Welcome to episode 163 of The Retirement Years on Profit Boss® Radio! In this episode, we’re talking about retirement, insurance, and what you can do right now to prepare for the costs of healthcare as you get older.
Healthcare in retirement can be very confusing. And if your employer has chosen your health benefits for the majority of your life, you’re probably not prepared to be dumped into a national health insurance system that has thousands of drug plan options.
Many people are scared of Medicare, or have heard horror stories about not being able to get the care that they need. However, it’s important to know that when combined with the right supplemental coverage, Medicare can comprehensively address your healthcare needs and truly provide for you.
Today, I’m joined by Medicare insurance expert, Danielle Roberts, who is here to clear up any confusion around what’s covered, what’s not, the benefits, the costs, and so much more!
So, if you’re ready to create a plan to make the most of Medicare coverage in retirement, this episode is for you. Tune in to Profit Boss® Radio today!
Here’s what you’ll find out in this week’s episode of Profit Boss® Radio
- The unique features of Medicare that make it easier to use and more robust than employer-provided or individual health insurance coverage.
- How to select supplemental Medicare coverage – and why costs for many people are so reasonable when compared to employer-provided health coverage.
- What Medicare brokers do, how they get paid, and why premiums don’t always go up just because someone receives a commission from your policy.
- The expenses that Medicare doesn’t cover – and how to plan for expenses such as assisted living or live-in aides.
- Key facts about Medicare that people between the age of 50 and 55 should know – and be thinking about – now.
- “There are 10,000 Baby Boomers aging into Medicare every day.” – Danielle Roberts
If you’re invested in the market, your IRA balances are likely smaller now than they were just a few months ago due to the coronavirus related market downturn, which means that you can transfer money with higher future potential to your HSA. This Qualified HSA Funding Distribution – the QHFD for short – is a great opportunity for some people to get tax-free returns to pay for future medical costs. If you’re wondering if you’re eligible to do this, or if this is a good idea for you right now, today’s MoneyWise segment answers all of your questions!
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Hilary Hendershott: All right, profit boss. With me today I have Danielle Roberts. She's a Medicare insurance expert and national social security certificate holder. She writes regularly for and is cited on many online publications including Forbes where she's a member of the Finance Council. She enjoys sharing her knowledge about Medicare, she's going to do that with us today, retirement and insurance, so that boomers can prepare for the cost of health care in retirement. And she's a regular expert on podcasts and radio shows. Welcome to Profit Boss Radio, Danielle.
Danielle Roberts: Thank you so much for having me.
Hilary Hendershott: So, I'm looking at your photo and you don't really look old enough to be on Medicare yet. How did you end up being a Medicare expert?
Danielle Roberts: It was sort of a roundabout way. I started this agency back in 2005 and I used to help business owners with their group health insurance. And one of the things that came out of that is you would gain their trust about all things insurance and later they would call back and say, “Hey, by the way, my mom is turning 65. I'm trying to help her figure out this Medicare stuff and it's even more confusing than the health insurance you set up for us here at our business. Do you know anything about this?” And after we got several phone calls like that, we decided to go ahead and look into Medicare products. Is this an area that we can serve? And we found that those clients were exactly right that Medicare was extremely confusing. All your life, you work for an employer who chooses your health benefits for you and then you turn 65 and you're dumped into this national health insurance system that has four parts and ten supplements and thousands of drug plan options.
So, we determined to become experts at that, and over the course of several years, we eventually just phased out of doing the group health insurance and individual health insurance for under 65 people all together. And now we focus just on the Medicare market because the need is so great there with 10,000 boomers aging into Medicare every day.
Hilary Hendershott: Yeah. And you have quite a robust firm, almost 60 employees.
Danielle Roberts: Yeah, that's right. So, 60 people here have a full-time job just explaining Medicare to people who qualify for it.
Hilary Hendershott: Hooray to the government for giving us all jobs.
Danielle Roberts: Yes.
Hilary Hendershott: Okay. So, high level, what do people need to know about Medicare? It is going to take over as your health care insurance when you turn age 65. Is that right?
Danielle Roberts: Yes. So, you can certainly delay Medicare if you're still working, which many people do work past 65 today in this age of the internet when jobs are not as manual and physical as they used to be. But most people who retire at 65 will leave their employer insurance and then head on into Medicare. So, you're eligible to sign up as early as 65.
Hilary Hendershott: But you don't really have a choice. Is that right? The government sort of forces you on Medicare or you pay a big fee.
Danielle Roberts: Yeah. If you have employer coverage from a large employer, which they consider 20 or more employees, you can sign up for Medicare, but it pays secondary to your primary group insurance. So, Medicare has a couple of different parts, and one of them at 65 doesn't cost anything because you've paid FICA taxes your whole working life to qualify for that. So, what they encourage you to do is to sign up for Part A, which is the part that doesn't cost anything at 65 but it's going to pay secondary to that group insurance. So, you're not forced to leave your group health insurance in lieu of Medicare, but you certainly have that option to do so or you can let it pay secondary to your group insurance until you retire.
Hilary Hendershott: Okay. And then you have to go on Medicare.
Danielle Roberts: Yes.
Hilary Hendershott: I've had clients tell me they don't want it. I just want people to hear you say, “No, this is happening.”
Danielle Roberts: It is definitely happening. There's not very many ways to get around it other than continuing to work and have that large employer health insurance or you can delay the Medicare until later. But the good news is that Medicare, when combined with the right supplemental coverage, is a really wonderful, comprehensive coverage. So, we normally find that all the fear that people have over it, once they get set up, and they're in that coverage, they actually really enjoy it.
Hilary Hendershott: Great. And is it better in any way than, for example, the Blue Cross Blue Shield that I'm on right now?
Danielle Roberts: I think so in several ways. One of them being that Medicare is the largest network in the nation. Around 93% of all physicians in the United States accept Medicare. You don't have to pick a primary care provider. If you stay with Original Medicare, you don't have to get a referral when you want to see a dermatologist. And you're not going to have a deductible that's $2,000, $3,000, $5,000 like we see on a lot of group health insurance plans and Obamacare plans for people under 65. So, when you get on Medicare, those deductibles are much, much lower and the cost of the coverage also is quite less expensive than what you would pay for individual health insurance under the Affordable Care Act. So, it really is coverage that's very easy to use and, in many ways, more robust than what you might have on plans under 65.
Hilary Hendershott: So, it really is supplemented in healthcare. I mean, Medicare is a decent-sized line item on the federal budget. You're not just getting “insurance.” You're getting shared costs. You're getting discounts.
Danielle Roberts: Yeah. So, when you join Medicare, one of the things I think that people think is that it's a national health insurance program like Canada or Britain has, and it's actually not that. You do have premiums that you pay for your outpatient coverage, but they're quite reasonable. In 2020, the standard base rate that most people pay for their Medicare coverage is $144.60 a month. I wish I could get coverage like that for that price. Mine costs upwards of $600 a month and it has a $6,500 deductible. So, with Medicare, you are going to be spending something for your coverage, but the coverage that you get in return for that is really good coverage. And it may be something that over time, you'll incur a lot less deductible spending for because those deductibles on Medicare are so much lower than what plans like you or I have.
Hilary Hendershott: Okay. But I've had clients complain about the cost of Medicare once you get sort of layered up with Parts A through D and Medigap. I know you spent a lot of your life explaining these different parts of Medicare and, ultimately, people can Google what the details of Parts A through D but if you could just give us a high level and your estimate of what the total monthly outlay is?
Danielle Roberts: Sure. So, Medicare itself is going to cover about 80% of your healthcare costs and for most people, I think it's something like 95% of all people on Medicare are going to spend the $144.60. That is a per person rate. So, if you're married, you and your spouse will each pay that amount and that's going to provide your outpatient coverage, which is going to cover everything from doctor's visits to outpatient surgery to chemotherapy, and then your hospital benefits, you pay nothing for at 65 because, again, most of us have already paid for those. And so, those two parts together, your hospital and outpatient coverage will cost you roughly $145 a month unless you're in a higher income bracket. So, it may be that some of the people that you're working with have built some wealth and if you happen to be in a higher income bracket, then you do pay more for Medicare significantly so. There are charts on the Medicare website and on our own website as well that go over those various costs.
But let's just say that you're in the 95% of people that pay the base rate, that's going to cover about 80% of your coverage and then you do want to enroll in something that's going to pick up that other 20% because 20% of a doctor visit, no problem. Twenty percent of dialysis, tens of thousands of dollars. So, most people will add on one of two types of coverage. The first is a Medicare supplement, which does exactly what it sounds like it does. It's going to pick up that 20% for you. That's a private insurance policy that you purchase through a variety of different insurance companies that offer them, that picks up that other 20%, and who will also pick up some things like your hospital deductible. You can customize your Medicare supplement. There's a bunch of different plans that you can choose from. And you might, just depending on where you live, for example, here in Texas where we are located, a female turning 65 might pay around $100 a month for a supplement that basically when combined with Medicare is going to cover everything she would possibly spend on any Medicare-covered service. And the only outlay that she will have at all will be her Part B deductible.
So, the Part B deductible in 2020 is $198 and then literally everything else is covered. You don't have a copay at the doctor. There's no copay for surgery. There's no copay for chemotherapy. It literally covers every other possible dollar. And so, when you put those two coverages together, your Medicare itself plus the supplement, you're probably going to be spending around $250 a month but you've got a plan that has $198 deductible and then you're done for the year. And you do add on drug coverage. If you like, it's optional to do so but most people will pick up a drug plan and you can find those in most states starting for around $15 a month. So, if we looked at that first route where you pair Medicare and a supplement and a drug plan, you could get away with spending around $265, $270 a month for a really full coverage. Now, your spouse is also going to have that same amount. If you are married, they're going to have their own coverage for that same amount. And so, if you take a married couple together, they might be spending $500, $600 a month for the coverage and that can seem expensive but when you compare that cost to what your employer pays for your health coverage under 65, it really is quite reasonable.
Now, Medicare does give us choices. So, perhaps you don't have $100 a month to pay on a Medicare supplement. Maybe you've spent most of your money putting your kids through school and most of your income is going to be from something like Social Security. There are options for a program called Medicare Advantage where you can get your benefits for Medicare through a private insurance company. You agree to use that company's network, and they have plans like that where the costs for them are as low as zero, meaning that you pay nothing other than what you're already spending for your Medicare Part B. And because you're agreeing to get your Medicare benefits through that managed care network, you don't pay anything else for those. So, someone in that situation might just be spending the $145 a month that they pay for Part B and then nothing beyond that because Advantage plans can include drug coverage as well.
So, there are some options for people to go with coverage that you're going to have a little bit more hassle. You're using a network, but you're probably used to doing that from your earlier coverage and you're going to spend less, all the way to the really full supplement coverage where you're spending a little bit more but you don't have hardly anything out-of-pocket and you can see any doctor in the nation that accepts Medicare. So, this is where, of course, a broker comes in and explaining all those different options in your area and helping you find a plan that's going to not only meet your needs but also work with your budget.
Hilary Hendershott: Welcome to today's Moneywise segment designed to make you smarter than your neighbor. Today, we are talking about the QHFD, which stands for Qualified HSA Funding Distribution. So, really, we should be talking About the QHSAFD but that's not what they call it. They call it the QHFD. It is a one-time allowable transfer from your IRA to your HSA. The reason we're talking about it now is because likely if you're invested in the market, your IRA balances are smaller, which means you can transfer money that has higher future potential to your HSA. Again, you can only do this one time in your life. You can only do it if you qualify to have an HSA now, which means you're in a high deductible health plan with an annual deductible of at least $1,350 for individuals, and $2,700 for family coverage as of 2019. And the maximum you can rollover is the same as your annual HSA contribution for that year. So, that means $3,500 for individuals with a $1,000 catch up if you're age 55 or older and $7,000 for family coverage with that same $1,000 catch up contribution based on your age.
Here's why you might want to do this and why it might benefit you. If you use that money in the future, if you let it grow in the market, those are free returns and you use it in the future to pay for medical costs, you will not pay income tax on the distribution. So, let's say you roll over $7,000. It grows to $20,000 in the future. You use all $20,000 to pay for medical costs, which means you do not pay ordinary income on the distribution, which you would if you were paying for those medical costs out of an IRA, you would save approximately $5,000. And by the way, once you're 65 and older and you're on Medicare, you can no longer use the HSA so you have to use it before you turn 65. So, if you think that may apply to you and you'd like to check it out, contact your financial advisor for details.
Hilary Hendershott: I do have a client who said to me and she’s a very analytical woman, mind you, but she said to me she had spent 100 hours researching Medicare plans before she selected one. I thought to myself, maybe overkill, but that sounds like a lot of work. And your website says that you work for free. So, how do you get paid?
Danielle Roberts: Yeah. We get that question a lot. So, a Medicare insurance broker is paid the same way that an auto insurance broker is. I have an auto broker. I send her my stuff every year. These are vehicles. She shops 5 or 10 different companies for me, quotes me the one that's least expensive, and sets me up for that coverage. And then she's paid a commission by the auto insurance company for bringing me to that carrier, and it works the same way with Medicare. So, you certainly could just call up Blue Cross and buy your supplement directly from them or you can work through a broker like us where you pay exactly the same premium, you won't spend anything more, but we help you through that whole learning process guiding you through all the different plans, helping you select the type of coverage you want, and then quoting the different options for all the different carriers that offer the product that you're interested in. And then whichever carrier you choose, they pay us a commission.
Of course, at our agency, we go a step beyond just helping you upfront. We also provide the back end support so that if you run into something like Medicare denies your claim, well, if you've never had Medicare before, you certainly don't know how to file an appeal. You can call our agency and we provide all of that service for free among a number of other things. So, it doesn't cost you anything to use a broker but because we're paid a commission every month when you pay your premium, on the back end, you have all that extra support of that insurance agent, that Medicare broker to help you through common hiccups and problems that happen to many people instead of you just flying blindly. Do you call Medicare? Do you call your insurance company? Who do you call when you have a problem like that? Your broker gets paid by the insurance company to deliver that help to you.
Hilary Hendershott: And let me just reinforce that because I just want people to hear a second voice reinforced that the insurance brokers often get paid by the insurance company, but that doesn't raise your rates. So, for example, a lot of people think you can DIY life insurance by buying it on the internet without going through a broker but those policies are all totally regulated, and the broker does earn a commission, but it doesn't increase your premiums and it's the same with what you're talking about. So, it's not always the case that if there's a commission involved for the agent that your premium goes up. And then your Medicare premiums come out of your Social Security income. Is that right?
Danielle Roberts: Yeah. So, if you've already signed up for Social Security, they'll just deduct it from your deposit from Social Security each month. If you haven't signed up for Social Security, if you're waiting until later to get those delayed retirement credits then they will send you a bill quarterly for your Part B premiums.
Hilary Hendershott: Yeah. Okay. And then let's say you can afford it and people are scared about limiting who they can get care from. Can you pay more and get more?
Danielle Roberts: Yeah. If you go with the first option that we talked about, which is the traditional Medicare supplement, the freedom of access that you have on that plan is just phenomenal. It's great for people who snowbird that they live in two different states during the year. If you do a lot of travel in the US, you're spending a little bit more for that Medicare Supplement premium, but you're not limited to a network. If you wake up one day with a blemish and you want to make an appointment with a dermatologist, you can find one in your area, set an appointment and go in. It's not managed care. It's used working with any Medicare provider. I like that also for the fact that maybe if something serious happens, we buy insurance for those major life illnesses. If you were to be diagnosed with cancer, wouldn't you want the option to perhaps treat it at MD Anderson down in Houston, which is, arguably, one of the best cancer hospitals in Texas, if not the whole US?
When you have that first type of coverage, the Medicare Supplement, you can choose the hospital and doctors that you want to go to. And as long as they accept Medicare, which most do, you can go there and have that specialized person that you've selected to help you through battling whatever illness you're dealing with.
Hilary Hendershott: One thing that, by the way, I myself wrangling for a referral to a specialist all the time sounds like being able to walk into a specialist office is a great benefit. One thing everyone is really worried about, especially as long-term-care policies priced themselves out of affordability is the inevitability that a lot of us are going to end up needing stays in long-term care facilities. How do you explain to people how Medicare benefits phased out if you need that kind of care?
Danielle Roberts: Yeah. So, the way that we talk to people about it is there are some things that Medicare doesn't cover. Medicare is always going to cover your medical needs, your appointments with your doctors, your lab testing, diagnostics. Those type of things, Medicare will always cover. Whether you're living at home independently or whether you're living in a nursing home or Assisted Living Center, Medicare is always going to pay for those. But what Medicare doesn't pay for is custodial care, that helping you with tasks of daily living like eating, bathing, dressing, moving from one room to another. So, at the point that you reach a need for someone to help you with activities of daily living, those are not medically necessary skills. They're not related to Medicare covering a doctor appointment or some blood tests for you. So, when you move into a facility or if you have a long-term care nurse aide come out to your home, that is a payment that you yourself will have to pay.
So, if you don't have long-term care insurance to help you meet that need when you get to, let's say you're 85 and you're not able to live at home on your own anymore, you would end up private paying for those type of facilities, and they're quite expensive. So, in addition to your Medicare, you need to have a plan for how do we pay for the rent in an assisted living center or the cost of a part-time or full-time aide in my home when I'm no longer able to just get up and make my own breakfast or go to the grocery store on my own or put my clothes on by myself. Those are things that Medicare doesn't cover. Now, while you're living in that facility, there's going to be a doctor that comes out and does house calls to the Assisted Living Center where you are and he's going to bill Medicare when he gives you medical treatment, but it's the cost of the facility or the cost of the aid that's helping you in your home that Medicare doesn't cover.
Hilary Hendershott: Okay. Anything else that you wish people knew or understood about Medicare, things that someone who's age say 50 to 55 should be thinking about now?
Danielle Roberts: Yeah. So, in addition to the cost aspect, which we've covered that it's not free, and you're right, so many people get that wrong, and they're surprised or they end up working longer because they didn't anticipate that, one of the big things for people to know is that when you first enroll in Medicare, when you've left your group and coverage behind and you're going on Medicare for the first time and your Part A and B are now active, there's this golden opportunity that lasts for six months and six months only, during which you can sign up for the Medicare Supplement we talked about, which is kind of that Cadillac coverage, and there's no health questions asked. So, you cannot be turned down for any health condition, they cannot limit coverage for pre-existing conditions, and that's a six-month window and then it's gone forever. After that, if you want to buy supplemental coverage for Medicare, in most states you'll go through underwriting and the underwriters can absolutely turn you down if you bring a chronic health condition to the table like emphysema or COPD or Parkinson's disease. Lots of different chronic illnesses would disqualify you.
So, it's really important for people to know that like your client that did the 100 hours of research, my hat's off to her because that type of research in that 64 to 65 window is so important. So, if you're 50 and you're looking at Medicare in the future, you want to know that when it comes to time age 64, you want to spend some time doing the research, familiarizing yourself with all the rules, learning about that open enrollment window so that you don't miss it. And one other thing I love to suggest for younger listeners is if you have an opportunity through your employer or if you buy your own coverage through the health care exchange, if you enroll in a high deductible health plan that allows you to open a health savings account and you contribute money into that account every year, between age 50 and age 65, you could build up a sizable nest egg of money that you then have going into Medicare. You can use the dollars in that account to pay for your Medicare premiums, to pay for your Part D premiums, to pay for your co-pays and deductibles, and also to pay for long-term care expenses.
So, if you've got some time, that's a great vehicle to look into. If you have the right type of high deductible health plan that will enable you to purchase or to open an HSA account, that's really a great way to get that Medicare rainy day fund going so that you have some funds to work with when you do turn 65 and have to make some choices.
Hilary Hendershott: Perfect. Okay, Danielle, and everyone can find you at BoomerBenefits.com. Is that right?
Danielle Roberts: Yeah, that's right. And we've got a YouTube channel and Facebook as well where we're happy to answer anyone's questions about Medicare.
Hilary Hendershott: Awesome. Any place else they should look to find you or about you?
Danielle Roberts: One other place that you can go to is there's a personal website that I have which is DanielleKRoberts.com where I address many things about personal finance for people aged 65 and over. So, if you just want to learn about not just Medicare, but all the other things that you need to consider regarding social security and more, you can also visit that site for some of that information.
Hilary Hendershott: Great. Okay. Thanks for joining us today.
Danielle Roberts: Thanks for having me.
Hendershott Wealth Management, LLC and Profit Boss® Radio do not make specific investment recommendations on Profit Boss® Radio or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of Hilary Hendershott, CFP®, MBA.