Medicare: Almost everyone over 65 takes it, yet clients and advisors alike maintain a variety of costly misconceptions about the government-funded coverage.
From bad timing and unnecessary penalties to doctors' visits and hospitalizations, these misconceptions can significantly disrupt retirees' long-term plans.
According to a study by the Urban Institute, in fact, for a 65-year-old of average income, the cumulative lifetime Medicare benefits are expected to surpass those of Social Security by 2055. Simply put, your clients are probably leaving money on the table if you're not talking to them about Medicare. Poor planning could make it even more difficult for them to weather the effects of healthcare inflation.
The following are a few of the most common myths and misconceptions regarding Medicare. Clear up these confusions, and you'll be well on your way to creating more realistic, sustainable retirement plans for your clients – not to mention furthering your reputation as a trusted advisor. Medicare is uncharted territory for pre-retirees, and still dangerous waters for current retirees. Becoming a resource is a surefire way to generate referrals.
MISCONCEPTION: Medicare will cover all medical expenses.
"People usually think Medicare will cover everything, and that doesn't work out well for clients who aren't healthy," says Joanne Giardini-Russell, Medicare advisor with Financial Architects Inc.
"They really get surprised when they realize only 80 percent is going to be covered," adds Ben Storey, Merrill Lync Director of Retirement and Personal Wealth Solutions.
That extra 20 percent can add up quickly — and along with the need for dental, vision and hearing coverage, it's one of the main reasons why people pursue supplemental insurance.
When it comes to additional insurance, clients can choose between Medigap and Medicare Advantage, though many don't even realize they have a choice.
"Typically, if a client has a Blue Cross plan under their employer, for instance, their rep will just transition them to a similar Advantage plan without even introducing them to Medigap," says Giardini-Russell.
The two operate completely differently, however, and can't be held simultaneously. Advantage plans are private alternatives to traditional Medicare, and they offer the same or better coverage with annual out-of-pocket limits. However, they usually include deductibles, copays and additional premiums.
Medigap, on the other hand, covers most out-of-pocket expenses for traditional Medicare recipients but doesn't include prescription drug coverage or other "extras" covered by some Advantage.
"You really need to tailor the choice to the client's lifestyle, cost threshold and goals," Giardini-Russell says.
Aside from supplemental and alternative insurance, many clients don't realize they'll have to pay on Medicare.
"People often assume they won't have to pay a premium, or they're surprised by the fact that their income impacts the premium," says Storey.
While most people won't pay a monthly premium for Part A (hospital insurance), premiums for parts B (medical insurance) and D (prescription drug coverage) vary by plan and income. The Part B standard is $134 in 2017, though the U.S. Centers for Medicare and Medicaid Services says most people who collect Social Security pay less — $109, on average.
If these disappointing reminders leave your clients itching for some good news, consider this: The Affordable Care Act added coverage for an annual wellness visit and eliminated cost-sharing for most preventive services. These include mammograms, bone mass measurements and screens for prostate cancer, colorectal cancer and diabetes, to name just a few.
"The goal of the preventive system is to avoid costs down the road, but people aren't using their Medicare coverage enough for these things, says Giardini-Russell. "Especially when they're used to poor private insurance. When clients get Medicare, I tell them to go to their doctors and get healthy."
MISCONCEPTION: Medicare will cover long term care
