When we build financial plans with clients, they usually tell us they plan to spend much more in the early years of their retirement to travel, remodel their kitchen, and do whatever else it is they’ve been putting off. Then they assure us they expect to make it up by spending less as they get older.
Healthcare costs have made this assumption a little less realistic for retirees over the past decade. With Medicare premiums tied to income, many people have been surprised by the cost of coverage after leaving their employer’s plans for Medicare. Healthcare is still in a state of flux and isn’t likely to see major cost reductions in the near-term, so it’s important to use every opportunity to maximize your coverage while minimizing your costs.
October 15th to December 7th is Medicare’s open enrollment period when you can change your coverage without penalty, which makes now an excellent time to look at your coverage to determine whether your plan is still the best fit for you financially.
Surprisingly, over 78% of Medicare enrollees made no changes to their plans between 2007 and 2014 according to the Kaiser Family Foundation, which is probably why insurance companies spend so many advertising dollars on people turning 65. Once you’ve enrolled with them, they’ll probably keep you.
It’s human nature to stay with the familiar, and not a surprise that most people don’t want to bother to sort through information, but every year Medicare health and drug plans make changes to their cost, the coverage they offer, and the providers and pharmacies in their network, which means a plan that worked best for you several years ago may not be the best for you today. What should trigger a review?
Plan Changes
According to the Centers for Medicare & Medicaid Services, if you are enrolled in a Medicare Prescription plan (Part D) or Medicare Advantage plan (Part C) you should receive an “Evidence of Coverage” and “Annual Notice of Change” report. These documents outline changes that have been made to the plan that may affect you. Check these reports to see if they trigger any concerns.
Change in your prescriptions or healthcare provider
If your existing plan hasn’t changed, but your doctor or prescriptions have during the year, it’s another reason to compare your current plan to other choices and see if your plan is still the best fit. Your new doctor may not be considered in-network, which will increase your costs, as will any new prescription drugs that may not be covered.
Change in your health
If you’ve been diagnosed with a chronic illness such as COPD or Type II diabetes, you may find that some plans provide better coverage for your illness than others, by covering drugs and specialists that are specific to your needs.
Change in your legal address
Plans also vary by zip code, so if you’ve moved over the past year you need to check to see if your costs or benefits will be impacted.
The best way to check your plan against other choices is to go to Medicare.gov and chose the Medicare Plan Finder. By entering in your current plan type, your zip code, and current prescription drug medications, you’ll receive a list of all the plan choices that are available to you.
If you haven’t in the past, you may want to consider a Medicare Advantage plan (Part C). Advantage plans provide the same coverage as the traditional Medicare Parts A and B, as well as vision, prescription drugs, dental and other benefits in some policies. In addition to their broader benefits, you may pay very little for their coverage. For example, using the Medicare Plan Finder, I found a plan in my home zip code that provided coverage for no monthly premium and no limitations on which doctors I can see. Cost isn’t the only consideration. If you travel extensively, an Advantage plan may not cover out-of-state care because some plans have limited doctors included in the in-network coverage. Some limit your use of specialty drugs, or require prior authorization from doctors before pursuing treatment.
Since, these policy considerations may be hard to uncover and sort through, we recommend starting with the Medicare Plan Finder to give you a sense of what is available to you, and then meeting with an agent who specializes in Medicare plans. We’re happy to recommend individuals we’ve worked with in the past, to attend joint meetings, or review suggestions you’ve received from your own provider.
If a traditional Medicare Policy is the best option for you, managing the premium cost is another consideration. If your income is over $85,000 as an individual tax filer or over $170,000 as a joint filer you will pay at least $134 per month for Part B coverage, and up to $428 a month if your income is higher. For your 2018 premium determination, Social Security will review your 2016 tax return you filed in 2017, so each year’s calculated premium is based on your income two years ago.
In many cases, your income may be artificially high in the year of retirement due to deferred compensation, vacation, bonus or other additional income paid out to you in the year you retire or after. You can contact Social Security about reducing your premium if retirement or other reasons have caused your income to drop.
TAAG can also work with you to review your potential income resources and manage your reportable income in retirement, keeping your premiums lower. For example, taking your annual withdrawals from a combination of IRA accounts and taxable accounts versus exclusively from your IRAs can reduce your adjustable gross income and smooth out the income spikes you might otherwise see from year-to-year.
Healthcare plans and their related costs can no longer be taken for granted in retirement. It’s important to take a fresh look at your coverage annually, and Medicare’s open enrollment period from now until December 7th is a great time to do it.