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Medicare Is Simple
Thursday, October 20, 2016
Moeller on Medicare: Advisors, Beware of Land Mines on Timing, Coverage
Philip Moeller, who has covered
Medicare for decades, says the program is monstrously complicated so advisors
need to help their aging client base.
Don’t turn an 800-lb. gorilla into an elephant in the
living room. In other words, mighty Medicare, the biggest component of U.S.
health care -- and the most complicated – needs to be addressed, discussed, and
explained to clients.
Indeed, financial advisors have reason to be Medicare-articulate
because as their client-base ages, health care plays an increasingly larger
role. Consequently, decisions concerning medical insurance greatly affect their
The release of Moeller on Medicare was
timed to coincide with the program’s open enrollment period, Oct. 15 through
Dec. 7. Since Medicare is an annual plan, recipients have the option each year
to re-evaluate their coverage and if desired, change it.
The rules of Medicare are complicated and laden with
deadlines that are costly to miss.
“Dante had nine circles of hell. Medicare has only five,”
Moeller jokes in his book. That’s a reference to the inevitable frustration
that comes with navigating the exceedingly complex, opaque system. Since it was
created a half-century ago, Medicare has grown monstrously complicated with
more and more intricate rules, more buzz words to learn, more decisions to make
that affect costs.
Moeller, based in Richmond, Virginia, who has covered
Medicare for decades, writes about retirement for Money magazine and conducts
the online “Ask Phil” Medicare column for PBS NewsHour’s “Making Sen$e.”
Here are excerpts from our interview:
THINKADVISOR: What is “compressed morbidity,” and why is
it your mantra?
We’re compressing the period of physical decline into shorter and shorter
periods. That is, you function at a very high level until you don’t. It’s a
great victory for health care. I don’t want a long period of decline where
somebody is wiping drool off my chin.
You note that for the last 30 years, so much has been
written about retirement planning but that you’ve seen very little about health
That’s going to change because people will realize that
health care should become an important part of the retirement tool. How can you
have a great retirement if you don’t have good health care?
What are the most significant points about Medicare that
financial advisors should impart to clients?
That unexpected medical expenses are the biggest
retirement surprise most people have. So you need to pay attention. You have to
sign up for it at the right time, make sure you purchase the right package of
coverage for your situation and then use the insurance you’ve purchased.
What if they don’t sign up at the right time?
You may end up facing what could be lifetime penalties or
have no coverage at all for an extended period.
What do folks need to keep top-of-mind concerning the
part of Medicare that covers prescription drugs?
You need to pay particular attention during the [annual]
open enrollment [period when coverage changes are permitted] because
formularies [lists of covered drugs and prices] change every year.
What’s one big way advisors can help clients with
There’s a series of high-income surcharges for Medicare
premiums [monthly charges deducted from Social Security payments] called IRMAA
[Income Related Monthly Adjustment Amounts]. These amounts can be increased
substantially to the tune of hundreds of dollars for higher income individuals.
But clients might be able to make some adjustments to minimize them. For
tax-planning purposes, be aware that there’s a two-year lag. So, 2016 tax
returns will determine 2018 IRMAA.
Why take the trouble to change Medicare plans during open
It’s a great do-over opportunity. Health insurance plans
change. Drug formularies change. Pricing structure can be different from one
year to the next. People can certainly leave money on the table – and possibly
end up with an inferior health care product – if they don’t take advantage of
Why should folks consider Medicare Advantage plans? These
are private plans that are alternatives to “Original Medicare” Parts “A” and
“B.” (“A” covers hospital care; “B” for doctor visits and outpatient care.)
They’re the cheapest by far. You can [even] get a
Medicare Advantage plan and pay no premium at all. So if you’re really healthy
and don’t take meds, it’s very tempting to get one. And [unlike traditional
Medicare] some plans cover vision and hearing, and also health clubs. Maybe
more than half of all new Medicare plans are Medicare Advantage plans.
What are the disadvantages to these?
They use health care provider networks. And that allows
only a certain number of doctors, hospitals and caregivers in their networks.
So if, at some point, the doctor you want to use isn’t in the directory, you
could be a very unhappy camper. And if you’re in a hospital because of an
emergency, some Advantage plans might say that hospital isn’t in their network
– and therefore you won’t be covered. Provider directories can change
during the year. That’s another reason to pay attention to open enrollment.
Are Medicare Advantage Plans subject to state rules?
No. Federal. Every year insurers look at the amount of
subsidy that the government is offering to Medicare Advantage Plans; and based
on the relative appeal of that subsidy and their book of business in various
geographic areas, they’ll bid to offer coverage. This can change from year to
Part “D” of Medicare covers prescription drugs. Hillary
Clinton says that if elected president, she’ll try to reduce outrageously high
That would be a very complex process. Drug companies need
financial incentives to discover new drugs; but American consumers shouldn’t
have to pay almost the full research and development costs for the global drug
industry, as we do. The incentives should be shared more equitably with
consumers around the world.
Why doesn’t Medicare itself act to lower prices?
It’s against the law for Medicare to negotiate with
pharmaceutical companies to reduce drug prices. Insurers can negotiate; but
Medicare, which is the 800-lb. gorilla in health care, can’t use its tremendous
market leverage to negotiate lower pharmaceutical prices!
How does the Affordable Care Act affect Medicare?
One of the ways is a provision that will do away with the
“donut hole” [coverage gap] by 2020. Everybody hates the donut hole because
it’s confusing: Medicare Part “D” plans stop covering drug costs after payments
reach a certain level every year and then resume after the recipient’s spending
has reached a different set-level. Under the Affordable Care Act, the donut
hole is becoming smaller and smaller.
How come vision, hearing and dental care aren’t covered
Those are services that everyone uses, so I’m not sure
they can be considered under “insurance.” I believe that’s the reality.
Why aren’t white canes for the blind covered but general
canes are covered? Where’s the logic?
Medicare has national coverage determination [NCD]. They
also have local coverage determination [LCD]. They can have a different rule in
one part of the country than in another. You end up with a layering of rules
that makes it very difficult, if not impossible, [for them] to be used by the
What about Medigap supplemental policies that Medicare
recipients should buy to cover what Medicare doesn’t cover? It’s obviously
important for advisors to inform clients.
Yes. The most popular Medigap plan is Part “F” because it
provides the most comprehensive coverage. It’s also the most expensive. You
can’t get a Medigap plan without getting Medicare Parts “A” and “B.” And
Medigap has its own six-month window that begins after you get “A” and “B.”
Make sure clients don’t miss the enrollment period because that’s when there’s
guaranteed access to Medigap policies, and you can get the best prices.
What else should advisors know about Medigap?
Be aware of the underwriting terms of the Medigap policy
their customer is purchasing because this has implications for the future:
premiums are increasing. You have to shop for premiums – there’s substantial
price variation. Be aware that Medigap doesn’t work with Medicare Advantage
How important and advisable is it to get long-term care
insurance, which is not covered by Medicare?
As long as the client can afford to sufficiently insure
themselves, I think it’s stupid not to.
Please talk about the “hold harmless” rule.
This means that [most] Social Security beneficiaries who
have Part “B” premiums taken out of their payments cannot be asked to pay a
higher premium – when Social Security’s annual cost of living adjustment [COLA]
is zero or small – because to do so would cause their benefits to decline.
However, other Part “B” users, who are not held harmless, include higher income
beneficiaries. Part “B” expenses are going up, and [the very modest] COLA [next
year] [probably] won’t cover the increase in Part “B” expenses. Tax payers pay
75% of Part “B” expenses.
What about the hot issue of being admitted to a hospital
vs. just being there for observation? What should advisors know?
Hospitals were re-admitting a percentage of patients
after they received hospital care, and high re-admission rates were costing
Medicare a lot of money. So Medicare hired paid auditors to look at admissions
that seemed questionable and said that the hospitals had to pay penalties.
However, if they admit people on an observational basis, the hospitals don’t
pay penalties. But the rule says you need to be admitted for at least two
midnights to qualify for subsequent insurance for a stay in a skilled nursing
facility. Medicare has been trying to tweak this rule but hasn’t been able to
figure out a solution.
What does this all that mean to advisors’ clients?
When they go into a hospital, they better darn well find
out on what basis they’re being treated. Fortunately, a new law requires
hospitals to tell you. This really makes a difference because if you’re
admitted, Part “A” covers you. If you’re an observational patient, Part “B”
covers you. Parts “A” and “B” don’t charge the same rates – one may be cheaper
than the other – and they don’t cover treatments the same way.
Seems that advisors would be wise to get clients’ adult
children up to speed about Medicare’s many facets.
Yes, it’s clear that they need to start helping their
parents understand these things because eventually they’re going to pay the
bills one way or the other.
You write of something new that’s upcoming: Curative
medical care in hospice. Please explain.
It’s a pilot program starting next year in test markets
where you’ll be able to go into hospice but still have efforts made on your
behalf to make you better. In contrast, traditional hospice ceases medical
care. Ironically, [research] has shown that people in hospice live longer
than those [hospitalized]. The environment is much less stressful.
You’re now 70. Do you personally have Medicare?
No. My wife [Cheryl Magazine] still works -- bless her
heart -- and as long as you have employer insurance on an active plan, you
never need to get Medicare. When my wife retires, I’ll switch to Medicare [from
spousal coverage on wife’s plan] and will be able to convert with no penalties
You’re the Medicare expert; so you’ll surely do