Healthcare as you Plan for Retirement

Caprice Black, an independent healthcare broker with JRS Healthcare Solutions, recently joined me and Cory on?Upticks?to discuss how to plan for?healthcare in retirement. A native of Canada, Caprice lives in Kansas City and loves helping people get the right insurance plans for them, whether they are eligible for Medicare or not yet 65. Caprice is licensed in 22 states, but primarily works with clients who live in Missouri or Kansas. A summary of our conversation is below.

Jake:?I want to start our discussion by talking about people who are not yet 65. When I meet a new?Falcon Wealth Advisors?client who is working, it’s common to hear them say “I’m only working for health insurance.” Many of them assume they couldn’t afford to pay for quality health insurance in the years before they become Medicare eligible. What should someone who wants to retire before 65 be thinking about regarding health insurance?

Caprice:?I think it’s important for people to understand they have options. Most people who have health coverage through their employer are aware that they can purchase?COBRA?for up to 18 months after separating from their employer. But since the passage of the Affordable Care Act, people who are not yet 65 have been able to purchase health insurance on the federal exchange that costs less than COBRA.

Also, there’s no longer household income caps related to the subsidies you can receive when purchasing insurance in the marketplace. Current rules state no one has to pay more than 8.5% of their household annual income for health insurance. I actually recently helped a couple who make more than $200,000 and they still qualified for a subsidy.

There are more companies competing in the marketplace today. In Kansas, there are six carriers competing for customers, and there are seven in Missouri. However, the networks in these health plans are typically more limited than those within an employer-sponsored plan. So it’s important to do your research and make sure your doctor is in a plan’s network.

When purchasing a plan, you also need to be realistic about your healthcare coverage needs. If you think it’s possible you will need a significant amount of care or a surgery, you will likely want to opt for a plan that may cost a bit more each month but delivers the care you need.

Jake:?That’s interesting. I also want to talk about choosing between plans on the exchange and other options. Let’s say there is a couple named Tom and Susie who have two kids. Susie still works and receives health insurance through her employer. Tom doesn’t work. Is it true that if Susie’s employer-sponsored health insurance, which covers their entire family, is over 9.1% of her income, Susie and Tom are allowed to seek a lower cost health plan on the marketplace?

Caprice:?That’s correct. This is a new development that is relevant for many families, because while an employer may contribute to the cost of their employee’s insurance, they may not contribute to the insurance costs of the entire family.

Jake:?This development seems like welcome news for many. And this is a good example of just how complicated healthcare can be. What does the process look like when a potential client decides they want to work with you?

Caprice:?I have consultations with potential clients via Zoom or in person. I do all I can to help them understand the options available, as health insurance is an important and expensive decision.

Jake:?I’m assuming it helps if a potential client knows all the details of their current benefits package before meeting with you?

Caprice:?Exactly. Lots of people don’t know their deductibles, co-pays, max out-of-pocket costs and more. But it’s so helpful to be able to share this info with me so we can make the most prudent decisions possible.

Cory:?You mentioned the removal of income caps for people who receive subsidies for insurance purchased in the marketplace. The Inflation Reduction Act that was signed into law this year extends this removal for several years, correct?

Caprice:?That is indeed correct. There are no income caps on these subsidies through 2025. This is a consumer-friendly change. And more good news is that Medicare costs are actually going?down?in cost for many beneficiaries in 2023.

Jake:?Let’s now talk about Medicare. What do people need to know about Medicare, and do you have any tips for people who are Medicare eligible?

Caprice:?People should know original?Medicare?is made up of two parts. Medicare Part A is hospitalization insurance that covers in-personal hospitalization, skilled nursing and hospice care. For Americans and their spouses, if one of them worked for at least 10 years, there is no cost to Medicare Part A.

Medicare Part B is medical insurance and covers things like doctor visits, diagnostic testing, outpatient surgeries and much more. Most Americans do have to pay a monthly premium for Medicare Part B. In 2023, that premium will cost $164.90 for single Americans with less than $97,000 in annual household income—and both that premium and cap double for married couples. If your income is higher than those amounts, you will have to pay more based on that income.

Jake:?Do IRA distributions count toward this income threshold?

Caprice:?Yes they do. Any income you pay taxes on counts toward that threshold. And if you have a life changing event that you believe will impact your income, you can submit a form to the government and appeal the cost of your premium.

You may have noticed we haven’t yet discussed prescriptions, and that’s because Medicare Parts A and B don’t cover prescriptions. However, Medicare beneficiaries have the option to purchase a Medicare Part D plan, which covers prescription drugs. While Medicare Part D is voluntary, the government eventually financially penalizes patients who don’t purchase it and need prescriptions. I believe it’s important to have drug coverage, even if you’re not taking any at the moment.

Jake:?What does Medicare Part D typically cost?

Caprice:?It depends on the medications you take. The lowest cost plan next year is $2.80, while others are $80 or $90 a month.

We have talked about Parts A, B and D. Let’s now discuss Medicare Part C, which is also referred to as a?Medicare Advantage plan. These are government-sponsored plans offered by private insurance companies, and basically they are a way to receive your Medicare benefits—Parts A and B—from a private company the government contracts with, rather than the government itself. There is typically no cost associated with choosing a Medicare Advantage plan, rather than enrolling in Parts A and B.

Medicare Advantage plans are more similar to employer coverage than Parts A and B. They are calendar-year plans with annual maximum out-of-pocket costs, as well as a network. You pay co-pays or a percentage of your medical bills until you reach a max out-of-pocket. Many people choose Medicare Advantage plans because they are more efficient and comprehensive. Everything is in one place, and more than 50% of Medicare beneficiaries will use Medicare Advantage plans in 2023. Many people choose Medicare Advantage plans because their networks are getting larger, their out-of-pocket costs are coming down (often around $3,800 in Missouri and Kansas) and these plans offer other benefits, like gym memberships.

Some people assume that Medicare Advantage plans require a referral to see a specialist, but that’s not typically the case?if?the specialist is in the plan’s network.

Jake:?So if premiums are $0, why aren’t all Medicare beneficiaries enrolling in Medicare Advantage plans?

Caprice:?A big reason is networks. Medicare Advantage plans have networks, much like employer-sponsored private insurance. If you use original Medicare, you are eligible to see any doctor in the country at no extra cost to you, including at places like the?Mayo Clinic?and?MD Anderson Cancer Center.

I don’t necessarily think one option is better than the other, but it’s important to understand the differences between original Medicare and Medicare Advantage plans, so you can make the right decision for you.

Jake:?This is a lot of information! And can be quite confusing, to say the least. I can see why people like working with a knowledgeable person like you.

Caprice:?Yes, I enjoy helping clients make these complex and important decisions.

Jake:?Indeed, I know a lot of people who are pleased they worked with you. How are you compensated? Do clients have to pay a fee to work with you?

Caprice:?I am an independent broker. I contract with insurance carriers and they pay me commissions when clients enroll in their services. But my services are free to my clients. And I’m able to serve as an advocate for my clients when they have issues with their insurance provider.

Jake:?Thanks for joining me, Caprice. I think you provide an important service in the complex world of health insurance. If you would like to reach Caprice, please contact me and I would be happy to connect you. And if you would like to learn more about how your financial plan can help you pay for healthcare in retirement, especially in those years before you’re eligible for Medicare, please contact?Falcon Wealth Advisors?today. You can reach me directly at?[email protected].

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.