Medicare

PLANSPONSOR – July 30, 2024

Remy Samuels

A 65-year-old couple will need $395,000 in combined savings to afford the cost of certain Medicare plans in retirement, according to the Milliman Retiree Health Cost Index. 

The average healthy 65-year-old retiring in 2024 is projected to spend a significant amount on health care over the course of their remaining lifetime, according to the 2024 Milliman Retiree Health Cost Index. 

The two most common health care coverage options chosen by Medicare-eligible retirees are Medicare Advantage and Original Medicare with Medigap plus Part D. A healthy 65-year-old man retiring in 2024 with a MAPD (Medicare Advantage with Rx Drug) plan is projected to spend $128,000 on health care in his remaining lifetime, and a woman with the same coverage is projected to spend $147,000 in her remaining lifetime, according to Milliman. 

Health Care Costs on the Rise 

To afford these costs, Milliman projected that a man with a MAPD plan needs to have at least $86,000 in savings and a woman with the same coverage needs at least $96,000 in savings. The Milliman Index projected that this is the amount of savings (net of taxes) needed at age 65 to pay a retiree’s remaining lifetime health care “total spend,” assuming an investment return of 3% per year.  

For a 65-year-old man retiring in 2024 with Medicare plus Medigap plus Part D, the costs are even higher, as they are projected to spend approximately $281,000 on health care expenses throughout retirement and a woman with the same coverage is projected to spend $320,000. 

The difference in cost is largely because women on average live longer than men, according to Milliman. The retired man was projected to live until 88, and the woman until 90, in Milliman’s calculation.  

The cost of health care in retirement will also depend on several other factors, Milliman explained, such as when someone retires, where they live during retirement and what Medicare benefit plan they choose. The cost of Medicare Advantage, Medigap and Part D plans can vary greatly by state. For example, in Florida, a 65-year-old retiring in 2024 with a lifespan of 88 can be expected to spend upwards of $340,000 on health care, as opposed to around $260,000 to $280,000 in Texas. 

Retirees have less control over factors such as health status or how long they will live – both of which are primary drivers of how much their health care will cost.  

Milliman also measured the savings needed for a healthy 65-year-old couple in 2024 compared with 2023. A hypothetical couple retiring in 2024 will need to save approximately $7,000 more than they would have in 2023 if they have Original Medicare plus Medigap and Part D coverage, and $8,000 less if they have a MAPD plan, all else being equal.  

How Health Care Costs Have Changed 

As a result of the Inflation Reduction Act, there were significant changes to Medicare Part D Rx Drug coverage in 2024. Out-of-pocket expenses were significantly reduced because of the law’s elimination of cost sharing in the catastrophic phase of insurance coverage, but as a result, this increased the plan liability, driving an increase in premiums.  

In addition, there has been continued growth in spending on major brand name drugs like GLP-1s – which includes medications like Ozempic and Wegovy – even when only covered for diabetes and not obesity, as well as SGLT2s, that slow heart failure, and certain autoimmune drugs. These costs also contributed to increasing premium and out-of-pocket costs, and the trend is expected to continue over the next couple of years, according to Milliman. Higher prescription drug costs have also increased short-term health care cost expectations over the next couple years.  

Impact of Retiring Earlier vs. Later 

Most people cannot apply for Medicare until age 65, so retiring early means health care costs can be much higher for the individual. For example, if someone retires five years before they are eligible, at age 60, they can expect to pay 56% more for health care expenses if enrolled in Original Medicare plus Medigap (Plan G) plus Part D, and 86% more for health care expenses if they enroll in a MAPD plan than they would if they waited until age 65 to enroll. 

Conversely, delaying retirement allows retirees to boost savings and continue earning income and employer-sponsored benefits like health care. Retiring at age 70, for example, would allow a retiree to pay 29% less on health care expenses than if they retired at 65 and are enrolled in Original Medicare plus Medigap plus Part D. They would pay 30% less for health care with a MAPD plan. 

“Healthcare expenses are an important and sometimes overlooked component of retirement planning,” said Robert Schmidt, a Milliman principal and co-author of the Retiree Health Cost Index, in a statement. “By taking a realistic look at their health status and healthcare expenses, and then budgeting accordingly, people can take steps to enjoy a less stressful, financially healthier retirement.”

Greg Says is aware that most Medicare beneficiaries find plan option terminology a bit confusing.  Please don’t hesitate to reach out to us at InsuranceForOver65 for help in understanding your Medicare plan options especially as we head into the Annual Election Period (Oct. 15 – Dec. 7) during which you can change plans for 2025.

BY TARA SUTER – 06/05/24

More older Americans are concerned about the future of Medicare, according to a survey published Wednesday.

Seventy-four percent of Americans aged 50-64 say they are “extremely worried or worried” about Medicare not being “available when you become eligible to receive it,” according to the West Health-Gallup 2024 Survey on Aging in America.

That figure is up 13 points from 2022. when 61 percent of the same age group said they were concerned about Medicare availability when they are eligible for it.

Seventy-three percent of Americans across all age groups surveyed said they are “extremely worried or worried” about Medicare’s availability when they are eligible for it, up 6 points from 2022. 

“Threats to Medicare and Social Security loom large, and people are worried policymakers won’t do enough to protect and strengthen them,” Timothy Lash, the president of West Health, said in a press release accompanying the report.

“These safety net programs are part of the fabric of aging that millions of older Americans rely upon, so any potential disruption or question mark around them is cause for alarm and deserving of greater attention and action from policymakers,” Lash continued.

The financial outlook for Medicare’s funding has improved in the last year, with its funding to pay all costs of hospital services of older and disabled beneficiaries not forecast to run out until 2036, compared to the previous year’s estimate that it would run out in 2029.

“The fact that such a large percentage of U.S. adults observe little prioritization of issues affecting older Americans underscores the extent to which such prioritization could influence voting preferences, particularly among those already eligible for the federal safety net programs and those that will be soon,” Dan Witters, research director of the Gallup National Health and Well-Being Index, said in the release.

The West Health-Gallup survey was conducted between Nov. 13, 2023, and Jan. 8, featuring 5,184 adults. The margin of sampling error is plus or minus 1.7 percentage points at the 95 percent confidence level when response percentages are about 50 percent. When response rates are about 10 percent or 90 percent, the margin of sampling error is plus or minus 1 percentage point. Age subgroups have higher margins of error, commonly ranging from 3 percentage points to 5 percentage points.

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Greg Says suggests that all voting age citizens put pressure on Congress to pass legislation to extend the life of Social Security and Medicare rather than continuing to “kick the can” down the road.  This will likely mean increasing the eligibility age, increasing payroll deductions, and reducing benefits all of which will require some sacrifice for beneficiaries and some courage for our elected representatives.

Nancy Ochieng, Juliette Cubanski, and Anthony Damico – Kaiser Family FoundationPublished: Mar 14, 2024

Medicare provides health insurance coverage to 66 million adults, including 59 million adults aged 65 and older and more than 7 million adults under age 65 with disabilities. While the vast majority (91%) of Medicare beneficiaries give their Medicare coverage an overall positive rating, health care cost-related problems are not uncommon. Medicare beneficiaries contribute to the cost of their health care coverage through monthly premium payments, deductibles, and other cost-sharing requirements. Additionally, people on Medicare may face additional premiums for Medicare Part D prescription drug coverage and supplemental insurance. Further, there is no limit on out-of-pocket spending for beneficiaries in traditional Medicare, and beneficiaries often incur out-of-pocket costs for services not covered under traditional Medicare, such as dental, hearing, and vision services. Medicare Advantage plans have a cap on out-of-pocket costs and typically offer reduced cost-sharing for no premium, but enrollees can still have substantial expenses.

In 2022, the Consumer Price Index (CPI) for all Urban Consumers, a closely tracked measure of price inflation, increased to its highest annual rate since 1981, which translated to higher costs for housing, food, transportation, and other household expenditures, including health care costs. The inflation rate has come down since then, but prices for many household expenses are still substantially higher than they were previously. In this analysis, we assess the financial burden of health care spending among households where all members are covered by Medicare (referred to as Medicare households) compared to households where no members are covered by Medicare (referred to as non-Medicare households), based on data from the 2022 Consumer Expenditure Survey. We also assess trends in household spending and the financial burden of health care spending over the 10-year period from 2013 to 2022.

The health spending burden was twice as large among Medicare households than non-Medicare households in 2022.

Average health-related expenses accounted for 13.6% of Medicare households’ total spending in 2022 compared to 6.5% for non-Medicare households.

Medicare households spent more on health care than non-Medicare households in 2022, both as an annual dollar amount and as a share of total household spending. Medicare households spent an average of $7,000 on health care, accounting for 13.6% of their total household spending ($51,800), while non-Medicare households spent $4,900 on their health care, accounting for 6.5% of their total household spending ($74,100). Health care expenses include health insurance premiums, medical services (e.g., hospital and physician services), prescription drugs, and medical supplies (e.g., crutches, eyeglasses, hearing aids).

The larger burden of health care spending among Medicare households than non-Medicare households is a function of both lower average total household spending for Medicare households than non-Medicare households and higher health care use, which results in higher health care spending by Medicare households.

Across all household spending categories, housing accounted for the largest share of total spending for both Medicare and non-Medicare households (35.3% for Medicare households and 32.5% for non-Medicare households). Across other major categories of household spending – transportation, food, and other expenses such as education and clothing – Medicare households devoted a smaller share of their household spending (and less in dollar terms) to these items than non-Medicare households. This may be a function of both smaller average family sizes in Medicare households than non-Medicare households (1.4 vs. 2.6 people), as well as lower median household income ($31,700 vs $76,600).

In 2022, nearly 3 in 10 Medicare households spent 20% or more of their total household spending on health-related expenses, compared to 7% of non-Medicare households.

Consistent with the higher average health care spending burden among Medicare households compared to non-Medicare households, a larger share of Medicare households than non-Medicare households spent 20% or more of their total household spending on health-related expenses than non-Medicare households – nearly 3 in 10 (29%) Medicare households versus 7% of non-Medicare households. Nearly three out of four Medicare households (74%) spent 10% percent or more of their total household spending on health expenses, compared to a quarter (25%) of non-Medicare households.

Health care spending by Medicare households increased by 53% between 2013 and 2022, but health care as a share of total household spending changed very little over these years.

In 2022, Medicare households spent an average of $7,000 on health care – $2,400 or 53% higher than the amount spent on health care in 2013 ($4,600). With total household spending by Medicare households growing at nearly the same rate as the growth in health care spending over these years, health care as a share of total household spending was nearly the same in 2022 (13.6%) as in 2013 (13.5%).

Similarly, non-Medicare households also spent more on health care in 2022 ($4,900) than in 2013 ($2,800), a 71% ($2,100) increase. Health care as a share of total household spending for non-Medicare households was somewhat higher in 2022 (6.5%) than in 2013 (5.4%).

Focusing on household spending trends between 2019 and 2022 shows the dual effects of the COVID-19 pandemic and price inflation.

Between 2019 and 2020, spending by Medicare households on food and transportation fell, likely reflecting stay-at-home policies established at the outset of the COVID-19 pandemic, and total household spending declined somewhat. By contrast, between 2021 and 2022, total household spending increased substantially, reflecting increases in all categories of household spending, as price inflation hit its highest level since 1981 in 2022. This was true for both Medicare households and non-Medicare households.

Discussion

The health care spending burden was twice as large for Medicare households than for non-Medicare households in 2022, measured by average health care spending as a share of total household spending, and a larger share of Medicare households spent at least 20% of their household budgets on health care than non-Medicare households. Of note, this analysis underestimates the health care spending burden for households that incur long-term care facility costs because the Consumer Expenditure Survey does not include people who reside in facilities. This exclusion is more likely to affect the spending burden estimates for Medicare households than non-Medicare households since spending on long-term care facilities is a significant share of average out-of-pocket health care costs for people with Medicare.

With health care use increasing with age and with most Medicare beneficiaries living on relatively low incomes and modest financial assets to draw upon in retirement, it’s not unexpected that health care is a bigger cost burden for Medicare households. This cost burden has important implications for policy debates, including the level of cost-sharing and premiums in Medicare. Policies aimed at improving financial protections for Medicare beneficiaries have been proposed in recent years. The Inflation Reduction Act of 2022 includes several provisions that lower prescription drug costs for people with Medicare, including a cap on Medicare beneficiaries’ out-of-pocket spending under the Medicare Part D benefit; a limit on insulin cost sharing to $35 a month in Medicare Part B and Part D; and expanded eligibility for full Part D Low-Income Subsidies. Policy makers have also considered other proposals that would improve the affordability of health care for Medicare beneficiaries, such as expanding income eligibility thresholds for the Medicare Savings Programs to enable more people to qualify for these financial supports and adding an out-of-pocket cap on cost sharing for benefits covered under traditional Medicare. Adopting such changes, however, would require additional federal spending.

Medicare Annual Enrollment Period (AEP) also known as the Medicare Annual Election Period and the Medicare Open Enrollment Period, is a specific fall enrollment period from Oct. 15 through Dec. 7. During this time, Medicare beneficiaries can make changes to their current Medicare plan coverage. All plan and benefit changes become effective on Jan. 1 of the following year.

On Oct. 1 each year – two weeks before Medicare open enrollment starts – health insurance companies release information about their plan benefits for the coming year. These can include premium changes, prescription drug coverage updates and more. This is a great time for Medicare beneficiaries to think about whether their plan will still meet their needs for next year. If not, they can look for a better option during AEP.

You can make these changes without any review of your medical history, as you might need to do when switching Medicare Supplement plans.

What is the Medicare Open Enrollment Period?

Medicare Open Enrollment Period (OEP) can mean different things depending on how you use it. As mentioned above, it is often used to refer to AEP. But there is also a Medicare Advantage Open Enrollment Period (MA OEP). As the name implies, changes during this time – Jan. 1 through March 31 – are limited to Medicare Advantage plans and are only available to those that are currently enrolled in a Medicare Advantage plan.

What is the difference between AEP and OEP?

The biggest difference between AEP and OEP is that AEP offers more options and flexibility than the Medicare Advantage Open Enrollment Period. For example, during the MA OEP, you can join a Part D plan ONLY IF you are dropping a Medicare Advantage plan and returning to Original Medicare. However, during AEP, you can make any necessary changes to your drug coverage as needed.

What changes can you make during AEP?

During the Medicare Annual Enrollment Period, you can make changes to your Medicare Advantage plan and/or Part D prescription drug plan only. Multiple changes and updates are allowed, including:

• Dropping your Medicare Advantage plan and returning to Original Medicare
• Moving from Original Medicare only to a Medicare Advantage plan
• Switching to a different Medicare Advantage plan
• Choosing a new Medicare Part D prescription drug plan
• Adding a Part D prescription drug plan if you don’t have one
• Canceling your current Part D prescription drug plan
  • Note: If you don’t maintain some form of creditable prescription drug coverage and decide to re-enroll in Part D later on, you’ll be subject to a late-enrollment penalty.

There isn’t any special flexibility to add or adjust your Medicare Supplement (Medigap) plan during AEP. If you choose to change your Supplement plan during AEP, the same rules apply as they would during the rest of the year.

What changes can you make during OEP?

It depends on the context. If you are talking about the Medicare Annual Enrollment Period covered earlier, then you can make updates to your Medicare Advantage and Part D prescription drug plans.

If you are talking about the Medicare Advantage Open Enrollment Period, then you can make these changes related to your current Medicare Advantage plan only:

• Switching to a different Medicare Advantage plan
• Dropping your Medicare Advantage plan and returning to Original Medicare
• Adding a standalone Part D plan – only if you dropped your Medicare Advantage plan and returned to Original Medicare

The MA OEP happens annually from Jan. 1 through March 31 and only applies to people who have coverage under a Medicare Advantage plan. Also, enrollees can only make one plan change during this annual window, in contrast to the fall annual enrollment period when enrollees can change their minds multiple times.

How do you change your Medicare plan during open enrollment?

If you’re switching plans during the AEP, simply join your new plan by contacting the insurance provider, a local health insurance broker, or enroll online if available. Then, you will automatically be disenrolled from your current plan on Dec. 31. Your new plan coverage will begin on Jan. 1.

If you’re switching plans during the MA OEP, simply join your new plan by contacting the insurance provider, a local health insurance broker, or enroll online if available. Then, contact your current plan provider to find out how to disenroll from your current plan. Your new plan coverage will begin on the first of the following month. For example, if you enroll on Feb. 18, your new plan will be effective on March 1.

What happens if you miss Medicare Open Enrollment?

If you miss the opportunity to change your plan during the AEP or MA OEP, you’ll need to keep your current plan for one more year, until the next open enrollment period.

However, you may still be able to make changes to your Medicare coverage if you qualify for a special enrollment period. An example of this could be if you move out of the service area of your Medicare Advantage plan.

If you don’t qualify for a Medicare special enrollment period, you’ll need to wait for the next relevant Medicare open enrollment period to make changes to your Medicare health or prescription drug plan.

Do you have to re-enroll in Medicare every year?

No. You don’t have to re-enroll in Medicare every year and you don’t have to renew your Medicare Advantage, Medicare Supplement or prescription drug plan either. You only need to act if you’re notified to do so, for example, if your plan is discontinued or if there is a reduction in your service area.

Can you enroll in Medicare for the first-time during Medicare Open Enrollment?

If you’re enrolling in a Medicare plan for the first time, you can do so during your Medicare Initial Enrollment Period (IEP). If your IEP happens to overlap with the Oct. 15 – Dec. 7 Medicare Open Enrollment Period, you may enroll for the first time.

Contributions to health savings accounts can trip up enrollment after the age of 65.

INVESTMENT NEWS November 9, 2021

By Mary Beth Franklin

A friend contacted me the other day with questions about enrolling in Medicare now that their youngest child has aged out of their employer-based group health insurance plan. She figured she and her husband could save a lot of money on health insurance premiums by switching from family coverage to Medicare, since they are both over 65.

I hated to break the bad news to her, but in their case, enrolling in Medicare now may not generate the savings she had envisioned. There were lots of questions to answer and numbers to crunch.

Consider the facts. Two spouses, both over 65, want to continue seeing their current doctors and enroll in original Medicare, which is accepted anywhere in the country, rather than a private Medicare Advantage plan that can limit coverage to in-network providers.

Medicare Part A hospital insurance is premium-free to anyone who has paid FICA payroll taxes for at least 10 years (or is married to someone who did). Medicare Part B, which pays for doctors’ fees and outpatient services, has a monthly premium, plus additional surcharges for higher-income beneficiaries.

In 2022, the standard monthly Part B premium is $170.10 per month. In addition, individuals with incomes over $91,000 and married couples with joint incomes over $182,000 pay an income-related monthly adjustment amount, or IRMAA, surcharge ranging from an extra $68 per month to an extra $408.20 per month per person, depending on their income.

Optional Part D prescription drug policies are also subject to high-income surcharges. And the couple would still need to buy two supplemental Medigap policies to cover their out-of-pocket costs.

Suddenly, Medicare wasn’t looking like the bargain my friend had hoped for.

But wait, there’s more.

Those high-income surcharges for Medicare Parts B and D are based on the last available tax returns. So if she and her husband enrolled in Medicare to begin in 2022, their 2022 premiums and surcharges would be based on the 2020 tax returns that they filed in 2021. With both spouses still working, they would definitely be hit with monthly IRMAA surcharges.

IRMAA surcharges can be appealed if the income used to determine the surcharge has declined due to a life-changing event, such as marriage, divorce, widowhood or retirement. But since this couple is still working, there would be no immediate escape from any high-income surcharge imposed in 2022.

Then there’s the issue of health savings accounts. HSAs offer a triple tax break when paired with a high-deductible health insurance plan. Contributions are tax-deductible, savings grow tax-free, and distributions are tax-free when used to pay for qualified medical expenses during your working years and beyond.

Both my friend and her husband make annual contributions to their individual health savings accounts. But once they enroll in Medicare –  even if it’s just in premium-free Medicare Part A – they can no longer make contributions to an HSA, although they could continue to take tax-free distributions from an HSA to pay for qualified medical expenses.

And here’s the kicker: If you have a health savings account, you and your employer should stop contributing to it six months before you sign up for Medicare Part A to avoid a tax penalty.

I told my friend that they either needed to withdraw their HSA contributions for the last six months of 2021 if they plan to enroll in Medicare as of January, or they should stop funding their HSAs starting in the new year and delay signing up for Medicare until July, after the six-month look-back period has elapsed.

To make sure my advice was on point, I check in with my favorite Medicare expert, Dr. Katy Votava, author of “Making the Most of Medicare: A Guide for Baby Boomers,” and president of Goodcare.com, a company that assists consumers and financial advisers with health insurance, Medicare and long-term care decisions.

Dr. Katy agreed with my advice but raised some additional points.

“You are on point with the HSA withdrawal and timing issue,” she wrote in an email. “In addition, I suggest they do the math of what the cost difference would be to enroll in Medicare Jan. 1 versus July 1, accounting for not only the cost of the IRMAA but other coverages such as Medigap, Medicare Part D, or Medicare Advantage.”

If the couple wanted to sign up for Medicare beginning in January, they could withdraw any excess contributions from their HSA penalty-free by using the “mistaken contribution” form, Votava explained.

In the end, my friend decided they would stick with their employer-provided group health insurance until her husband retires and their health insurance ends. That will create a new “special enrollment period” for them when they can sign up for Medicare penalty-free within eight months of losing their employer health insurance. But they’ll only have 63 days to sign up for a Part D prescription drug plan penalty-free.

More rules. More deadlines. It doesn’t get any easier. But ignoring them can be a costly mistake.

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Greg Says advises that people facing decisions such as the one described in the article, should seek the advice of a licensed and certified health insurance advisor who specializes in Medicare.