How to Help Clients Avoid Costly Medicare Mistakes

Q&A November 22, 2022 at 01:36 PM

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With just a couple of weeks left in the annual Medicare open enrollment season, financial advisors should touch base with clients to ensure their current health care plan is the right fit for them.

"Consumers leave a lot of money on the table when it comes to Medicare decisions," Philip Moeller, Medicare expert and bestselling author of "Get What's Yours for Medicare," explained in a recent interview with ThinkAdvisor. "The difference in out-of-pocket expenses can be thousands of dollars."

Navigating what he calls Medicare's "buyer-beware system" and then making the right choices is no cinch. There are many important variables that consumers "rarely look at," Moeller says.

The journalist and author's insights and in-depth knowledge about Medicare can be found in his "Get What's Yours" newsletter. He also provides individual consulting with his new "Medicare Coach" service.

Since Medicare is an annual plan, consumers have the option of switching from the plan they have to a different one during an "open enrollment" period from Oct. 15 through Dec. 7.

According to Moeller, the key decision is whether to keep or enroll in the federal program — original Medicare — and maybe in a Medigap supplemental plan, or sign up with a Medicare Advantage plan, offered by a number of private companies.

"Understanding the pros and cons of those two is essential for financial advisors if they're going to provide clients with informed advice on what's best to do," he maintains.

In the interview, Moeller, co-author with Boston University economics professor Laurence Kotlikoff and journalist Paul Solman of the revised and updated "Get What's Yours: The Secrets to Maxing Out Your Social Security," explains the main differences.

In our conversation, Moeller also discusses original Medicare's lower premium in 2023 and the high 8.7% cost-of-living adjustment (COLA) on Social Security benefits that net out to an amount that comes "darn close to fully keep[ing] up with inflation," he says.

Moeller explains, too, that starting in 2025, prescription drug costs will be substantially reduced for Medicare beneficiaries, thanks to the Inflation Reduction Act, passed on Aug. 16, 2022.

A former newspaper reporter and editor, Moeller later conducted the "Ask Phil" column for "PBS NewsHour," founded Insure.com and was a vice president at Genworth Financial.

His latest book is the guide "Get What's Yours for Health Care" (Simon and Schuster-2021).

Think Advisor recently interviewed Moeller, who was speaking by phone from Richmond, Virginia, his base. Here are excerpts from our conversation:

THINKADVISOR: What's your general opinion of Medicare?

PHILIP MOELLER: Medicare is a great health plan. But you need to know how to use it. This is where financial advisors can play a really valuable role, because affluent customers make mistakes just like the rest of us. So understand the rules.

Advisors have an obligation that their clients get this right.

You've said that Medicare is "a buyer-beware system" and if you don't know the rules, you can "lose a lot" of money. Please elaborate.

People make assumptions about what Medicare covers and what it costs that aren't based on firsthand information but maybe on what a neighbor has told them.

Research indicates that consumers leave a lot of money on the table when it comes to Medicare decisions.

Why is making the right decisions so difficult?

Every year Medicare plans change, especially Part D, which is for prescription drug coverage.

Companies look at the marketplace and try to optimize revenues by making smart decisions about what they're going to charge for drugs and what the co-pays and deductibles are.

Further, premiums change too.

Consumers rarely look at those variables. But the difference in annual out-of-pocket expenses can be thousands of dollars because of what one plan covers and another doesn't.

What's your best advice, then?

I urge people to use Medicare for their future self, not their present self.

The longer you live, the more you're going to spend on heath care. If younger people don't make the effort to learn about what their coverage is going to cost them, they could be sorry down the road.

What's the key choice regarding Medicare?

Do you want original Medicare with its Part D [drug] plan [plus] perhaps a Medigap supplement plan? Or do you want a Medicare Advantage plan?

Understanding the pros and cons of those two is essential for financial advisors if they're going to provide clients with informed advice on what's best to do.

Explain other basics of original Medicare, please.

The traditional approach for more affluent households has been original Medicare with the addition of a Medigap supplement plan that can basically cover all their health costs except for the Medicare premium and annual Part B deductible.

And the other option, Medicare Advantage plans?

In recent years, Medicare Advantage plans have become increasingly attractive. They cost less, cover things that original Medicare doesn't, like hearing, dental and vision. They often cover non-medical benefits, including age-related safety improvements to your home and transportation to doctors' appointments.

So we're moving into the era of insurance being not just for medical procedures but for other lifestyle choices that have a strong influence on health.

But isn't original Medicare running behind Advantage plans in covering those?

Original Medicare isn't allowed to cover them.

Advantage plans must cover everything that original Medicare covers. Where they differ is that Medicare Advantage plans can offer these additional benefits.

What else is important to know about Advantage plans?

They change every year. But people don't like to do health care homework.

So if a financial advisor has a decent Medicare IQ, they should be doing some of that work on behalf of their clients to help them make informed decisions.

Is it true that when you enroll in Medicare, you can't be denied coverage or underwriting based on preexisting conditions?

That's true for all forms of Medicare. The big fork in the road is this: Within six months of going on original Medicare, you have guaranteed access rights to a Medigap plan, which means you can't be [denied coverage] based on your age or a preexisting condition.

But after six months, those rights go away.

And where does it get really sticky?

A lot of people try Medicare Advantage, which means they can no longer have Medigap. But after a while, they might say, "I don't like this plan. I want to try original Medicare with a Medigap plan."

At this point, Medigap insurers have the ability to underwrite these people and charge them a lot more based on preexisting conditions — they could even decline to offer them coverage.

What are other major differences between original Medicare and Medicare Advantage plans?

With Medicare Advantage, you must use health care providers in the plan's network, and there are usually some pretty stringent prior authorization requirements before you can get the care.

Surveys indicate that up to maybe one-eighth of requested care is denied improperly by Advantage Plans because they have those very [strict] gatekeepers — who make mistakes.

With original Medicare, you can use any health care provider in the country who accepts Medicare, and you don't need prior approval. If a procedure is covered, you can get it, and Medicare is going to pay for it.

But what are some other advantages to Advantage plans?

If you don't need much health care, there's no question that Medicare Advantage plans are a cheaper way to enroll in Medicare. You still have to pay the Part B premium, but you may not have to pay much more than that.

Advantage plans also offer what I call catastrophic protection against medical expenses. There's a maximum out-of-pocket, which next year will be a little more than $8,000. That's your worst-case out-of-pocket. It doesn't include drugs, however; that's a separate out-of-pocket [expense].

Please contrast that with Medicare supplemental plans.

With those, you may have a much lower maximum out-of-pocket because they cover most of your health care needs.

With Advantage plans, even if you're healthy, you could be in an auto accident or have some untoward health event, and the plans will still give you some upside protection on your maximum out-of-pocket.

You've said that Advantage beneficiaries are "less likely" to enter the highest-quality hospitals or high-quality nursing homes. Please explain.

True. However, it's not such a degree of difference that you'd say, "Whoa!" But to me, it's a yellow light.

If people are interested in a Medicare Advantage plan, they should do their homework to determine whether their care will be adversely affected.

Is the dismaying so-called donut hole (Part D coverage gap) regarding drug expenses becoming any smaller?

I don't think it's getting much smaller.

The donut hole is the portion of Part D where your insurance coverage for branded and generic drugs stops for a period of several thousand dollars in expenses. Then it picks up again, at which point you'll be in the catastrophic phase.

Any hot news about Medicare?

Next year Part B premiums are lower, which is great because there's an 8.7% increase in Social Security's cost-of-living adjustment.

Most years, that COLA is eaten up by higher Medicare premiums, but next year it's going the other way.

Even if the net benefit maybe doesn't fully keep up with inflation, it comes darn close.

What's up with IRMAA — the income-related monthly adjustment amount?

Those are the high-income surcharges that are paid by about 7% to 8% of Medicare beneficiaries, and they are much lower next year than they were in the past.

More importantly, the brackets at which they trigger are much higher because of health care cost inflation. Those brackets get adjusted upward every year.

Now you have lower premiums and bigger brackets, which means that more affluent people will avoid the highest tier of those high-income premiums.

What's essential for workers to know about COBRA — the Consolidated Omnibus Budget Reconciliation Act — in relation to Medicare?

When a person leaves their job, they can get transitional health insurance under COBRA. It basically allows them to continue with their employer health insurance for up to 18 months.

Sometimes a consumer will try to time their Medicare decision so that they can save a month's premium. They want their coverage to start three seconds after they turn 65!

Trying to time it so that your COBRA covers you till the day you get your Medicare so you don't have unnecessary charges is a dangerous game to play.

People should make sure their Medicare is in place before their COBRA ceases to be their primary coverage, or else they [could] have a period where they don't have primary insurance coverage through either COBRA or Medicare.

I urge people to be aware that COBRA is going to cease providing primary coverage when you turn 65 if you're going on Medicare at that point.

How important is the Inflation Reduction Act — which became law on Aug. 16 — when it comes to Medicare?

It will begin to substantially reduce drug costs for Medicare beneficiaries. In 2025, you'll pay no more than $2,000 a year for drugs. This is particularly helpful for people who have more expensive drug needs.

Also by law, Medicare will have the right to negotiate the prices of a limited number of drugs. If drug companies raise their prices by more than the general rate of inflation, they'll be penalized and have to pay stiff penalties.

Financial advisors should know the terms of the Inflation Reduction Act and when the various trigger points occur.

Changes could happen every year beginning next year.

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