As we begin breathing again after completing an incredibly busy 2021 Medicare Open Enrollment season, we’ve begun to reflect on what we learned, how to improve our processes, and on the trends we have observed and anticipate continuing.
For starters (and this is something we began noticing in the fall of last year), many people are reevaluating their work lives and considering retirement — something they would not be doing were it not for the pandemic:
- Some had continued to work beyond the age of 65 and deferred enrollment into Medicare because they had employer-sponsored health insurance.
- Some are still a few years away from turning 65 and are now thinking of retiring.
- Some were laid off and/or were offered exit packages from their current employer and felt forced into a new work/health insurance situation.
Whether voluntarily electing to make a change or being forced into one, many people have decided that it is time to move on. Here are some of the changes they will experience…
In October, Social Security Administration (SSA) informed approximately 70 million Americans that they would receive a Cost of Living Adjustment (COLA) of 5.9% to their monthly Social Security Benefits beginning with the December 2021 benefits, payable in January 2022.
But then, in November, the Centers for Medicare & Medicaid Services (CMS) issued a press release summarizing several changes in Medicare costs for 2022 that, taken as a whole, can be significant.
CMS must have anticipated receiving complaints about the fact that the COLA raise everyone just heard about would be nullified by the increase in cost for Medicare. So, they made it clear in their press release that the 5.9 percent COLA — the largest such increase in 30 years — would more than cover the increase in the Medicare Part B monthly premium.
And so it does. But… it does not tell the entire story. Here are some of the details:
Part B Premium
The monthly Medicare Part B premium went from $148.50 to $170.10.
Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A
Part B Deductible
The deductible for Medicare Part B went from $203 to $233.
Part B deductible is the amount of money that you have to pay out-of-pocket before Medicare begins paying for your outpatient healthcare costs.
In 2020, Medicare supplement plans were prohibited from covering Part B deductibles. Some of the reasoning behind this was that making Medicare beneficiaries pay the deductible themselves would cause them to think twice before going to a doctor, something that would possibly cost the Medicare system unnecessary money.
I struggle with this justification; we find ourselves having to persuade our clients to seek care from a doctor, as they tend to minimize situations that cause us concern.
Part A Deductible and Co-Insurance
The deductible for Medicare Part A went from $1484 to $1556.
The co-insurance amounts you pay per day for days 61–90 of a hospitalization went from $371 to $389. For days 91 and beyond, the amount went from $742 to $778.
Medicare Part A covers inpatient care in an acute care hospital, an acute rehab hospital, a skilled nursing facility for short term rehabilitation, Hospice Care, and home healthcare. For most people, it does not have an associated premium.
Part A deductible is the amount of money that you have to pay out-of-pocket before Medicare begins paying for your inpatient health costs.
Co-insurance amount is the percentage of costs of a covered healthcare service that you pay after you have paid your deductible.
Part D Deductible
The maximum deductible for a Medicare Part D Prescription Drug Plan went from $445 to $480.
Medicare Part D deductible is how much you pay out of pocket for your prescription drugs before your plan begins to pay.
Part D Coverage Gap
A coverage gap (also called the “donut hole”) results in a temporary limit on what the drug plan will cover for drugs. While in the coverage gap, you experience higher out-of-pocket costs.
The threshold to enter the coverage gap went up from $4,130 to $4,430. The threshold to exit the coverage gap and enter catastrophic coverage went up from $6,550 to $7,050.
“Catastrophic coverage” assures you only pay a small coinsurance, percentage, or copayment for covered drugs for the rest of the year.
The Part B and Part D Income Related Monthly Adjustment Amounts (IRMAA) thresholds changed. Along with that, the amounts you are required to pay if in a certain bracket went up in cost.
As a reminder, the Medicare Income-Related Monthly Adjustment Amount (IRMAA) is an amount you may pay in addition to your Part B or Part D premium if your income is above a certain level.
The bottom line for all these changes is simply this: For some people, the changes will result in much greater out-of-pocket costs for individuals on Medicare.
As you can see, health care costs in retirement can be significant! These costs should therefore be part of your overall financial planning. The last thing any of us wants is to be surprised!
With that in mind, here are some factors to consider at retirement:
- Your current cost for premiums and out-of-pocket expenses, taking into account how much or how little your employer may have subsidized the cost
- Your anticipated healthcare needs in the foreseeable future
- The needs of your spouse and when they turn 65
- The needs of any dependent children, including when those children will turn 26 and can no longer be covered under your employer plan
And here are some decisions our clients made following an analysis of their particular circumstances:
- Waiting to retire. Many of those under 65 were shocked at the combined premium, deductible, and out-of-pocket maximums of plans available on the Open Market. Those over 65 who had an IRMAA were surprised at the total cost for Medicare and its associated products.
- Partial retirement. Some negotiated for reduced hours — rather than total retirement — in exchange for allowing them to maintain their healthcare insurance, even if they had to contribute a bit more to their employer plans.
- Creative financial planning. For those subject to an IRMAA based on their MAGI (Modified Adjusted Gross Income) from two years earlier, some clients embarked on creative financial planning strategies to help minimize the amount they would have to pay when they did finally retire.
Last month, I mentioned that our role at Healthassist is to be a futurist, anticipating how illness and aging can impact our client’s functional abilities and capacity to care for themselves.
Likewise, we put on our futurist hat to help you appreciate the cost of healthcare in the years ahead, striving to help you avoid surprises.