For those who don't know me, I left a good paying job a few years ago to "pursue a passion" and now build custom furniture - a poor paying job that I love. Some say I retired. My wife Jenny is still working at a job she loves, and has no plans or desire to retire. So this is based on a semi-retired person with a slightly younger working spouse. I documented my experiences a couple years ago, and am updating it as my wife goes through the same process now.
Turning 65 isn't bad. I don't feel old. But suddenly all the rules change. Sure, I have found lots of restaurants that offer a senior discount (My favorite is "How old do you have to be for a senior discount?" "Old enough to ask.") Or go into McDonald's and ask for a "Senior Coffee" - often 25 or 50 cents. Or get a 10% discount at Dairy Queen for a "senior cone." But will your health insurance continue to cover you? Probably not, or at least not in the same way. Having spent countless hours (weeks) trying to understand the mysteries of Medicare, Jenny insisted that I share what I learned with siblings, in-laws, and friends (she claims that everyone is younger than I am.) Everything here applies only to those who have worked (paid into social security for 10 years or more) and are healthy enough to survive the application process - no disabilities or terminal illnesses, and are not in poverty. This is not written for those with railroad retirement, teachers retirement, or military retirement - some parts of this may also apply to you, but you have to draw your own conclusions.
First, everyone talks like you can retire at age 65. Dream on. For me, full social security benefits won't be until 66, and for younger folks, that age is gradually rising. Sure, you can get benefits before 66, even before 65, but the monthly payments will be reduced for the rest of your life. And if you wait until after 65 or 66 to collect (up to age 70), your monthly payments will be higher. First rule of thumb: If you expect to live to age 80 or longer, you are better off waiting as long as you can to start collecting benefits from social security (and most other retirement plans). If you plan on dying young, start your benefits as soon as you can.
Don't use that phrase - there is no such thing as health insurance. You need to think about Hospitalization insurance, Medical insurance (doctor visits and lab tests), Drug insurance, Long term care insurance (not part of Medicare), and so forth. Each of these coverages has to be considered separately, and each is a different part of Medicare.
Watch out for SSI. Everyone speaks of SSI like you know what it is. And if you ask, you will have to answer lots of questions before you are told that it is a welfare-like program for the poor, blind, and disabled who are over 65. Even though I told my telephone counselor that I was not poor, not blind, and not disabled, she insisted on sending me a pamphlet so I would know what Supplemental Security Income was, and never, ever, ask again. (Please forgive me for asking!)
Jenny hasn't been attacked by SSI.... at least yet. But after she applied for Medicare she got a form that could only have been created by a government serf trained by the IRS. Dear Jenny, you may be eligible to get extra help paying for your prescription drugs. Fill out this 8 page application (page numbers 1-7?) and mail it in. If you have more than $25,010 in savings, investments, or real estate, you aren't eligible for aid, but tell us your spouse's name and assets so we can tell you again that you aren't eligible. Then sign and submit, giving us permission to investigate all you income and holdings to confirm that you really aren't eligible. And if you forget to check box 15 on page 5, we will send all your information to your state, with your permission for the state to investigate to confirm that you still aren't eligible. We did not return the form. Or the full page explanation about how easy it was to consolidate all our financial records and report them in less than 30 minutes. Crap.
Medicare, unlike social security, does start at age 65 (actually the beginning of the month in which you turn 65), and covers 40 million Americans - it is a big deal. The new process (as done by Jenny in mid 2010) is far better than the process experienced by Charlie in early 2008 - the only proof I have seen that the government can improve.
If you don't join Medicare in the 7 months when you become eligible (the 3 months before, the three months after, or the month of your 65th birthday), or when an event happens like involuntarily losing your employer-based insurance, then you can still join (or switch plans) during an enrollment period in the latter part of each year - the dates keep changing, but the last I heard was October 15 through December 7. Unlike ordinary insurance, you can never be excluded or charged a higher premium because of age or health conditions. Changes are easy during the enrollment period, but don't count on being able to make any changes at other times during the year.
Sometime in the three months before the month in which you turn 65, go to the Medicare web site (www.medicare.gov). Unlike 2 years ago, Jenny found a form that allowed her to apply for Medicare, and not apply for Social Security. Apparently there were also options if you wanted to apply for both. If you follow our path, you want Medicare Part A (Hospitalization, largely provided), and Part B (out-of-hospital medical care, largely at your expense). You sign up for Part D - drug coverage - later. She was done in no time,
Part A is the original Medicare, free to practically everyone who has contributed (and contributed and contributed). It doesn't cover everything, but is pretty good hospitalization insurance. If you are receiving social security, this coverage is automatic - otherwise you have to sign up. If you are over 65 and still working, or on your spouse's policy, the employer health insurance probably changed to not cover things that are covered by Medicare Part A, since they assume you will take this "free" government benefit. It is not long term care insurance, and your deductible is enough that the insurance companies can scare many people into thinking you need a supplementary policy from them. (You have heard the TV ads - "call to speak to a health insurance advisor." That is like saying "come to our used car lot and talk to an auto advisor." Both are salesmen.) The supplements are expensive, and still don't cover everything, so my conclusion was that you should take the small risk of paying the deductible (For example, when I last checked, a maximum of $1068 per hospital stay), if you can possibly afford it.
Part B is not free - it is more like traditional health insurance - basically it pays 80% of the cost of doctor visits and outpatient treatments after you pay the first $135 per year. The government ads say it even pays for routine physicals (well visits), but the free physical is only talk to the doctor - little or no actual exam. Note that by the time you are 65 your doctor will want to see you each year to check on your blood pressure or other ailments and renew your prescriptions ... the concept of a well-visit by that age is ancient history. For most people Part B costs about $135 per month, but it is up to $325 higher ($460/month) for those with more income. Rather than just looking at the income on your tax return, they also add some retirement income that may bump you to a higher monthly payment.
If you are on another health insurance plan (such as an employer or retiree plan, or as a family member on someone else's plan) you may be able to stay on that plan without consequences. Or you may find (as I did) that it costs more to stay on that other plan than it costs to be covered by Medicare part B. However, if you don't have any coverage (or the plan you are on does not provide what the government considers adequate coverage), when you later want Medicare Part B, your premiums (for the rest of your life) will be 10% higher for each year you didn't have Medicare Part B or other suitable medical coverage. Generalization: If you have a high deductible health insurance plan with a medical savings account, that isn't good enough to count as coverage. If you have a health insurance plan that pays at least part of every doctors visit and test, it probably counts as adequate coverage to avoid a later surcharge to your Medicare premiums.
You may have both Medicare part B and another plan - the lawyers will figure out which is primary and which is secondary coverage (who actually pays each bill) - Social Security staff will not try to talk you out of other coverages. Since (in my case) it cost far more for me to be on Jenny's employer health insurance, I enrolled in Medicare Part B, and dropped the optional coverage on her policy, effective the day before Medicare kicked in. The Medicare premiums are deducted from your monthly social security check. What? No social security check? OK, an organization called CMS (Center for Medicare Services)will bill you.
Private insurance companies offer Medigap plans to "fill the gaps" in the original Medicare plans, sometimes called Medicare supplements. This can include coverages that are not part of Medicare, such as well-visits or out-of-country medical care, and/or it can pay the the deductible or copayments of original Medicare. Some consider these policies obsolete - if you have Medicare Part A and Part B, Medicare part C (below) can fill those needs, and perhaps drug coverage (Part D) as well. There are 12 standardized Medigap plans, Plan A through Plan L, that may be offered by different insurance companies - for example, if you want the features of Plan G, you can shop for the price and service rating among those that offer plan G in your area, and the benefits (fine print) should be the same between any companies offering it. (Wisconsin, Minnesota, and Massachusetts are listed as exceptions).
Yes, I know Part C comes before Part D in alphabetical order, but not here.
Only congress could create a drug plan as convoluted as Medicare drug coverage. The plans were designed by congress, but are actually offered by private insurance companies approved by Medicare. You pay a deductible on the first $2,510 of drugs in a year, then you pay all the cost of the drugs until you have paid $4,050 in prescriptions and deductibles in a year (nicknamed the donut hole). Then catastrophic coverage kicks in and the plan will pay most of your drug costs until the end of the calendar year. Policies in my area cost $12.10 to $97.50 per month, with various plans offering a discount on some drug prices, especially for generic drugs, and some plans providing some degree of coverage "in the hole." Of course, the government has a penalty of up to $77.40 per month for those with high income. Important drugs like Rogaine and Viagra are not be covered (by federal rule), and your expenses for these drugs don't count towards the total for the year.
The real zinger is if you do not have "creditable" drug coverage. When you later get Part D, and for the rest of your life, your premium will be 1% higher for each month after age 65 that you did not have creditable coverage. Creditable coverage means private (or employer) insurance that is at least as good as Medicare Part D. The coverage we selected for Jenny's employer health insurance (before she went on Medicare), which included me, had drug coverage, but it was not "creditable" drug coverage. To avoid later problems I looked for the lowest cost Part D coverage. That may sound simple, but your cost of specific drugs are so drastically different on each plan, that you have to look at the total cost of the plan plus that plan's charge for your current prescriptions. For example, some plans have no copay for generic prescriptions (generic drugs are free), so a higher premium may suddenly have a lower total cost, depending on what medicine you are taking. The medicare web site is exceptionally good as a "Medicare Prescription Drug Plan Finder" - you enter your location and current prescription drugs, and it will compute the cost of each drug and the total cost including premiums, for each plan, for your choice of drug store or mail order. (It even includes the cost of drugs that aren't covered). For whatever reason, Jenny had trouble getting that part of the Medicare site to work, but when it works, it is great. You can change plans at the end of each year if your needs change, and you cannot be turned down for drug coverage. The drug plans can change each year, so you need to start over each year, even if your needs don't change - see below.
After you enter all your prescription data, Medicare will save it for you, but the web site offers a new feature, MyMedicare. As convoluted as everything else is, this seems to be an attempt to pull things together (even though each time I have logged in, they had me assign a new password or user name based on their latest recommended structure.
If you had Medigap (Medicare supplement) insurance, two claims were filed... Medicare, and Medigap, or maybe 3 claims if drugs under Part D were involved. What happened to the "good old days" with a single medical card? That is the relatively new Medicare Part C, sometimes sold as Medicare Complete, or Medicare Advantage. You sign up for a single Medicare approved insurance policy with your choice of company, that includes the coverages of Part A, Part B, and perhaps Part D. You choose HMO, PPO, HSA, PFFS, or other types of services and coverages. You get to pick the features you want in the policy, such as how much copayment and deductible you are willing to accept, to reduce your premiums. You send the insurance company a lot of money each month, in addition to what the government pays the insurance company on your behalf (corresponding to what it cost the government to provide Part A coverage and subsidize Part B coverage). Some policies have you continue to pay the government for Part B, and then advertise that you have low or no premiums to the insurance company (but now have to follow their rules). Sounds good. Just like the ads on TV. But wait, if you sign up now, we will double...just pay shipping and handling...
Yep, I found the zinger. You don't need a referral, and can go to any hospital, any doctor, etc. etc. that is willing to accept the payments and terms of the policy. Practically every insurance company refuses to pay any more than Medicare would have paid, which is already so low that many doctors cannot afford to provide the first class personalized service you want for those payments. And the insurance companies are very slow to pay, and require huge amounts of paperwork (Jenny worked in medical billing for long enough to experience the horrors. She left to preserve her sanity.). So my doctor (part of the largest medical practice in the area) and the hospitals he uses, will accept Medicare despite the relatively low payment, since they pay promptly without hassle. His practice did not accept any of the Part C plans (and maybe still doesn't accept the plans) because of the hassle involved. Listen for the fine print in the ads and commercials. And check with your doctor. My decision was easy. I like my doctor. See the insurance section below about how little you are really saving with insurance (since Medicare does a good job paying for the big stuff). My answer: No part C for me.
I did a careful study over 12 months, a year or two ago. My total out of pocket cost was $227.94 for the year. Jenny's total out of pocket cost was $297.77. In late 2018 Jenny had surgery that required a two day hospital stay. Our out of pocket costs were under $1,000. And the insurance premiums to cover these costs are $1,600 to $2,000 per year or more. No thanks.
Long term care insurance - think of it as nursing home insurance for the last few years - is not part of Medicare or other government insurance. By itself, it would be fairly expensive - if you start when you are young, your premiums essentially become a savings account, like a life insurance policy, for the hundreds of thousands of dollars involved. If you don't start early, the premiums are unbelievably high.
But can you buy long term care insurance at all? Huh? A few years ago, someone claimed they could stay in their own home if they didn't have to do lawn care, otherwise they would have to go into an extended care facility. A judge ruled that their long term care insurance had to cover lawn care, since it would be cheaper than a nursing home. The insurance company had set premiums to cover normal nursing home expenses, not to also cover decades of lawn care. The state would not let them increase premiums to cover lawn care, so the insurance companies stopped selling LTC insurance in that state.
Long Term Care is an example where you should have personal savings for your retirement. In fact, one person I know, lives in a house with a market value of well over $1 million. Her financial advisor said simply "that is your long term care policy."
The rules of Medicare seem to assume you need an activity to stay mentally alert after age 65. A friend older than I (yes I have friends, and there are people older than I, but Jenny isn't sure) says keeping up with Medicare has become a major activity. In fact, he speculates that Congress has made it this complex to keep Senior Citizens from having time to address meaningful issues.
The formulary is the list of covered drugs, and the rules about what drugs fall into which payment category - Tier 1 (generic), Tier 2 (no generic available), Tier 3, and Tier 4 (so expensive the insurance company can't afford them, so you pay most of the cost of these). The formulary changes each year, and each company providing Part D coverage has a different formulary. Therefore you have to review the formulary, or dozens of formularies, and perhaps change your drug coverage, each year. One doctor speculated that some of the formulary changes seem to be because you have been taking a generic drug for many years, and if it is changed to a higher tier and your portion of the cost rises, you might just pay the higher cost and not think to ask your doctor to look for an alternative.
When I was on employer-group insurance, the formulary changed. One drug I was taking (Tier 2 or 3) was similar to a new generic drug (Tier 1). My doctor responded to the insurance company request, and agreed to try the cheaper drug (note who the lab animal is in this experiment...me). The cheaper generic drug has worked well for many years. Under Medicare, some of the Part D plans still consider it generic, and some even offer it free (no copay). Other part D plans only pay for it after trying other drugs unsuccessfully (called a Step Therapy). And one part D formulary says it is dangerous, and requires an exception request from the doctor. I am sure glad the insurance accountants know more about the drugs than my doctor. Your employer handled these details in the past, and knew there would be an uprising among the troops if the change impacted many people. Under Medicare these rules change every year, and you don't have a Human Resources staff to check things for you, so you must become the expert in the new drug formularies issued each fall.
You can't go to your doctor and ask "what insurance do you recommend." They can't or won't make that kind of endorsement. If you sign up for a PPO, and want a specific doctor, it is key that your doctor be one of the preferred providers, and has time to accept you as a patient. My doctor's practice was on the PPO list for most employer group policies, so I figured "no problem." Luckily I checked the doctor list for a Medicare Part C policy I was considering. My doctor wasn't there. Not on the next PPO plan either, or the next. Finally Jenny called the doctor's office, and was referred to his business office. That is where we learned to stop looking... Medicare was accepted by my doctor's practice, but no commercial Medicare plans. Your results may vary. Keep in mind that the list can change at any time, so you need to check regularly. You needed something to keep you mentally alert, right?
A good friend is a physician who cares for many older patients. Many of the problems he encounters are multiple drugs that were prescribed by different well-meaning doctors who didn't have a complete history, but just addressed the problem at hand. Some of his patients are taking dozens of drugs, many of them duplicate, conflicting, or no longer necessary. A feature of many insurance policies is that you can go to any doctor, without a referral. Maybe that is a disadvantage - as we get older, it is even more important that we have a primary care physician that can coordinate the treatment of our multiple ailments. And not the kind of primary doctor that I recently heard, who felt that one prescription per decade was normal, and not worthy of checking (8 prescriptions for everyone in their 80s). It took an extended hospital stay for my friend to recover from that doctor.
A general rule of thumb about insurance: A typical "underwriting expense ratio" is about 25%. That means that 25% of your premium goes to the TV ads, the junk mail, and the people issuing your policy. That means that only 75% of the premiums are available to pay claims (maybe slightly more if the company delays paying your claim long enough to make money by investing your cash). So why have insurance? If you cannot afford to replace your house in the unlikely event it burns down, insurance is great. If you cannot afford to pay the medical and lifetime rehab bills of someone you run over with your car, then insurance is great. However, if you are an average risk, and can afford to pay the deductible or gap or donut hole of your own medical bills, you will, on average, come out 30% ahead without the "supplemental" insurance.
You retire, and now can vacation or travel more often. Maybe even congest our highways in South Texas for half of each year. Your northern doctor gives you a prescription, and you have it filled. But your vacation is a little longer, and you need a refill. Your corner drugstore doesn't have a branch in Texas (or wherever you are spending the winter) so you call your doctor. He cannot send you a prescription to fill in Texas because he isn't licensed to practice medicine in Texas.
The solution is simple. Have your prescriptions filled at home at a national chain drugstore, like Walgreens or WalMart or CVS or Sams Club. If you run out in Texas, the Texas drug store can "dispense" the drug locally as "managed" by your home pharmacist... the one that knows your doctor. You don't need to get a new prescription from a Texas doctor. But you can't have this advantage if you use the local non-chain pharmacy at home.
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