What Financial Advisors Need to Know About Medicare
What Financial Advisors Need to Know About Medicare
by Kathe Kline
Originally Published on AdvisorHub.com
I am a retired Financial Advisor. I started in the business in 1990 and retired completely from Financial Advice in 2020. One area of my client’s financial world I knew nothing about until 2014 was Medicare.
I wanted to leave Medicare to the experts. I knew a little about it. That it starts at age 65 or earlier if you are disabled. I knew it covered hospitalization and doctor’s visits. I knew that there was a cost and something weird about how it covered medications.
What I didn’t know is how complicated it was. I have a degree in Financial Services. I’d been working as a Financial Advisor for over 20 years when my husband turned 65. But I hadn’t dug deep enough to understand that people turning 65 are bombarded with mail, social media ads, and sometimes TV commercials with half truths about how Medicare plans work.
As a financial advisor, you need to understand enough about Medicare so you can guide your clients in the right direction, but not so much that you have to spend hours dealing with the minute details. Let’s be honest here. Medicare is HUGELY important to your clients, but learning about Medicare, working with Medicare, and selling Medicare Supplement Plans or Medicare Advantage Plans is normally not where you should be putting your focus as a Financial Advisor.
I’m going to try to give you the information you need in a nutshell, but please understand that there is a LOT to know about Medicare, and I learn something new every week.
Medicare’s terminology can be confusing to many people. For example, Part A is the part of Medicare that covers hospitalization. There is also something called Plan A, which is a Medicare Supplement Plan. The confusing terminology of Parts and Plans is understandably confusing to your clients. Make sure that if you discuss Medicare with your clients that YOU use the right words so as to not add to the confusion.
Part A
Part A is the part of Medicare that covers hospitalization, hospice, etc. Think of Part A as buildings or places you might stay or get care overnight. Most people have pre-paid this over the years so it’s free at age 65. There is a per occurrence deductible and then a per day coinsurance amount which changes every year. The deductible is not exactly per stay, but I’m trying to keep this article simple. The deductible is not annual so your client can pay more than one Part A deductible in the year.
Part B
Part B is the part of Medicare that covers doctors, occupational therapists, physical therapy, etc. Think of Part B as the people you get care from. There is an annual deductible and coinsurance amounts depending on the service. Also, if the doctor accepts Medicare but not Medicare Assignment, then your client can be on the hook for an additional 15% of charges. This is often called excess doctor fees. I believe that over time, more doctors will start charging excess doctor fees. For example, as of this writing, the Mayo Clinic charges excess doctor fees. Although many insurance agents downplay these fees, as a Financial Advisor you should keep in mind that there is NO cap on excess doctor fees.
Part C
Part C is Medicare Advantage. This is a private insurance plan which replaces original Medicare. Your clients must continue to pay the Part B premium but cannot use the original Medicare benefit. Once your clients transfer coverage to Medicare Advantage, then they are under the insurance company rules. Even if the plan is a PPO, they will be subject to pre-authorization for care, something that original Medicare normally doesn’t require for most Medicare-covered care.
Medicare Advantage Plans can be very attractive to clients. Many of these plans are zero-premium plans, meaning that it won’t cost extra on a monthly basis. They often offer attractive extra benefits which Medicare doesn’t cover. Some of them even offer a “give-back”, which means that they will offset the A portion of the cost of Part B. Access to “free” benefits, or “free” money is attractive. Although insurance agents who sell these plans cannot use the word “free” with clients or prospects, you and I both know that this is what the client is thinking.
These plans can be appropriate for many of your clients. There are a lot of advantages to Medicare Advantage Plans which are beyond the scope of this article. However, the client needs to work with someone who will fully explain the pros and the CONS of these plans prior to enrolling.
In many states, if your client has a pre-existing condition it will be almost impossible to leave one of these plans once enrolled for over a year. This is because the other type of plan which limits client liability (Medicare Supplement Insurance or Medigap) requires medical underwriting.
Part D
Part D is prescription drug coverage, which can be stand alone or part of a Medicare Advantage Plan. The main thing you need to know about these plans is sometimes your client will pay far more on Part D than he or she would on a work plan. This is because once the insurance company and the client hit a certain threshold (which changes each year) then the client’s costs go to 25% of the cost of the drug.
Here is a SIMPLIFIED example using my own drug, the EpiPen:
In 2021 the initial coverage limit is $4130.
My current copay (I’m not on Medicare but let’s just make it simple) is $100 and the cost of the EpiPen is $1500.
If I purchase three EpiPens, I have spent $300. The insurance company spent $4200. Now I’m in the donut hole.
The next time I purchase an EpiPen, my cost will go from $100 to $375, or 25% of the cost of the EpiPen. I will continue to pay the $375 until I’ve hit the catastrophic coverage threshold which in 2021 is $6,550.
What your client needs to know is that it is MUCH EASIER to get into the donut hole than to get out of it. Why? Because they are tracking what the insurance company and the client spends to get IN, but they are only tracking what the client spends to get OUT.
Oh, and one more thing. If your client doesn’t have a creditable drug plan and doesn’t purchase one when first eligible, a penalty of 1% of the average cost of drug plans starts building up MONTHLY. It doesn’t take long for this penalty to add up. Even if your client doesn’t take any drugs they should consider purchasing the lowest premium drug plan to avoid this penalty.
Medicare Supplement Insurance
Medicare Supplement Insurance (Medigap) plans do not change the way your clients use Medicare. They keep their original Medicare Plan and purchase a plan to fill the gaps. The most popular plan your new to Medicare clients can purchase now is Plan G. It covers all the coinsurance amounts of Medicare (i.e. 20% of doctors’ bills, the excess doctor charges, hospitalization deductible and daily charge, etc.)
The only charge that Plan G doesn’t cover is the Part B deductible, which in 2021 is only $203 per year.
Some insurance agents are touting Plan N right now because it’s slightly cheaper. However, it doesn’t cover excess doctor charges. If your client purchases a Plan N, please make sure they understand the risk they are taking for the future.
In most states, if your client wants to change plans, he or she must go through Medical Underwriting again. Some states such as California, Oregon and Washington, among others, require that the insurance companies accept clients when they want to make a change (under certain circumstances) but most do not. So the insurance company and plan your client chooses might be the one they have for life.
This article is just a primer. Of course it doesn’t contain everything your client needs to know about Medicare. I recommend that you direct your clients who are turning 65 to a site such as LearnMedicareUniversity.com to get easy to understand information prior to making a decision or speaking to an insurance agent.
Author’s Bio: Kathe Kline is a retired Financial Advisor who focuses on Medicare. She lives in South Carolina with her husband and dog Izzy. Through MedicareQuick.com she has helped thousands of people navigate through the sometimes confusing world of Medicare. You can follow her on Twitter at @KatheKline
