In all likelihood, many financial advisors rush past the Medicare Annual Enrollment Period (AEP), unless they themselves are over age 65 and flooded with mailers about plans.
Medicare season probably doesn’t come up a lot with your clients either. They may think that Medicare is only health insurance and not an important financial decision as well.
Most Medicare beneficiaries tend to pick a Medicare plan and stay in it for good. Only 5 percent of Medicare beneficiaries said they anticipated making changes to their Medicare coverage, according to the Allsup Medicare Advisor Seniors Survey. Only 13 percent of Medicare beneficiaries change their Part D prescription drug plans, according to an Issue Brief from the Kaiser Family Foundation last October (“To Switch or Not to Switch”).
It’s not like financial planning, is it? You design a financial plan for your clients, and you take care to adapt it for shifting economic factors, investment performance and lifestyle changes. However, all of these factors also apply to and impact Medicare plans, premiums and coverage.
What we’ve found through several years of survey and data collection is that many people simply are intimidated and feel it’s safer not to “mess with” their current Medicare coverage selections. So they accept increases in their costs and changes in coverage, as if it is their only option. Unfortunately, this means that potentially hundreds of thousands of people are making do with healthcare coverage that is inadequate or more costly than necessary.
Of course, helping clients get ready for Medicare as they approach age 65 is a critical time. But AEP is the best time for a review and course correction—when coverage and premiums change, and opportunities for “new investments” in healthcare present themselves. You may not consider yourself a Medicare expert, but you can help clients by correcting some basic misperceptions and misunderstandings during AEP, Oct. 15 through Dec. 7, 2014.
Figuring Out What Clients Really Pay For May Seem Impossible
Indecision and poor decisions happen because of the complexity in figuring out what coverage a client really needs to pay for and what it really costs them. It’s easier for them to take a leap of faith by planning for anything to happen or convincing themselves that their health won’t change.
But Medicare decisions are about analysis and risk, and financial advisors are pros at assessing and managing risk. The truth of the matter: With your help, it is possible to reach a fairly accurate assessment when examining Medicare expenses.
Yes, there are a variety of terms and totals to calculate, including premiums, co-pays, coinsurance and deductibles, as well as cost-sharing and discounts. But working with a Medicare plan selection service can make this a lot easier for non-experts, yield realistic estimates and make cost comparisons possible.
Look for a plan selection service that provides side-by-side comparison of plans and choices and a clear display of monthly and annual costs. These services can help by walking through anticipated medical treatments and out-of-pocket costs in the coming year as well. Allsup Medicare Advisor even makes available a free cost analysis to the customer’s financial advisor.
Watch For Trends That Emerge Every October
There are always market trends and changes influenced by laws and regulations—and you’ll first see them in October, when carriers release their plan information for Medicare AEP.
Prescription drug coverage—in Part D or in Medicare Advantage plans—is often a good place to look first during AEP. These plans frequently change. There is an average of 35 Part D plans per market, based on data from the Kaiser Family Foundation. And a careful look at seemingly minor changes in coverage, such as tiers, pharmacy networks and use of generics, is important.
If the number of Medicare Advantage plans (18 per market on average) shifts in the local market, or there are new carriers or consolidations, it’s a good signal that your client should take a closer look.
Some of these changes make it easier for the healthcare consumer to shop. For example, the Centers for Medicare & Medicaid Services (CMS) has pressed carriers to eliminate their plans that are too similar to each other. Consolidation of plans and number of carriers in the market could bring both pros and cons for the client to consider and evaluate—from higher quality rated plans to higher premiums.
Another trend among competitive providers of Medicare Advantage plans is the offering of gym memberships, dental services and other extras to attract new members. Clients should look carefully to ensure these features add necessary value compared to price.
Watch as well for coverage affected by the consolidation of provider networks in the local market. Many hospitals and physician groups are moving into larger, multi-facility networks, which gives them more leverage when negotiating reimbursement rates with plans. For your client, it could mean changes in available networks – even during a plan year. Many consumers are understandably upset when their Medicare plan announces mid-year it is shifting its in-network coverage from one network to another, limiting the client’s access to preferred doctors and hospitals.
CMS is watching this trend, too, and there has been some discussion about allowing those affected by changes in plan networks during the year to re-enroll during a special enrollment period. One example of these developments is the Medicare Advantage Participant Bill of Rights Act of 2014 that was introduced in the U.S. Congress this summer.
Thinking Ahead Isn’t That Hard To Do
There are a lot of things clients can project a year in advance when deciding if they should take a second look at their coverage during AEP.
• Residence or relocation. Many retirees formulate plans to travel significantly when they leave the 40-hour workweek. This can look different for many people, from purchasing a recreational vehicle and traveling the country to buying a home in a warmer climate for their winter address. Retirees who are planning on making changes like these would do well to take a closer look at their healthcare coverage through Medicare to make sure it will provide for their needs no matter where they end up spending their newly discovered free time.
For example, one customer worked with us to ensure his Medicare transition was smooth as he moved from one state of residence to another state to be closer to his children. He also got a fresh opportunity to select coverage as the move triggered a special enrollment period.
• Income and IRMAA. Another area relatively easy to forecast is changing income and how this will impact the Medicare premiums clients pay.
Higher-income beneficiaries pay the standard Part B premium plus an additional amount based on their modified adjusted gross income (MAGI). This added cost is known as the income-related monthly adjustment amount or IRMAA. The percentage that someone pays increases as their income increases. For example, in 2014 a married couple filing their income tax jointly would experience the following IRMAA on their Part B premiums:
Part B Premiums
Income level = Monthly adjustment / total annual increase:
• $170,000 and below = No added cost
• $170,000-$214,000 = $42 / $504
• $214,000-$320,000 = $104.90 / $1,258.80
• $320,000-$428,000 = $167.80 / $2,013.60
• More than $428,000 = $230.80 / $2,769.60
Note: IRMAA also applies to Part D, or prescription drug coverage.
A downward change in income and the ability to reduce monthly premiums because the IRMAA rules no longer apply is another great time for clients to review plans. Two things have happened: The clients’ premium has dropped, and they may need more coverage that they can now afford.
• Yes, Obamacare. You see it all the time: The older spouse is aging into Medicare and the other spouse is still too young for coverage. Pro or con, conservative or liberal, consider a Marketplace exchange plan for the younger spouse and dependents.
Loss of an employer’s coverage creates an open enrollment period for the Health Insurance Marketplace. Whether household income creates eligibility for a subsidy or cost sharing, this insurance can be an affordable option compared to retiree and COBRA benefits for dependents. If the client skips the special 60-day enrollment period, the open enrollment period (OEP) for Marketplace plans is similar to Medicare. In 2014, the Marketplace OEP is Nov. 15, 2014, through Feb. 15, 2015.
Clients may be reassured by the familiar company names providing Marketplace plans, and the list of major carriers and plans is expected to grow for 2015. Of course, these plans are required to provide coverage and features we frequently need as we age, such as preventive care.
Reality Checks And Myths
Here are a few things we hear every day at Allsup, both biases and misunderstandings, about Medicare options. These lead to expensive decisions, often for the wrong reasons, especially during AEP.
• The infamous “donut hole.” Yes, it’s shrinking and going away, but not until 2020. A 2012 study of seniors by University of Pittsburgh researchers found that about 95 percent of beneficiaries with Part D drug plans overpay for the coverage they actually need. You can find their research in the report titled, “The Vast Majority of Medicare Part D Beneficiaries Still Don’t Choose The Cheapest Plans That Meet Their Medication Needs.” The real attention getter: Only 8 percent of those on Medicare actually enter the donut hole, based on CMS data.
• Is “more” worth the cost? Many seniors insist that they need a supplemental Medicare plan, or Medigap, which frequently has higher premiums. Helping clients take a closer look at dollars needed to pay the out-of-pocket costs (20 percent of typical Part B expenditures) is important. About 10 million people have Medigap plans, as reported by America’s Health Insurance Plans (AHIP) in a Medigap trends study issued last year. Seniors should understand if a higher premium is worth the cost of being overinsured.
• Give it up. Many seniors believe if they give up their Medigap plan for Medicare Advantage, it’s lost for good. Not true. If you are not happy with your new plan, you may have 12 months to go back to a Medigap plan.
• Not if I am disabled. About 9 million adults are eligible for Medicare prior to age 65 as a result of a permanent disability. The average age of a Social Security disability recipient is 53. Few people know—and CMS doesn’t really make it clear to them—that when they turn 65, they have a second Medicare election period. This can open up a lot of options for those who want a Medigap plan, for example, but live in a state with few or no affordable options for those under 65.
• Zero premium plans. The idea of having to pay nothing in monthly premiums for a Medicare Advantage plan can be appealing, but misleading. There is still the cost of the monthly Medicare Part B premium. Though there is no additional Medicare Advantage premium—participants will have to pay for deductibles, coinsurance and out-of-pocket costs. These can add up. Checking the out-of-pocket maximum will provide a true reality check with this type of plan. They are often higher than those plans that charge a monthly premium, making them more expensive for many clients in the long run.
• Medicare Advantage plans will disappear, are not good plans, etc. Enrollment in Medicare Advantage plans continues to increase. Since the Affordable Care Act was enacted in 2010, enrollment has increased by 41 percent, according to data provided by the Kaiser Family Foundation in their Policy Insight piece, “Medicare Advantage: Take Another Look,” from earlier this year. Nearly 16 million people enrolled in Medicare Advantage plans in 2014, up from about 11 million in 2010.
That means nearly 1 in 3 people on Medicare purchased a Medicare Advantage plan. In 2014, the average enrollee with a Medicare Advantage plan that included prescription drug coverage paid a monthly premium of $35. This is about the same as the past couple of years and actually lower than 2011, Kaiser reported. Medicare Advantage plans mirror group plans that beneficiaries had from their employers—HMOs, PPOs, etc., and perhaps we are just becoming more comfortable with them.
Financial advisors often function as educator for their clients, helping them understand that retirement planning is an evolutionary process and customized for that individual. The same can be said about the necessity of providing education and insights about Medicare. Allsup Medicare Advisor, for example, approaches each customer in part based on their insured status—new to Medicare or already on Medicare.
The decisions your clients make with regard to their Medicare plan selections are financially significant. Your involvement will help them realize this sooner and to their personal benefit.
As outlined above, there are a number of opportunities for financial advisors to join their clients in taking a closer look as Medicare annual enrollment season draws near. The good news is that resources exist to make this work that much easier for you.
Mary Dale Walters is senior vice president of Allsup Inc. The Allsup Medicare Advisor® is a nationwide Medicare plan selection service that, for a flat fee, provides a comparative analysis of plans and serves as a trusted resource for financial advisors and seniors. Allsup Medicare specialists can work with your clients one-on-one to assess their needs and research their Medicare options, so they can choose cost-effective coverage that protects their health and retirement savings. Financial advisors may contact (888) 220-9678 or go to FinancialAdvisor.Allsup.com for more information.