a Medigap policy must clearly identify it as "Medicare Supplement Insurance." Each plan has a different set of benefits. Plan A covers only the basic (core) benefits. These basic benefits are included in all the Plans A through N. If you live in Massachusetts, Minnesota, or Wisconsin, different types of standardized Medigap plans are sold. 5

6 Why Would Retirees Want Medigap Insurance As Opposed to An HMO Arrangement? With a Managed Care Plan, you don't need to buy Medicare Supplemental (Medigap) insurance. This could result in several thousand dollars of savings each year. In fact, some Managed Care Plans may have no monthly premium at all. There are potential repercussions, though, that could make you wish that you would have spent the additional money for the insurance and stuck with traditional Medicare. The companies sponsoring a managed care plan might limit the number of doctors, hospitals, and other health care providers within the network. Also, they can abandon the Medicare benefits program if the insurance network finds it unprofitable. This could leave you with significantly higher out-of-pocket expenses, especially if your health has declined. The government can create another problem if you are not happy with managed care. For instance, suppose you cancelled a Medigap policy to join a Managed Care Plan. Medicare could possibly penalize you if you decide that you don't like managed care and try to buy a new Medigap plan. Instead of having a choice of 10 plans, you might only be able to select from four. Consequently, your new policy might not be as good as the one you previously canceled. Even though Medigap policies will not cover all the gaps in the Original Medicare Plan, they may help retirees: Lower their out-of-pocket costs, and Get more health insurance coverage Some examples of Gaps in Amount Clients will Pay in 2010 A Medigap Policy May Medicare covered services. Help Pay These Costs Hospital Stays > $1,100 for the first 60 days Yes > $275 per day for days > $550 per day for days Skilled Nursing Facility Stays > Up to $ per day for days Blood Medicare Part B yearly deductible Medicare Part B covered services > Cost of the first 3 pints > $155 per year > 20% of Medicare-approved amount for most covered services > 50% of the Medicare-approved amount for outpatient mental health treatment* > Co-payment for outpatient hospital services *All Medigap policies must pay 50% coinsurance for outpatient mental health treatment services. Yes Yes Yes Yes Source: Centers for Medicare and Medicaid Services 6

7 Note: Some Medigap policies also cover other extra benefits that aren't covered by Medicare. Examples include: Routine yearly check-ups. Athome recovery. Medicare Part B excess charges (the difference between the doctor's charge and Medicare's approved amount). The excess charge only applies if the doctor doesn't accept the assignment. Prescription drugs. Medicare Part D The prescription drug plan (PDP) is offered by private companies, and there may be 40 different plans in each state to choose from. The people who don't need to enroll are those that have drug coverage through a Medicare Advantage plan or possibly through an ex-employer plan. There is a monthly premium, which varies by plan, and a yearly deductible (no more than $310 in 2010). There is also a co-payment per prescription. Part D plans offer either a defined standard benefit or an alternative equal in value ("actuarially equivalent"), and they can also offer enhanced benefits. The standard benefit in 2010 has a $310 deductible and 25% coinsurance up to an initial coverage limit of $2,830 in total drug costs, followed by a coverage gap (the so-called "doughnut hole") where enrollees pay 100% of their drug costs until they have spent $4,550 out-of-pocket, excluding the Part D premium (Figure 2). Thereafter, enrollees pay 5% of total drug costs. The problem comparing different drug plans is that each plan can cover a different set of drugs (the formulary) so the goal for each senior is to pick a plan that covers the greatest number of drugs they take. Some drugs are more expensive than others even though some less expensive drugs work just as well. Other drugs may have more side effects, or have restrictions on how long they can be taken. To be sure certain drugs are used correctly and only when truly necessary, plans may require a "prior authorization." This means before the plan will cover these prescriptions, the doctor must first contact the plan and show there is a medically necessary reason why you must use that particular drug for it to be covered. Plans might have other rules like this to ensure that drug use is effective. 7

8 If a senior has high drug costs, they can get a plan that provides additional coverage until they spend $4,550 out-of-pocket (2010 figures). In some plans, if the costs reach an initial coverage limit, then the senior pays 100% of prescription costs. This is called the coverage gap. This "gap" in coverage is generally above $2,830 in total drug costs until the senior spends $4,550 out-of-pocket. Some plans might offer some coverage during the gap. Even in plans where the senior pays 100% of covered drug costs after a certain limit, Medicare asserts that seniors would still pay less for prescriptions than they would without this drug coverage. How to Select the Most Appropriate Medicare Coverage How you select Medicare health benefits depends on several things, including cost, extra benefits, doctor choice, convenience, and quality. These are all important, but some may be more important than others. You need to look at which plans are available in your area and what each offers so you can make the selection that is best: Cost -- What will your annual out-of-pocket expenses be? If you make frequent doctors visits, don't look at premiums alone. A managed care plan generally costs less than a Medigap policy. But by the time you add in co-payments, you could end up with higher total expenses. Therefore, a Medigap policy might be less expensive. Benefits -- Do you need extra benefits and services, such as eye exams, hearing aids, or routine physical exams? For instance, if you are worried about drug costs, you may be better off in a managed care plan. Doctor Choice -- How significant is it for you to see your favorite doctor(s)? Will getting referrals to visit a specialist be a nuisance? If you want more choices, Traditional Medicare and Medigap plans allow you to select providers and the places where you can receive care. So if it's important to stay with the doctors and hospitals you now use and those providers are not in a managed care network, the best choice could be traditional Medicare with a Medigap policy. Convenience -- Where are the doctors' offices and what are their hours? Who files the claims? Is there a telephone hotline for medical advice from a nurse or other medical staff? Insurance companies have three different ways of pricing Medigap policies based on age. In general, "no-age rated" policies are the least expensive over the insured's lifetime. 1. No-Age-Rated (also called Community Rated) Policies These policies charge everyone the same rate no matter how old they are. Example: Mrs. Smith pays the same monthly premium at each age plus any premium increases the company may charge because of inflation. Premium at Premium at Premium Age 65 Age 75 at Age 85 $155 $155 $155 8

9 2. Issue-Age-Rated Policies The monthly premiums for these policies are based on the applicants' age when they first buy the policy. The cost does not automatically go up as they get older. The premiums will be the same as anyone buying a policy for the first time at the same age. Example: Mrs. Smith pays the same monthly premium depending on how old she is when she buys the policy. She also pays any additional premium increases the company may charge because of inflation. Premium at Premium at Premium at Age 65 Age 75 Age 85 $130 $130 $130 Plan Bought at Age 75 Premium at Premium at Premium Age 65 Age 75 at Age 85 $165 $165 Plan Bought at Age 85 Premium at Premium at Premium Age 65 Age 75 at Age 85 $195 Plan Bought at Age 65 9

10 3. Attained-Age-Rated Policies The monthly premiums for these policies are based on the insured's age each year. These policies generally cost less at age 65, but their costs go up automatically as people get older. Example: Mrs. Smith buys the policy at age 65, and pays higher monthly premiums as she gets older. She also pays any additional premium increases the company may charge because of inflation. Premium at Premium at Premium Age 65 Age 75 at Age 85 $115 $160 $190 Note: In general, attained-age-rated policies are cheaper than issue-age-rated policies for the first few years. However, rate increases for attained-age-rated policies are usually larger than rate increases for issue-age-rated policies. After a period of time, the premiums for an attained-age-rated policy will be higher than what the premiums would have been if clients had an issue-age-rated policy. Other factors that may affect cost depend on whether: Male or female -- Some companies offer discounts for females. Smoker -- Some companies offer discounts for non-smokers. Marital Status -- Some companies offer discounts for married couples. The insurance company uses Medical underwriting -- The company may use this information to add a waiting period for pre-existing conditions if state law allows. The company may also use this information to decide how much to charge for a Medigap policy. Insurance companies may "medically underwrite" any Medigap policy at times other than during the Medigap open enrollment period, or when you have the right to buy a Medigap policy. To find a Medicare Health Plan, go to the Medicare's Personal Plan Finder at: And for the government's Medicare Worksheet for Comparing Medicare Health Plans see: Be forewarned, as much as the government has attempted to simplify your choices, consulting with a licensed health insurance agent, one who specializes in senior health insurance is a good idea. You won't pay anything extra as the amount paid to the agent is already included in the policy or plan premium. 10

11 What Can Early Retirees Do for Health Insurance before Medicare Kicks in? Those who have health insurance from their employer are entitled to COBRA or continuing coverage when they retire. However, this coverage usually expires within 18 months of early retirement (36 months in some cases). So for example, if you retire at age 58, your health insurance will run out before age 60. And in case your health is not very good, replacement coverage could become very expensive or unobtainable. The options vary among states. But by becoming familiar with the choices you may have will help you manage this critical element of retirement planning. Apply for Individual Coverage. Premiums could be very high. And if there are pre-existing conditions, the company might refuse coverage or attach a rider to exclude that illness. Examine Higher Deductibles. Increasing deductibles to an amount clients can comfortably afford can also reduce monthly premiums and increase the odds a policy will be issued. Purchase Catastrophic Insurance. These policies are intended to pay only for major hospital and medical expenses, not routine visits to the doctor's office or trips to the emergency room. A catastrophic plan covers expenses such as treatment in an intensive-care unit for 10 days after an auto accident, a heart attack, or a stroke. Catastrophic health insurance policies typically come with a very high deductible from $500 to $15,000 and a high maximum benefit payment, such as $1, $2 or $3 million. Go Back to Work. Many retirees work at least part-time just for the health care benefits. Apply to the State's High-Risk Pool. Several states have pools, but the insurance can be 150% to 200% higher than the average premium on individual policies for healthy applicants. Still, state coverage can be an option for a client who has been denied coverage or can't stomach private policy premium increases. To qualify, a state resident must have been rejected by an insurer, have a catastrophic or serious medical condition, or be insured by a policy that has premiums higher than the pool's. Nevertheless, it's important to investigate the pool's policies and requirements. Some states have very low lifetime benefit caps. Others have a stringent pre-existing lockout period, some as long as a year. For more information on high-risk pools including which states offer them, visit the National Association of Health Underwriters' website at: Find an Association-Based Plan. There are roughly 15,000 associations in the U.S. today, including such groups as the local Chambers of Commerce, the American Automobile Association, the National Rifle Association, and the Sierra Club. Following the AARP model, some associations have decided to offer health insurance to their members, using an established insurance company to write the policies. Set Up a Health Savings Account. HSAs can work well in conjunction with individual, high-deductible policies. (To qualify as a high deductible policy, the policy must have a deductible for 2010 of at least $1,200 for individuals and $2,400 for families.) With such a plan, IRA allows you to deposit funds into a health savings to a maximum of $3,050 for individuals and $6,150 for families on a tax deductible basis. The insured can then use this money to offset deductibles, co-payments, and uninsured treatments. If the insured never taps the money, it can be used for long-term care insurance needs or even retirement. 11

12 Contributions to an HAS account are tax-deductible, even if you do not itemize deductions on your tax return. The earnings within the accounts grow tax-free, and the distributions are tax-free as long as they are used for qualified medical expenses. Qualified medical expenses include: Diagnosis, cure, mitigation, treatment or prevention of disease Prescription drugs Qualified long-term care services and long-term care insurance COBRA premiums Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty may be waived in certain circumstances. There is a catch up provision for individuals age 55 or older allowing even larger contributions. Consult with an experienced senior health insurance agent on these options to see if an HAS would prove beneficial. Don't Forget Long-Term Care Protection This booklet has addressed insurance to pay for medical, doctor, hospital, and drug costs in retirement. But there are large costs not covered by your health insurance. If you get sick and need help, who do you think will bear the burden? If you're married, you could turn your spouse's life upside down. You could also jeopardize a comfortable retirement. If you're single, your kids may get the burden. They may either feel obligated to help you or try to fit assisting you into their already over-worked schedule. Or, you could deplete your assets-money -- that would otherwise have gone to your heirs. Therefore, it's important to realize that a major reason to get long-term care insurance is to protect your family. And the costs and assistance you need are not covered by Medicare or your health policy. The other reason to have a long-term care policy is to preserve your independence. Do you want your children helping you brush your teeth? Do you want family members deciding how to spend your assets for your care? Insurance provides a separate asset that can be used only for your quality care. Whether inside or outside your home, insurance could help you to preserve your independence. When making your choice about health insurance, also ask your agent about long-term care insurance. 12

13 About Daniel R Chen x101 A resident of the Monmouth County area since 1968, Daniel Chen is a graduate of Monmouth University, West Long Branch, with a BS in Psychology. Dan currently provides Wealth Management services in the four specific disciplines of Estate Planning, Risk Management, Tax Efficient Strategies, and Investment Management services via the financial planning process. His twenty years as a trader in the U.S. Treasury markets for firms including Garban LLC and Cantor Fitzgerald has provided him with an immense and diverse experience in the global capital markets. In 1999 Dan recognized the need for personalized investment advice by employees of the small business pension plan market. As a result he set about crafting a solution for this underserved population which became well received by the major stakeholders of the small business community. In recognizing the scarcity of the independent advice and research service model, he set upon designing and implementing the delivery of an individually personalized and high touch investment management process to the demands of an increasing affluent clientele marketplace. Dan is currently listed as a rated advisor in the Paladin Registry, an independent non bias third party registry that pre-screens and qualifies advisors according to their business ethics and credentials. Please go to the following link: to view his profile in greater detail. Today Dan serves a growing clientele base via a consultive process in defining and creating sound strategies for achieving their wealth management and preservation goals while collaborating with their other key advisors [i.e.; accountants and attorneys]. In addition, Dan holds insurance and securities licenses administered by FINRA and the N.J. State Department of Banking & Insurance [i.e.; Series 6,7,24 and 63]. He is also a member of the Financial Planning Association and an Associate Registered Investment Advisor (RIA) with Multi-Financial Corporation. 13

14 About Daniel Chen Assisting clients in understanding where they are today can be critical in setting attainable financial and personal goals for the future. We know your hopes and dreams include sending your children to the right schools, a comfortable retirement, and financial security late in life. We are a Wealth Management firm assisting our clients in negotiating the financial barriers that invitably arise in every stage of life. Our team has the experience to help you persue these important goals. Ultimately, our greatest impact may be the confidence that comes with working with an Advisor that will educate his clients in the options that are available,and implement those strategies in simple and easy to understand terms. Phone today with questions or to see if we can help you. There is no charge for an initial meeting. Daniel R Chen x101 FPA Daniel Chen 12 Christopher Way Suite #200 Eatontown, NJ x101 14

15 2010 Financial Educators First Published 11/10/09 This booklet is protected by copyright laws. It may not be reproduced or distributed without express written permission of the author. Published by Financial Educators 15