Jason and Dr. Katy Votava talk about how to avoid common mistakes with Medicare.
Dr. Katy is the author of Making the Most of Medicare: A Guide for Baby Boomers, 6th edition. The 2020 edition will be released soon. Dr. Katy Votava is the President and founder of GOODCARE.com ®, a unique consulting firm working with a focus on helping people have the best healthcare coverage now and in retirement. Dr. Katy Votava is a Nurse Practitioner with a Ph.D. in healthcare economics from the University of Rochester and a post-doctoral fellowship at Harvard Medical School.
Dr. Katy has written Medicare articles for InvestmentNews.com. She is featured in the Wall Street Journal, New York Times, USA Today, CNBC, Money magazine, Financial Advisor, Fox News, PBS’s WealthTrack, Investment & Wealth Institute, and The Street.com. Dr. Katy is a sought-after speaker on retirement healthcare finance, Medicare, and Long-Term Care.
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Announcer: Welcome back, America, to Sound Retirement Radio where we bring you content, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. Now, here is your host, Jason Parker.
Jason: America, welcome back to another round of Sound Retirement Radio. So glad to have you tuning in this morning. You’re listening to episode number 231. The title is Let’s Take the Mystery Out of Medicare. I’ve got a great guest. I can’t wait to introduce you to her.
But before I do, as you know, we like to start the morning right two ways. The first is by renewing our mind. I’ve got a verse here for us. This one has really got me thinking lately. It’s Mark 10, verses 29 and 30. “Truly I tell you,” Jesus replied, “No one who has left home or brothers or sisters or mother or father or children or fields for me and the Gospel will fail to receive 100 times as much in the present age. Homes, brothers, sisters, mothers, children, and fields along with persecutions and, in the age to come, eternal life.” It’s the along with persecutions that’s kind of captured my attention here lately. Then Emilia won’t be joining us this morning. She did get me a joke to share with you and for you to share with the grandkids. It is why do hummingbirds hum? Because they can’t remember the words. Okay.
Taking the Mystery Out of Medicare, episode number 231. It is my good fortune to bring Dr. Katy Votava onto the program this morning. She is the president and founder of goodcare.com. Let me tell you a little bit about her before we bring her on. So Dr. Votava is a registered professional nurse and has a Ph.D. in health economics and nursing from the University of Rochester in Rochester, New York. She completed a pre-doctoral fellowship in community and preventative medicine at the University of Rochester and a post-doctoral fellowship at Harvard Medical School. Before starting goodcare.com, Dr. Votava worked as the director of clinical specialties and education at Visiting Nurse Service of Rochester and Monroe County.
With her in-depth experience as a nurse practitioner and healthcare administrator, Dr. Votava is an expert in healthcare reimbursement and outcomes, including those related to Medicare, Medicaid, and long-term care. And this next part, and I’m really excited about, but a major focus of Dr. Votava’s research is healthcare costs for people during their retirement years. She’s been published widely and frequently spoken on these topics. Together with other healthcare experts in their respective fields, Dr. Votava and her staff worked to develop customized solutions to clients’ questions and solve their healthcare puzzles, to help more people get the information they need about planning and paying for healthcare. In 2004, Dr. Votava created goodcare.com, an online source of information, resources, and free tools. Dr. Votava, thank you so much for being a guest on Sound Retirement Radio.
Dr. Katy: Well, thank you so much for having me today, Jason. It’s my honor and pleasure to be with you and your listeners.
Jason: Yes. This is going to be a good one. Medicare can be a bit confusing and I’m excited to dive into this with you. But before I start asking you questions about Medicare, your career path, starting out as a RN and now working as somebody that’s consulting in this field, tell me a little bit about how that came to be.
Dr. Katy: Yeah, the long and winding road or the yellow brick road of my career. As many people know, over the years, you do various things over time. I’ve always been a nurse, but early on in my career as a nurse practitioner in home care. I was a young nurse practitioner, just starting out in home care at a visiting nurse service in Rochester, New York. I learned that I needed to understand what healthcare costs and what Medicare had to do with any other insurance. That was actually over 35 years ago. When I learned that then because if I didn’t understand Medicare and all the ways care would be paid for, I could not take good care of my patients. Pure and simple. So I followed that path over my years and that’s how then I went on for the Ph.D. to study and started my own company, Good Care, because everybody wants good care.
Jason: Yeah, that’s great.
Dr. Katy: It’s my passion to take care of people.
Jason: Well, and I want to let our listeners know, your book. You have a book that’s going to be updated for 2020, it’s going to be coming out soon, called Making the Most of Medicare: A Guide for Baby Boomers. The number one best seller on Amazon in the category of Medicare, which is pretty cool. So that might be a resource they want to check out. I want to ask you, we’re going to dive into some of the details here on Medicare, but just at a high level, is do you think Medicare is a good value? So if we’re comparing somebody who’s age 64 before Medicare and then 65 after Medicare, is Medicare a good value compared to what they would be paying for healthcare coverage at age 64?
Dr. Katy: Certainly. Well, Medicare can be a very good value for people at 65 or many people under 65 because they’re medically disabled and are eligible for it too. The most important thing, how it can be not so great a value is when people don’t understand Medicare. So I’m so glad to be with you and your listeners today because it’s been proven in large studies that 90 to 95% of folks on Medicare overspend. That’s a shame when they’ve worked so hard and saved their money and are on a fixed income. They overspend because they don’t understand Medicare and they don’t understand how to shop for coverage to meet their needs. All about the details and understanding some basic things. It can be overwhelming and even confusing to begin with. But there are basic things people can learn to position themselves better so it’s the best value for them at 65 and beyond.
Jason: Okay, well, that’s why we’re doing the show. We’re going to take the mystery out of this today. I want to start at the very beginning. The very first question is when should most people enroll in Medicare?
Dr. Katy: Well, most everyone in the United States is eligible to enroll in Medicare when they’re 65 years old. That has been the case for a long time. Now, full retirement age is a little beyond 65. It’s 66 and then moving up. So people confuse Medicare with full retirement age. So it still is 65. What I say is read the meter, the Medicare meter I call it, when you’re 64 or maybe 63. To look ahead and say, “Where will I be when I’m 65? Do I need to enroll now?” Because many people are working beyond 65. If they are, they may need part of Medicare or they may need none of Medicare. But read the Medicare meter when you’re 65, understand your circumstances and what other options you may have. Then you are prepared to make that choice when you’re 65 and beyond that.
Jason: Yeah, and when you say full retirement age, you’re referring to social security for retirement age. Medicare enrollment is age 65.
Dr. Katy: Exactly.
Jason: So what about if you’re still working and you have insurance through your employer? Are you required to enroll in Medicare then?
Dr. Katy: Okay. If you are still working or your spouse that provides coverage for you is still in the workforce and getting coverage, they’re actually not required to apply for Medicare unless your plan doesn’t meet certain standards, particularly with the prescription drug coverage. The part D type of benefit. But most do now. Most of them do. But what you want to be careful about, do I need to enroll at 65 or not? Even if you could delay, which you can, it’s sometimes a good idea because if you really like the coverage you have and it’s economical, you want to keep it. If your current coverage isn’t working very well, then you have an alternative to go elsewhere and you want to consider that option as well for yourself. So whether to get in or not at 65, you determine.
Then even if you have current coverage and you stay with your coverage, should you get into part A, which is the hospital portion, and that’s the part we’ve all prepaid for. But be careful about part B because that’s outpatient. All the outpatient services. Seeing doctors, having MRIs, outpatient surgery. There is a premium for that. None of us have prepaid. If you don’t need that coverage, you can defer it to some time in the future.
But there is always an exception. That exception is, for those who are employed, but in a small company, and in Medicare’s definition, a small company is 19 or fewer people who are eligible for coverage, you don’t have to enroll in Medicare A and B. But if you don’t, the problem is your current employer coverage will only be a secondary. It’ll only cover about 20% of your needs because by law, Medicare, whether you have it or not, needs to be your primary. So as long as you’re in a company, here’s the rule. 20 or more, you like the coverage, and it meets Medicare standards, you can stay in it if you like. Then you are allowed to defer, this is really important, to enroll in Medicare until some time in the future. Then you can enroll when you want to, say a person retires at 67, 68, and you can get in without a penalty or a delay at that point. But you want to really understand those rules because those are places where I see people get tripped up more often than any other.
Jason: Yeah, that’s really-
Dr. Katy: And if you don’t understand, the worst thing is to see a person who thought they were doing the right thing and tried hard, but they were given well-meaning, but perhaps not good advice. Then down the road, they can’t get into Medicare when they need to and they might pay a penalty. You can pay a penalty the rest of your life for not getting into Medicare on time. So it’s important to really check it out ahead of time.
Jason: What is the penalty?
Dr. Katy: The penalty for not getting into Medicare part B in a timely basis is 10% per year on the base premium for every year a person isn’t in there. So on average, when people don’t get in, it’s about three years. That data shows it’s about 30%. The base rate is about 140-something a month right now, so you’re going to pay 30% more. And there’s a penalty to not get into part D for prescription drugs. That penalty is 12% per year for every year a person isn’t in there. So over three years, it’d be 36% more on premium for the person. Often, if you have a couple, if one member of the family was supposed to be in and the other one’s over 65, they probably both followed the same advice, so they might both be in a penalty position. So that means each person who’s paying their own penalty is going to pay 30% more for part B on average and 36% more for part D on average.
Jason: Wow. wow. Yeah, so very important that you get the timing of this right. Just something as simple as the number of employees in a company can determine whether or not you’re eligible. That’s really good to know.
Dr. Katy: Yeah.
Jason: So Medicare can be confusing because you’ve got all these different parts. You’ve got Medicare part A, part B, part C, part D, and then there’s Medigap. You touched on part A is hospitalization, part B is outpatient, going to the doctor. Part A is the part we’ve paid into, part B is the part that we pay the premium for. But just help us understand all this part A, B, C, D, and then Medigap.
Dr. Katy: Sure. Sure. I call it the alphabet soup of Medicare. It is very different than any coverage a person has in their working years. So of course, at first it’s a foreign idea. Medicare part A, yes, this is the part we’ve prepaid for without our payroll taxes. Whether you yourself have been in the workforce or you can claim it on your spouse’s record as well if you’ve been a full-time homemaker over those years. So part A is hospital, part B, as you said, is outpatient. That’s one of the premiums because there are multiple pieces of Medicare you pay premiums for. Part B, outpatient, you pay a premium. That premium is based on income. I’m sure we’ll talk about that a little bit to understand what impact your income may have on those premiums and how you can plan for it or make the most of it so to speak.
I’m going to skip over part C. I know that comes next in the alphabet, but part D is for prescription drug coverage. That’s relatively new in Medicare in the last 10 years or so. It covers prescriptions, drugs, medications that people take at home, most of them, and there is a premium for that as well as there are a lot of costs and Medicare part D co-payments and co-insurance that can make it actually quite costly for people. That’s why it’s really important to understand what plan is going to work best for you. Then it brings us to part C.
The reason I skipped over part C is that it’s really not a distinct part of Medicare even though they call it that. It’s a way to wrap part A, hospital, part B, outpatient, and part D, prescription drug, all together in a plan, much like you might have in employment currently or when you were in your employment years. It puts it all together in one insurance company and that can be easier for some people, it can be cost-effective. You have one card instead of multiple cards. That can work well in certain circumstances and in other circumstances, you might not do best to have a part C plan. You really might do best to have a part A and B, get your own standalone drug plan, they call it, and then get a Medigap supplemental to cover some of those other co-payments and co-insurance.
So I’ve already said enough that probably a lot of your listeners are thinking, “What is she talking about?” Really.
Jason: Boy, this… Really?
Dr. Katy: But I’m sure we’ll give them a few more pointers.
Jason: Yeah, it really can get confusing. One of the things you said earlier was about being able to qualify for A and B based on a spouse’s earnings record. We actually ran into a little bit of a nuance where the husband was older than the wife, the husband had stayed home and raised the kids. He was 68 years old at the time and his wife, when she turned 60, that was the triggering factor that made him eligible for Medicare because up until that point, he wasn’t eligible. So it was just kind of this nuance where she didn’t have to wait until 65 for him to become eligible, which is the first time that I had ever run into something like that, which was kind of interesting. The next thing I wanted to-
Dr. Katy: Right.
Jason: I wanted to ask you about, we’ve talked about A being the hospital, B being the outpatient, C being the Medicare Advantage where everything gets bundled in one, D being the prescription drug plan, and we talked about this being means tested. But I wanted to find out from you, you talked about those lifelong penalties and it’s easy for people to avoid those, what’s the key to avoiding lifelong penalties when enrolling in Medicare?
Dr. Katy: The key to avoiding lifelong penalties for Medicare when you do finally enroll is understand before you’re 65, do I need to enroll now or can I defer? Do I meet one of the qualifications to defer? Most common might be having employer coverage. If you don’t understand those rules, then you think you have your coverage. What commonly happens, people who let’s say they are employed and then they retire around 67 and they go into COBRA, you can only be on COBRA for eight months before you absolutely have to apply for Medicare. Many people think, “Well, COBRA’s 18 months.” But by that point, you have gone beyond the reasonable limit in Medicare’s opinion of when you should have been on that plan.
So that’s why it’s really important to talk with people, our book gives some good advice, but talk with some people who really understand the Medicare world ahead of time. Because if you know when you can get in and when you can defer and when you have something called a special enrollment period, in the future, you’ll be fine. But once you are in a penalty position, even someone, myself, who’s worked in Medicare a long time, I can’t get it out of it. I can help you and many others can help you figure out how not to get into that position. So it’s definitely a plan ahead thing.
Jason: How do people make the determination? If they’re eligible to defer at 65, they’re still working and they like their coverage and they’re eligible to defer, how do they make a good determination, whether it makes sense to defer or whether it’d make more sense to go on Medicare? Is it simply just looking at the premiums you’re paying through your employer plan versus how much you’d be paying through the Medicare supplemental and going that route?
Dr. Katy: It is certainly comparing numbers to numbers. But rather than just premium alone, you want to look at your total cost. Because premium is a part of it, an important part, but it’s not all. Even in your current plans, people have co-payments and things they pay when they pick up a prescription or something they have a test on. So look at what your total cost is currently and what might it be under Medicare. Compare the full costs between those two and see how would I be better off.
Another thing beyond cost is if I’m currently in a plan with an employer and the physicians I want to see and hospitals I want to go to are what are called out of network. Because now many plans are what I call network oriented where if you’re in the network, fine, you can go see them and if not, you can’t or it’s very difficult to. So you want to think about how is that plan working for you or a spouse. Are you able to access the types of care providers that you really need? If the answer is no, you really want to evaluate Medicare options that could be much broader than that. So it’s cost, the total cost-
Jason: Okay, folks. We’re back. Sorry about that. We got cut off from Dr. Votava. But Dr. Votava, you were just talking about evaluating the total cost as one thing to evaluate when making this decision when to enroll in Medicare. I wanted to ask you, when these Medicare Advantage plans first came out, I know some of the people that we would refer folks to regarding Medicare, they really liked the Medicare Advantage plans initially and then it seemed like the tide shifted and then a lot of people were recommending that they just choose more of the traditional Medicare part A, B, and get a Medigap plan and a prescription drug plan. Then it kind of went back to Medicare Advantage. It just seems like it’s shifting all the time. What are you finding right now? Are you more of a plan of the part C, the Medicare Advantage plans where everything’s bundled together? Or does it make more sense for people to go to more of the traditional route, the A, B, D, and a Medigap plan?
Dr. Katy: All right, Jason, well, the answer is it depends. I’m a fan of both given a person’s circumstances. It’s not clear cut at first, but here are the things to think about. One is network. The plans you’re looking at for Medicare Advantage is called part C plans and they’re corporate names. But are the care providers that you go to and hospital you want to go to, are they in network? Because regardless of the premium that looks maybe good and maybe the co-pays for your medications, but your care providers are not in network, that plan’s not for you. You want to then consider a plan where you put together the pieces separately yourself. As you mentioned, a part A and B. You get what’s called a standalone drug plan and you get a Medigap supplemental plan. Because putting it together like that, there is no network. You can go to any doctor, any hospital, anywhere in the United States.
The other reason to go that route is that if you have a lot of healthcare costs and you’re going to the doctor a lot and need equipment and other treatments, it actually might be more economical for you to go to Medicare A and B, get a standalone drug plan, and get a Medigap plan. As opposed to a Medicare Advantage plan, the premiums are pretty low on a monthly basis. There’s some that have no premium, 30, 40, $60 a month. As opposed to a Medigap plan can be $180 a month. But for those who have a lot of healthcare costs, it will fix your budget lower and you also won’t get the surprise bills if you had a lot of other tests and things done.
So first is network. Are your care providers in or out? Second is how’s my medication coverage? That’s where a huge variation is on what plan’s going to be good for me or another. Because they have to recover certain categories of medications. They don’t have to cover every one. Many plans will put one medication in a lower cost tier and the same medication in a different plan in a higher cost tier. So you really want to do your homework to determine what works for you and your family.
Jason: Okay. Folks, if you’re driving down the road in Seattle this morning, you’re listening to Sound Retirement Radio, you can find us on your favorite podcast player. You’re listening to episode number 231. I’ve got Dr. Katy Votava on the program with us this morning. She has a website called goodcare.com. Dr. Votava, you mentioned your new book’s coming out and a newsletter. I’m sure many of the people listening to this are going to want to reach out to you and follow you and keep up with the work you’re doing. What’s the best way for them to stay informed?
Dr. Katy: The best way for folks to stay informed with us, and thank you for asking about that, is go to our website goodcare, G-O-O-D-C-A-R-E, .com and you can sign up right there for our free newsletter. We will send notices out. For example, when our Medicare book is available for soft cover edition through Amazon or download on our website. So you just sign up for that and then we will also… We send out periodic information that we think can be helpful to people. We keep our lists confidential. We don’t sell our lists or give your contact information to anybody. We try and be as helpful as we can that way.
Jason: Awesome. So goodcare.com and sign up for the newsletter if you want to stay posted on these Medicare changes. The good news for our podcast listeners, Dr. Katy Votava has agreed to stick around after the radio show for some podcast extras, so I’m excited to get into that. Dr. Votava, one quick question. We’ve got a minute free to answer this one before we’re done with the radio segment. But if people start out on a traditional Medicare plan, they switch to Medicare Advantage, can you switch back and forth or are you limited?
Dr. Katy: Okay. The issue of being on one style of plan and another and switch back and forth, again, it depends. It depends somewhat on where you live. Different states have different rules of when you can go in and out, particularly of Medigap, and there are enrollment periods. So the time of year to think about it is in the fall when everyone could shop at least for a new drug plan, if not a new Medicare Advantage plan. But if you want to switch from Medicare Advantage plan to a Medigap plan, look ahead to see can I switch now without underwriting. Medigap plans can still do underwriting at some places, in some states, at some times. That’s the tricky part that you want to figure out. There also is a new opportunity to change plans in the first quarter of every year.
Jason: Actually, hold that thought. Hold that… Dr. Votava, hold that thought. We’ll come back for our podcast extras, but we have to be done for the radio. We’ll be right back.
Dr. Katy: Got you.
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Jason: Okay. Dr. Votava, welcome back. We’re here for our podcast extras. So you were just about to fill us in on something new. A new thing that changed here.
Dr. Katy: Yeah, things change all the time in Medicare and one thing that’s changed this past year is there is another new opportunity for people to reevaluate their Medicare plan. If they’re already in a Medicare Advantage plan, that’s what you have to be in, a Medicare part C or Medicare Advantage plan, in the first quarter of every year, so that means January 1st through the end of March, if you want to take a look then and see is there another Medicare Advantage plan that will suit me better or boy, I really am not doing well with my Medicare Advantage plan, perhaps it’s becoming more expensive or I need to see other care providers, that’s a time to say, “I’m going to look for a standalone drug plan and along with that, look for a Medigap plan and then make that transition.” The thing that’s tricky about that though is to understand there’s timing involved, that you have to apply for a Medigap plan and get accepted before you would ever want to drop your current plan.
So that’s the step I would do first, look for a Medigap plan if that’s what you’re interested in doing. Then get a drug plan. Once you’re approved for those, then you drop your Medicare Advantage plan. Again, it’s in the first quarter this year.
Jason: Okay. You mentioned earlier that most people overpay for Medicare. Why is that? Why are people paying more for Medicare than they need to?
Dr. Katy: Yeah. Well, one of the biggest drivers really is, and the research shows this, that people do not match up their healthcare needs with what the plan will cover. Commonly, people buy a plan based on premiums and I understand that. But you need to look a little deeper. What you need to look at are medications in particular since they change so much amongst plans and year over year. Industry knows that only 40% of people will shop around and I think that probably that’s even higher than actually happens. Over time, costs go up and you don’t realize it. So you really, in the fall of every year, that’s the time everybody can shop and change a drug plan or a Medicare Advantage plan, it’s October 15th through December 7th, and see which plan is going to be more cost-effective not only in premium, but out of pocket costs because that is what gets people. So that’s number one, is look for your drugs.
Number two is look for your care providers at the same time and see if that is working. If you do that, then you’re going to be in pretty good shape. The other things we talked about already on the show were get in on time and not pay a penalty for life. That’s something that you can plan ahead for.
Jason: Okay. October 15th to December 7th, key dates there. What’s the best way for people to do that research when it’s time to go shopping? How would you recommend they do that?
Dr. Katy: Sure. Well, there is a couple of good tools, Jason, to do that research and go shopping. The medicare.gov website has all of the plans available to people. I’d say if you’re a person who likes to shop on the internet, you probably adapt to that approach well. It does ask you a few questions upfront. It’s anonymous. You don’t have to sign in. You can if you want to. Actually, now there’s a… through the My Medicare website, if you go through that to then shop, they already know your medication history and it makes it makes it a little easier. So you can do it online.
But also, every community has resources through their area offices on aging that free and available for everyone to take advantage of. I recommend that people check those out ahead of time. A good website you can go to is called eldercare.gov. Eldercare.gov. Go to the website. Put in your ZIP code and it will tell you what organization your area is offering free Medicare services in terms of information when plans are going to be available and they’ll even have services at senior centers and public libraries or you could bring your medications with you and they will help you shop. It’s a really valuable thing. But word to the wise, get on the list early because those slots fill up. If you’re a procrastinator, which so many of us are, then it’ll be too late if you wait until the last week of enrollment. Those resources won’t be available to help you. So check that out. Eldercare.gov and medicare.gov.
Jason: One area that I remember years ago in the State of Washington, the traditional Medigap plans, while standardized in terms of what they cover, there were a bunch of different companies making the coverage available. The price from plan to plan could vary significantly. Could you talk a minute about that little nuance?
Dr. Katy: You bring up an important point, Jason, and that is that coverage is standardized by laws. Private insurance, but it’s standardized by law. But the price variation amongst the companies offering it can be quite wide. You can play 50% more. I’ve seen 100% more. That still is happening. So again, you want to comparison shop for your plans and be… My recommendation is pick a solid company. I mean generally the big name companies that you know of. Then once you find that, you want to go to the lowest price because the benefit is the same whether you get the highest price plan or the lowest price plan. You don’t get better benefit if you pay more. So do, again, some thinking ahead and some shopping around.
Jason: For our friends here in Washington, in the show notes we’ll include links to medicare.gov, eldercare.gov, as well as here in the State of Washington, we have SHIBA, State Health Insurance Benefit Advisors, and they actually post all of the premiums, the costs, for the different traditional Medicare plans. So people can just go through the list and look at them very quickly. So with prescriptions and the donut hole, tell us about the… I just met with somebody recently and they were telling me even after their part D prescription drug plan, some of these drugs can get very expensive, especially when they’re experiencing a healthcare event. In their case, thousands of dollars per month in prescription drug costs. So help our listeners understand prescription drug coverage and the donut hole, and then if there’s any way to help reduce these sometimes astronomical drug costs.
Dr. Katy: Well, the donut hole, it’s a weird nickname for something that… I think it’s insulting to my old grandma and it’s donut holes, which were a sweet treat she would make for us when we were kids. We’d go nuts for them. But the donut hole is a nickname for a coverage gap in care prescription drug coverage. It’s something you don’t have in any other prescription drug coverage. You’re right that people, once they have spent a certain amount out of their own pocket and there’s a formula about it, you can look at it in our book or you can go to Medicare and look at that formula, how it works, then people are paying a lot of money out of their pocket until they’ve spent at least over $6,000 this year. Then they’re not done. So it’s really important to shop when you have an opportunity.
A gentleman reached out to me the other day and he had an expensive medication. He wondered could he do better? Unfortunately, we can’t help him now because the window of opportunity was in the fall. The next time to look, and I told him, would be this coming fall. So know that time to shop because just because it’s costing a lot now doesn’t mean you couldn’t do better with a different plan. Then even when you’re doing your best, it can still cost a great deal.
So a couple of things you can look into are there is actually something called Extra help within Medicare to Help people with these high costs. It’s based somewhat on your income. That’s something you can look into. It’s called Medicare Extra Help. If it’s not for you, perhaps you have an elder in your family whose income is very limited at this point in life and they need help covering basic expenses, no less expensive medications, so look for Medicare help through the state health insurance information programs. They can help a person apply for that. The other thing is with very costly medications, and now there are a good number of them, talk with your healthcare providers. Some of the companies offer coupons and discounts that can help people get through that coverage gap, through that donut hole. But it’s a persistent issue in Medicare prescription drug coverage.
Jason: Awesome. We’ll put a link there too for Extra Help on Medicare on the show notes for this one too. In your bio, you talk about understanding healthcare costs in retirement. We developed, I don’t know if you know this, but we developed some software as a service called retirementbudgetcalculator.com. It’s a way for people to model their spending out into the future. One of the things that makes our calculator unique is you can assign a different inflation factor to each expense. So for example, if you want to put Medicare part B in there at $140 per month, you can do that. But what should people be using for an inflation factor? What do you think they should be assuming that those costs are going to increase on a year over year basis? Okay.
Dr. Katy: So sorry about that, folks.
Jason: That’s okay.
Dr. Katy: I hit the mute button.
Jason: So what do you think people should be-
Dr. Katy: Anyways, back to-
Jason: … in terms of inflation on these healthcare costs? What should they be expecting there?
Dr. Katy: What people should be expecting is that healthcare inflation, it runs two to four times the CPI, Consumer Price Index. So whatever inflation is running now, which what is it now, Jason? 2%?
Jason: Well, yeah.
Dr. Katy: 3%? Something like that?
Jason: Over 2%. Right.
Dr. Katy: Yeah. Use two to four times that. So use 6 to 8% more. People may say, “Well, that’s ridiculous,” but the problem if you don’t use a reasonable inflation rate for healthcare, which even though it’s unreasonable because it’s high, use the fact of a higher inflator because the further you are from retirement, the more important it is to do that because if you use just the regular inflation rate, the costs you face in the future will be much higher than you’ve planned for. You really will mess up your retirement planning because healthcare costs are not optional. It’s not like you can cancel a vacation or something. You plan ahead and use an inflator that’s 6 to 8%. Medicare B premiums will not go up that quickly usually. In the past, they have, so they could. Even Medicare D premiums don’t go up that fast. But what does go up are the out of pocket costs. That’s where you see co-pays and co-insurances rising in Medicare even though the premiums, in the last few years, they’re not going up that rapidly.
Jason: Okay. Okay. Well, that’s good. So for the folks out there that are using the Retirement Budget Calculator, it goes you a number. 6 to 8% for increasing those future expenses. We talked about people that don’t have a lot of income and the extra help that may be available for Medicare. Let’s talk about the people that have a lot of income and how that impacts the premiums that they pay for Medicare.
Dr. Katy: Sure. Medicare bases the Medicare part B premium, and actually, a surcharge onto part D based on folks’ income. It depends on what their income is and they look at it two years before the current year. So in 2020, they’re looking at 2018. What you can do is understand, again, thinking ahead, working with financial advisors like yourself to say, “Where will I be in retirement?” If I’m above the base threshold of $87,000 this year for a single person filing singly or a married couple this year is $174,000, you’re going to pay the base rate and you’re not going to pay more than that, which is about 140 for Medicare part B. But beyond that, you can spend 2, 3, $400 a month additionally based on your income or more.
What you can do is first of all make sure they know your income. Because if you retire, for example, this year and your income in 2018 is all they have and your income was higher because you were working, you are allowed to apply for reconsideration because they don’t know your new circumstance until you tell them. So read those notices that people get from Medicare and if you have that change in life circumstance, which people do, or when a family member dies, they have another opportunity, and there are several others that are on that form. Apply for reconsideration because if you do in time, honestly, I’ve never had a person who I knew was eligible who applied in a timely basis who didn’t get a reduction and pay that lower rate now.
The other thing you can think about is how to maximize your income in retirement planning that will not be counted for Medicare purposes. That is certain types of income that you might get from a Roth IRA distribution. That won’t count towards Medicare higher premiums. If you’ve saved money in a health savings account, you can use that. It comes out tax free. Even if you have a reverse mortgage, those dollars don’t increase how Medicare calculates your income. We’ve described that in our book of the calculation. Work with your tax advisor. So just know where you’re going to be, plan ahead for what you can, and also plan adequately.
Let’s say you do retire out of a job and you get a big payout. Well, in that one year, your income’s going to go higher. Social security won’t know for two years and they’ll tell Medicare then. So keep some money aside because for one year, your premiums will be higher regardless. So it’s just, as we’ve said all the way along here, is planning ahead, understanding where you stand, and making sure you’ve taken advantage of the opportunities you’ve had to respond to notices and to do your financial planning with folks like yourself in a wise fashion.
Jason: Yeah, I love that you emphasize cash flow and where the cash flow is coming from and the impact that it has in your life, not just based on how much money you pay in taxes, but how much you pay for other things like healthcare. It is all related. The hip bone’s connected to the…
Dr. Katy: Absolutely.
Jason: You mentioned HSAs there for a minute and we love the HSA because you get the tax break going in and then as long as you choose for qualified medical, it’s tax free coming out. So how do HSAs benefit people? Health Savings Accounts. How do those benefit people who are retired and on Medicare?
Dr. Katy: How a Health Savings Account can benefit a person who is retired and on Medicare is that anything they have saved, you would have had to saved in your working years when you had an option to contribute new money. Then it all comes out tax free when you use it towards your healthcare expenses, whether it’s Medicare premiums… you could use it for all your Medicare premiums except you can’t use it for Medigap. I don’t know why, but you can’t. You can use it for co-pays, you can use it for dental care, which is not covered under Medicare. So for the folks who are listening here who aren’t on Medicare yet, I am, myself, as you mentioned, Jason, I’m a big fan of saving money to the maximum amount in that Health Savings Account every year that you have it and making sure that you have maxed that out. Because it can really grow year over year and give you a nice budgeted amount of money that you have when you retire that you can use toward your healthcare costs.
But I also find, when you talk about mysteries, there are a lot of myths. People who work beyond 65 and can contribute to a Health Savings Account might be told or think they can’t because they’re over 65. They certainly can contribute as long as they are not in any part of Medicare, including part A, which many people historically would take because it’s free. Do not do that. Keep your Health Savings Account, keep putting money into there until such time you retire. Because just because you’re 65, you certainly, if you have a plan like that and you’re in the employer plan, you can contribute money into that account. Make sure you’ve maxed it out.
Jason: All right. Folks, you’ve been listening to an interview here with Dr. Katy Votava. She has a website called goodcare.com. She publishes a lot of information. She’s got a new book coming out on this. You can sign up for her newsletter. I sure appreciate all the extra time you’ve taken with us here, Dr. Votava, but I have just one last question for you that you triggered here in that last statement that you made. I mean, that’s about dental care. Because we’ve seen people with $30,000 in dental care in one year in their 60s and 70s. Is there a good way to plan for those dental care costs other than saving in the HSA?
Dr. Katy: Okay. How do we plan for dental care costs and how are we going to manage them when we get there is a big deal. Medicare does not, never has, covered routine dental except if you have some horrific thing with your jaw and have things we don’t want to have happen like you fracture your jaw, they’ll take care of that. But beyond that, they do not. So you can look at Medicare Advantage plans, which do… some of them have a dental benefit built into them. It’s not much, but it can help, particularly with routine cleanings, as long as your doctor participates in that plan. So look at that as a bonus. I look at it as a bonus in a Medicare Advantage plan. If it otherwise works for my needs and I can get some teeth cleanings, great. I’ll go that route. But don’t go to an Advantage plan just because of the dental plan.
But other things you could look at are a couple of things. More and more, and we do see some privately, some insurance you can purchase privately. That does work to help lower that cost out of pocket, look at very carefully. Talk to your current dentist and ask your dentist do they participate in any of those commercial plans. The other thing we’re seeing are discount programs out there where it’s not insurance, but it’s a discount and you sign up and pay a fee that’s lower. Maybe 80, $90 a year. You must go to the dentist on that list and they give you a discounted cost for your dental care.
Another thing people can do is just talk with your dentist and make sure they know you don’t have insurance. Say, “I no longer have insurance for my dental. Please charge me the lowest possible fare that you can,” because like every healthcare provider, they have different rates that they might charge to different clients based on whether they have insurance or don’t. Just talk ahead of time. Not necessarily actually with your dentist, but with the office manager and make sure they know your circumstance and that you’re getting the best possible rate you can get. But it is something that’s being talked about at a national level whether to add it in in some way. It’s not there yet under Medicare, so it’s really important for the person to take care of their own planning for that and look at the options available and reevaluate them periodically.
Jason: Okay. Dr. Katy Votava with goodcare.com. Katy, Dr. Votava, thank you so much for the work that you’re doing. Thank you for all the time you’ve taken to help educate our community about Medicare, how it works and things to watch out for. Any final words before we finish our time together today?
Dr. Katy: My final words are, Jason, for you and your audience, is I certainly wish you good luck and good health. All about thinking ahead of time. So just work ahead of time and recruit good folks. Then you’re going to be in the best spot you can be in. I wish you luck with all that.
Jason: Thanks so much. Well, we do appreciate your work and appreciate all your time. Good luck with the book that’s coming out.
Dr. Katy: Thanks a bunch.
Jason: Okay. Take care.