Retirement planning? Don't screw up your client’s Medicare. Avoid these 6 mistakes!

We work with many advisors and planners and across the board Medicare typically takes a back seat or is a non existent component of retirement services offered. We are here to provide guidance and clarity for those in need of detailed Medicare guidance.

Below are a few of the many issues that can cause headaches once a client turns 65.

1.?Always recommending your clients sign up for Medicare Part A and Part B at age 65.

The general rule is that most individuals must enroll in Medicare Part A and Part B at 65 to avoid lifelong penalties and temporary gaps in their health insurance coverage. However, for many of our clients who work after turning 65, there is an exception to this general rule.

If a client is turning 65 and actively employed or their spouse is actively employed and covered with group insurance through the active employment, then the size of the active employer offering the group coverage is the determining factor as to whether Medicare is required or necessary at 65.

Large Employer group plans with 20+ Employees

When your client or their spouse is turning 65 and is employed by a large employer with 20 or more combined full and or part time employees, and maintains health coverage through that large employer then Medicare is the secondary payor to the large employer group plan.

Per Medicare Secondary Payor rules, the large employer group plan pays first, and then Medicare pays second. This makes Medicare Part A Hospital and or Medicare Part B Medical enrollment at 65 during the client’s Initial Enrollment Period optional. The Client can maintain large employer group coverage and delay Medicare enrollment in either Part A Hospital or Part B Medical.

Under this large employer group health coverage scenario, if a client does not enroll in Medicare Part A Hospital and or Part B Medical during their Initial Enrollment Period of turning 65, then they will have a Special Enrollment Period that is triggered when they retire or when they voluntarily/involuntarily terminate the large employer group plan.

The Special Enrollment Period allows a client to come off the large group plan (voluntarily or involuntarily) and enroll in both Medicare Part A Hospital and Part B Medical without any late enrollment penalties or health questions. The losing of their large group employer plan and enrollment in Medicare A and B will also coordinate with specific enrollment periods for Supplement/Medigap, Part D Prescription coverage or Medicare Advantage Part C. ?Discussing the Medicare coordination and timeline and consequences for ancillary coverage in advance of turning 65 is paramount.

Small employer group plans with fewer than 20 employees:

If a client or their spouse has coverage through a small employer with fewer than 20 full and or part time employees and is not part of a multi-employer group health plan, then Medicare Part A Hospital and Part B Medical is required to be the primary payor. The small employer group plan is the secondary payor. Your client should enroll in Medicare Part A Hospital and Medicare Part B Medical during their Initial Enrollment Period to avoid any late enrollment penalties. Generally, the client should compare costs and all consequences of their secondary payor options, like keeping small group plan as secondary payor versus changing to a Medicare supplement also known as MediGap plan as secondary payor. Is their small group plan creditable coverage, etc.

If your client later has a job status change and now has access to coverage through a large employer, then they can disenroll from the premium Medicare Part B benefit and later reenroll in the Medicare Part B Medical benefit without any late enrollment penalties.

2.????Advising your client not to sign up for Medicare A and B at 65 because they have COBRA, Group Retiree coverage or ACA subsidized coverage.

Cobra Eligible prior to turning 65

If your client has COBRA, Retiree, or subsidized ACA coverage prior to becoming eligible for Medicare at 65, they will need to enroll in both Medicare Part A Hospital and Part B Medical immediately during their turning 65 Initial Enrollment Period to avoid lifelong penalties and large gaps in coverage.

COBRA typically ends the date they become Medicare eligible and can cause a client to become under or uninsured! Children and spouses can remain on the COBRA medical for up to three years. Also, clients may be able to stay on the COBRA dental insurance and vision for as long as they are entitled to COBRA.

Cobra Eligible after turning 65

If your client delayed Medicare Part A Hospital and or Part B Medical because they worked past 65 and now has plans to retire and become COBRA eligible, they must be allowed to maintain their COBRA coverage.

When retiring after 65, they must enroll in Part B Medical no later than their 8th month of COBRA coverage. It is highly recommended that clients begin their Part A Hospital and or Part B Medical enrollment paperwork at least two to three months from their desired retirement date. Getting a head start on signing and submitting the L564 “Request for Employment Information” form and CMS 40B “Application for Enrollment in Part B” form helps avoid processing delays, lost paperwork, and gaps in coverage due to primary/secondary Medicare Secondary payor rules.

If they fail to coordinate Medicare Part B with their retirement date, COBRA may not pay its share of claims since it is secondary payor to Medicare Part A and Part B. If clients fail to enroll by their 8th month of COBRA, they can be subject to a permanent late enrollment penalty for Medicare Part B Medical and will be required to wait months to buy and enroll in Part B Medical during the next General Enrollment Period which runs 1/1 to 3/31 for a part B effective date of the first of the following month. Ultimately leaving the client further exposed to gaps in coverage.

ACA coverage and turning 65

Clients who are on ACA subsidized plans will lose their subsidy upon turning 65. This subsidy removal can be a shock if they were receiving a few hundred dollars a month in subsidy and see a hefty auto draft come out of their bank account. Under these circumstances enrollment in Medicare Part A and Part B at 65 is normally advised. ?

Generally, it is advisable for clients to maintain a copy of all Medicare enrollment correspondence and forms to serve as proof of submission, if their Medicare application or paperwork is lost. This will protect them from incurring the lifelong Medicare Part B penalty and gaps in coverage.

3.????Telling clients Medicare will cost $164.90/month in 2023.

?IRMAA for your high earning clients is a sneaky surcharge that broadsides some clients. Since 2007 Social Security has added an Income-Related Monthly Adjusted Amount “IRMAA” to Medicare beneficiaries monthly Part B and D premium.

The standard part B premium for 2023 is $165.90/month. Social Security uses your client’s Modified Adjusted Gross Income “MAGI” income information provided and reported on their prior 2-year tax return to adjust this standard part B premium. Some examples of income in retirement that can push your client into high IRMAA surcharges are: Social Security Benefits, Wages, Interest, Pension and Rental Income, Capital Gains, Dividends and any distributions from any Traditional 401k, IRA or SEP Account.

If your client is retiring and had high earning years prior to their Medicare eligibility, they will see this adjustment and receive an IRMAA determination letter from Social Security indicating higher premiums owed on their Standard Part B amount. This letter can and will come as a shock if the client is not prepared.

There are ways to reduce and or remove IRMAA in certain circumstances. For instance, if your client has experienced a recent life event, like work reduction, retirement, divorce, death or marriage they can request a reduction in their IRMAA by using Form SSA-44 and writing a personal letter with proof of the life event. This SSA-44 form tells Social Security and Medicare that your client has experienced a life event and Social Security should set Medicare Part B and Part D premiums based on the client’s current and or anticipated MAGI not their prior 2-year tax return. ?Once Social Security issues its final decision on the IRMAA, the client’s IRMAA will be removed or reduced based on their anticipated MAGI for the current year.

Social Security is hit or miss with their approvals. We always recommend getting aggressive and appealing, if your client has had a life event. The appeal and request for reduction in IRMAA is free and if your client successfully demonstrates a change in their income they can save thousands of dollars in annual IRMAA Medicare premiums.

We always recommend clients pay their IRMAA while Social Security and Medicare process their SSA-44 form. Social Security and Medicare can take up to 90 days and sometimes longer to review and decide. If Social Security and Medicare approve the life event and removes or reduces IRMAA, the client will see a credit applied to their Social Security account for any overpayment of IRMAA.

4.????Advising clients to max out their HSA after they turn 65.

If your client is on a large employer group plan through their active employment, the large group plan is the primary payor and Medicare Part A Hospital and or Part B Medical becomes optional as a secondary payor.

Deciding to enroll in the Medicare Part A Hospital benefit is typically a good idea as most Medicare beneficiaries are eligible for premium-free Medicare Part A Hospital benefit, if they or their spouse worked at least 10 years. Medicare Part A Hospital will work as a secondary payor to the large employer group plan and can lower costs for hospital stays. Many large employer group plans have high deductibles $3,000-$5,000 triggering the secondary premium-free Medicare Part A Hospital benefit which can help reduce hospital costs.

However, if the client is enrolled in an HSA-qualified health plan through their large employer and the employer and/or client plans to continue contributing into the HSA, then delaying the free Medicare Part A Hospital benefitl is recommended.

Due to IRS rules, once a client enrolls in Medicare Part A Hospital or Part B Medical, then all HSA contributions must cease. ?

Two pitfalls clients can avoid when nearing their Medicare eligibility:

1. If a client decides to delay premium-free Medicare Part A Hospital enrollment at 65, HSA contributions must cease at least six months before the client submits their Medicare enrollment paperwork. When they are ready to move to Medicare, they receive up to 6 months of retroactive coverage from the month prior to their Medicare paperwork submission, not going back farther than their initial month of eligibility. If they do not stop HSA contributions at least six months before submitting their Medicare enrollment request, they may incur a tax penalty for having Medicare Part A Hospital and over contributing into their HSA.

2. Clients should stop contributing to their HSA six months before they apply for Social Security retirement benefits to avoid potential tax penalties. When they sign up for Social Security retirement benefits, Social Security will give them six months of “back pay” in retirement benefits and automatically backdate and commence their Part A Hospital benefit by 6 months, not going back farther than their initial month of Medicare eligibility at 65. Under IRS rules, the client is liable to pay tax penalties if contributions are made into the HSA while covered under Medicare Part A Hospital.

?If the client accidentally enrolled in Medicare Part A and has not yet applied for Social Security retirement benefits, they can withdraw their application for premium-free Medicare Part A Hospital to continue their HSA contributions. There is no penalty reapply for Medicare Part A Hospital at any future date. To withdraw their application, they will need to call Social Security Administration at 1 800 772-1213 and submit their SSA-521 Request for Withdraw of Application.

Clients typically cannot decline Part A Hospital while collecting Social Security benefits without a major hurdle. The only way to they can opt out of Medicare Part A Hospital and Social Security is to pay back the government all the money they have received in Social Security retirement payments, plus everything Medicare has spent on medical claims. These amounts must be repaid before the request to withdraw both Medicare Part A Hospital and Social Security retirement benefits is processed. If this action is taken, the client can later enroll in both Medicare and Social Security later without any repercussions but will need to be aware of both the 6 month “back pay” and commencement of their Part A Hospital benefit.

Once a client is enrolled in Medicare Part A Hospital and or Part B Medical, they can keep their HSA account and accumulated funds, but must cease contributions. They can spend from their HSA account for any qualified medical expenses, such as, premiums, IRMAA, deductibles, coinsurance and copays, and dental expenses. However, clients should be aware that tax-free HSA funds cannot be used for paying Medicare supplement premiums as these are considered a non-qualified medical expense.

5.????Fumbling Medicare paperwork ?

When your client qualifies for their Medicare Special Enrollment Period after they turn 65 due to loss of their large employer plan, they will need to submit two documents to request enrollment in Medicare. The two documents include CMS form 40B and CMS form L564 which serve as proof that your client held employer coverage and instructs Medicare on when to start the client’s Medicare Part B Medical benefit.

When a client delays Medicare Part B, it is important to check with the client’s employer offering providing the large group coverage to confirm that the coverage is deemed creditable coverage. The Medicare Modernization Act requires employers to notify Medicare eligible policyholders whether their prescription drug coverage is creditable, which means that the coverage is expected to pay on average as much as the standard Medicare prescription drug coverage. This creditable coverage letter and status will safeguard clients from late enrollment penalties when they drop the large employer group plan and enroll in Medicare.

Clients need to make copies of this creditable coverage letter and both the CMS 40B and CMS L564 form and keep in a safe place. Medicare and Social Security is notorious for misplacing forms and having a copy can avoid a real headache and financial burden.

Also, if a client held employment with multiple large employers after they turned 65, they will need to have each large employer complete an L564 form upon their exit. The client will need to obtain and keep an L564 form from each employer until they are ready to move to Medicare upon their firm retirement date. Obtaining L564 forms from previous employers can be next to impossible if the old employer is no longer in business, merged, or changed names.

6.????Reminding clients to Notify Medicare that they are leaving large Employer Coverage.

In a perfect world, your client’s transition off their large employer’s group plan and into Medicare is seamless.

However, each year there are limited situations when a client’s employer fails to properly notify Medicare that they have left, and their group coverage has terminated due to retirement or work stoppage.

The client goes to see their doctor shortly after their transition to Medicare. They show the doctor their Medicare card at the time of service. Medicare will deny these claims because it believes the bills should be paid by the large employer’s group plan first. ?Your client receives a denial of claims letter and calls you with confusion and frustration.

Medicare has an entire department that manages this headache. A simple way to help your clients retire and move to Medicare is to have them call Medicare at 1 800-Medicare after leaving the employer plan to confirm that Medicare shows as the primary payor and the group plan is removed from their file. In the event this does unfold after they have moved to Medicare and off their group plan, then the client will need to call Medicare’s Coordination Recovery hotline at 1-855-798-2627 to have Medicare move the group plan off their file and show Medicare as their primary payor. Typically, the provider will resubmit the claim to Medicare and Medicare will then be triggered as the primary payor. ?

CONSLUSION

These six scenarios are just a few of the many variables to be considered when clients near their 65th birthday or are thinking of retirement after 65. ?Help your clients get ahead of the curve by incorporating Medicare and health insurance consulting into your client retirement discussions. Lean on your trusted Medicare and health insurance resource to help your clients make informed and educated decisions!