Medicare explained

Medicare, it's done well for us so far. I thought the process was complicated and overwhelming. What are some of your biggest questions? Just having the right coverage. There are some costly mistakes people make. Help us avoid them. Know your enrollment time frames. Plan ahead so you know what's coming at you down the road. [MUSIC PLAYING] People have lots of questions when it comes to Medicare. When should I enroll? How much will it cost? What supplemental plans should I consider? Hi. I'm Ally Donnelly. Welcome to Fidelity's Money Unscripted. We're talking all things Medicare. We want to help you get the confidence to make choices about your coverage that are right for you. So we're going to be talking with Ryann Little on Fidelity's Medicare Services Team. She's going to answer common questions, but also help us avoid costly mistakes some people make. First, meet a group of women who are nice enough to share their time and table to talk to us about their own Medicare experiences. Don't blink. I know. Because it happens. I'm like, how did I turn 65? When did that happen? That's what I was going to say-- [LAUGHTER] That's what I was going to say-- I knew it. We're here to talk about Medicare. Nancy, you recently turned 65. Give me your overall impression of the enrollment process. A little bit confusing. And there's lots of steps and lots of timelines that you have to be aware of. And I definitely made a few mistakes along the way. Janet, you have a bit of a different perspective. You've been enrolled for a few years. How is it now that you're a little bit into the process? Honestly, I did not have any issues at all. Great. I applied for Medicare and Social Security. Well, I guess you're smarter than me. [LAUGHTER] And how do you find it now? Very easy. Oh, that's great. Yeah, very easy. You do have to know you need to supplement insurances, all different things. The difference is my husband and I have friends that are older than us. And they went through the process. And they passed it down to us. There it is. Jeanmarie, you still have a little ways to go before you need Medicare. Don't show off. Yeah, because she's younger. A baby. But when you hear about complicated, if we didn't have our friends helping us, what are you thinking as you're getting ready to enroll in Medicare? Overwhelmed, definitely. I had no idea, to be honest with you. I'm so grateful that I'm learning now through friends because I had no idea. What are some of your biggest questions? I want to make sure I have the best coverage, and I'm not financially burdened or-- Yeah, that's a big one. --exposed in any way. Yeah. Yeah. I think we just want peace of mind. You don't want to be worried about that. It's hard enough be aging, never mind to have anything else on top of it. We're going to get back to Janet, Nancy, and Jeanmarie throughout the episode. But I want to bring in Fidelity's Ryann Little to the conversation. Hey, Ryann. Thank you so much for having me. The women had and continue to have a lot of questions. And I know it's just a sampling of the questions your team gets. So I want to dig in. First and foremost, this is a Fidelity podcast. We're a financial services firm. So why are we talking about Medicare? Well, health care is such a giant piece of the retirement picture. So it's only natural that Fidelity wants to help with that. Recent Fidelity research in fact, shows that for a 65-yearold retiring today, they could be facing upwards of $172,500 of health care expenses in retirement. So it only makes sense for Fidelity to help people plan in a proactive way, in a holistic way, for all of retirement, including health care. So big picture, what is Medicare? Yes. So starting there, Medicare is a federal health insurance program. It was developed for people aged 65 and up, but also for younger people with certain disabilities or certain health conditions. When it comes to Medicare, it's very individual. It's only you on that plan, so no more spousal coverage or family coverage. Yeah, that was a big adjustment for the women in our Medicare roundtable. So I want to check back in with them. I really was trying to time everything. And I think that it's a little bit complicated because my son just turned 26 in April. I turned 65 in May. So he came off my plan. I was most concerned about him. Some people probably are just doing what Janet did and just going-- you weren't dropping anyone off your plan, right? You were just-- you and Steve are on the plan, and so it made that a little bit easier, probably. Janet, you had to do it, like Nancy said. So how was it for you? I waited until I chose to retire, so I didn't do it at 65. I did it at 66.5. So I didn't really have those moving pieces that I had to-- yes, you do have to go down and meet with the people at the Social Security office, which isn't always easy. Did you go to a class or anything? No, I did not go to a class. Jeanmarie, you're hearing this, what are you thinking? Well, I have a 21-year-old daughter, so I'll be in-- She's on your insurance? She is. Yeah. So I will be on in the same boat as Nancy, wanting to keep her on my plan until she's 26. In terms of overall costs, let's think about big picture. What surprised you? Or were there any surprises? It's expensive. There's no doubt about that because you're paying a Medicare premium. You're paying a prescription plan. You're paying eye plan. You're paying dental plan. It's very expensive. All separate, right? All separate. Yeah, yeah, yeah. I did compare because I was on an expensive family plan. I believe I'll be saving a couple hundred dollars a month once everything is squared away. Oh, great. Before we get into those varying costs and various parts, talk to me about avoiding what some people have found to be really costly Medicare mistakes. The most common mistakes I see is, first, missing those specific enrollment time frames that are unique to you. In general, that could result in penalties, financial penalties. It could result in a gap of coverage. So it's just really important to know your time frames. Secondly, the most common one I see is relating to prescription drug coverage, Part D prescription drug coverage. So generally speaking, Medicare wants to see everyone who is eligible for Medicare covered with prescription drug coverage. So that means that if possibly you delay your Medicare-- and I know that we'll probably talk about that in just a moment-- and remain on a group employer plan, or maybe you're a veteran, and you're covered under VA coverage for your prescription medications, that is considered creditable coverage. And what that means is that that coverage is expected to pay, on average, as much as Medicare would. So if you're not covered on something that's creditable coverage by way of the group employer plan or VA coverage, you should be enrolled into a Medicare prescription drug coverage plan. If you are not, they will penalize you down the road when and if you eventually do enroll into Medicare prescription coverage. And that penalty is pretty stout. So what they do is, they will take the number of months that you went without coverage and multiply that 1% of the national average for that year and however many months you went. So, for example, if you were without prescription drug coverage for five years, let's say-- that's 60 months-- they're going to penalize you 60% for every month that went by that you were not covered on top of what you're paying for your prescription drug plan. Oh, wow. That could be quite something. Absolutely. And it's important to note, too, that that penalty doesn't go away. It lasts for the remainder of your life. There's no cap on it. I want to make sure I understand that when you say-- that's for your life. So if I miss the five years, I'm going to be paying for that penalty the rest of my days? Absolutely. Even though it was just the five years? That's correct. And that's even if you're not taking any prescription medications, too. People coming into Medicare, transitioning for the first time, they say they're not taking any prescription medications. Why am I going to pay for prescription drug coverage? That makes sense, but not to Medicare. You need to be covered, even if you're not taking any meds. It's just tacked on for the future state. Wow. So many people are continuing to work and don't retire right at 65. What if I delay retirement, but I'm still on my employer's health plan. Do I have to enroll in Medicare at that point? Maybe not. You want to discover if your employer group plan is considered, again, that term creditable coverage. The magic word. Yes, absolutely. If it's considered creditable coverage, and your employer meets some certain requirements, then you can actually stay on your group employer plan through your working time and delay your Medicare coverage without fear of being penalized later on by late enrollment penalties. There are alphabet soup of Medicare, four different parts, from Part A through Part D. Yes. Let's break them down. And why don't we start with Part A? Absolutely. So original Medicare, Part A, is hospital insurance. So it covers items like inpatient hospital care, skilled nursing, hospice care, and in certain situations, home health care. Now, original Medicare Part B, that is medical coverage. That covers items such as outpatient services, or visiting your doctor's office, or your primary care physician, for example. Let's talk through A and B. What costs could I expect there? Yes, a simple question-- no simple answer there. So generally speaking, original Medicare, Part A and B, each have associated monthly premiums. They each have deductibles or maybe co-pays and coinsurance. However, when it comes to Part A, most people don't have to pay monthly premiums for Part A. And that is thanks to those taxes that you paid during your working years. So there is some good that comes of that. Yes, absolutely. Now, conversely, Part B-- Part B has a premium that most everyone is going to pay. That starts at about $185 this year. It could vary year by year. But it also can be up to $600 in some cases for folks with higher income. This feels like a great spot to head back to our table. One of my concerns was if you get hospitalized, one of the plans, you pay up front. I was concerned about that. I was concerned about co-pays. I wanted the plan that had the best coverage, the best prescriptions, covered travel, and that isn't going to be a huge out-ofpocket expense for everything. In terms of overall cost, tell me about that for your drug coverage. Not all prescriptions are covered. For instance, there's a particular shot that my husband is trying to get for his knee. And it's not covered whatsoever. And it's $1,200. But other than that, his regular medication and my regular medication, maybe $2-- Oh, great. --yeah, for a 60-day supply. Really, the medication was my biggest concern. So if a medication came up that was very expensive under the Medicare plan, did you go back to your doctor? I did, actually. Did you adjust? I did. I wrote to my doctor and said, thinking about going on Medicare, and can you see, is there an alternative drug that I can take instead of this? And he said, yes. I just say to myself, thank God, I don't take a lot of medicine. But that could all change by then. Amen, sister. Let's talk about our other options to pay those health care costs. Absolutely. Well, first to level set, so original Medicare, Part A and Part B, that generally covers about 80% of your medical costs. So you're left over with 20% exposure that is your responsibility. So the additional coverage that you mentioned is really there to help mitigate that exposure and help cover some of those expenses on the back end. And what could we consider? So this additional coverage comes in two different paths. So the first path is selecting a Medicare Supplement plan, also known as Medigap, along with a Part D prescription drug coverage. That's kind of a bundle plan. The other path that you could select is a Medicare Advantage plan. That's also known as a Part C plan, sometimes referred to as an all-in-one type of plan. I know this is one of the biggest questions you get, just right out of your answer. So what's the difference between a Medicare Advantage and supplemental plan? Both of these options, or directions, do help mitigate your out-of-pocket exposure after original Medicare. Medicare Advantage plans first, or part C, those are all-in-one type of plans. They offer everything that original Medicare offers you as far as coverage goes, but they also include additional coverage, maybe for prescription drug benefits built into the plan, or maybe even coverage for dental or vision or hearing, all tacked into one plan. So what type of person might they be good for? So Medicare Advantage plans might be a good fit for those who want a lower monthly premium, and are comfortable paying copays and coinsurance as they go, as they utilize those medical services. They might be comfortable seeking care within a defined provider network, and also for those who want prescription drug coverage and extra benefits included all in one plan, one coverage, one ID card that you use all the time. Then what's a Medicare supplemental or supplement plan? Sure. So a Medicare Supplement, also known as Medigap, along with a Part D prescription drug combination, those plans come secondary to Medicare. So you have to have original Medicare in place before you enroll into a Medicare Supplement or a Part D plan. And who might think, perhaps, that's the path for them? Medicare Supplement plans may be good for people who are comfortable paying higher monthly premiums to limit out-of-pocket spending on coinsurance and copays, want the freedom to access doctors and hospitals throughout the United States, as long as they accept Medicare, and they're willing to buy those extra benefits, like dental and vision, separately. Let's get back to our Medicare roundtable and talk about those initial sign-ups of Part A and part B for them. One thing that I didn't realize is that you can't even get the supplemental plans until you get A and B. I thought I was going to go on the computer and get A and B immediately. It took about 35 days for them to look at my file and approve the A and B. And because I waited, I was doing that in June. And my plan was expiring in July. So I kind of cut it close. So now, my medications don't even kick in until September. I had no idea that was going to happen. I thought everything was going to be effective August 1. That's a learning curve. Oh, definitely. Then I have to allow enough time. Could you have done it differently? Well, I probably should have done it all in May. But I was still making decisions about staying or not or whatever on our company plan, waiting to see what those numbers look like. Oh, interesting. So pay attention to timelines. I will. Yeah. Ryann, we mentioned earlier that the cost of Medicare varies depending on your income. Map that out for me. So for example, when you sign up for your Medicare Part B, Social Security is going to take a look at your tax returns from two years prior. Just two years? Just two years, at that moment in time. And then based on a calculation of your modified adjusted gross income-- the acronym for that is MAGI-- they're going to determine if you have to pay an additional surcharge on top of the base monthly premium for Part B that everybody pays. That surcharge is known as the income-related monthly adjustment amount, or IRMAA for short. If someone does have to pay those IRMAA surcharges, are they stuck paying them the rest of their life? Well, it depends. So if you are someone that has higher income throughout the years, even though your income might fluctuate, you might be stuck paying those IRMAA surcharges. However, if you have a drop in your income, and it can be directly correlated to what Social Security recognizes as a life-changing event, then you can actually ask Social Security for a redetermination to possibly lower or eliminate those IRMAA surcharges that are added on to your base Part B and Part D premiums. You said life-changing events. Give me some examples. Absolutely. The most common examples people use for this redetermination could be work stoppage or retirement, for example, marriage, divorce, death of a loved one. So those lifechanging examples are the ones that are recognized. But it's on me to let them know I've had this event. That's correct. This is a lot. And like Nancy said, she was feeling really overwhelmed. What's out there? What can people do to navigate the complexities of Medicare? Absolutely. Medicare is such a giant topic. Medicare.gov, the website, is a great resource to turn to. You can also seek out the individual health insurance carriers that offer various Medicare plan products. You can also seek out an independent agent that represents one of those Medicare insurance plans. Or you could maybe go to your State Health Insurance Assistance program-- that's known as the SHIP office-- sometimes your local senior center to seek some additional help and guidance there, and then lastly, maybe even an insurance broker. What is an insurance broker, and any watch-outs we should be aware of? So Medicare brokers, they're licensed to sell a variety of the Medicare insurance plans. But they shouldn't rush you or pressure you into enrolling into a specific plan that they sell, necessarily. They should be more consultative in their approach. They also shouldn't be discussing certain other products in your Medicare meeting. They shouldn't be trying to sell you life insurance or annuities or anything like that. Fidelity is a broker. So Fidelity Medicare Services operates as a broker. We have a team of licensed health insurance agents. They specialize solely in Medicare. They're actually salaried employees. They're not incentivized by commissions to steer you into a certain plan. Their ideal goal is to just guide you to your ideal outcome and make sure that you're confident in your health care choices in retirement. And finding someone you trust, especially for health care, is important. It certainly was to the women we talked to. Let's get their take. A friend of mine that lives here is 78. And I said-- we were having wine one night at the club, and I said, so, Denise, do you know anything about this Medicare stuff? Because I'm kind of confused. She said, I got a guy. I said, OK. And I knew she had a guy for everything. So she gave me the guy's card, and he was the first consultant that I called. So he actually educated me a lot. Is this what my raging cocktail party conversations are going to be from now on? Probably. Hey, you got Medicare? How's that going? Life changes. Exactly. That's awesome. How depressing. [LAUGHING] Well, but think about it, though. What if you get seriously sick? You don't want to make bad choices, and then you're seriously sick or in and out of the hospital or whatever, and you can't afford to pay for it. Janet, where do you think you would be without the senior center? I would not be in good shape, by any means, because it is a big decision to retire, a very big decision. It's life-changing. And you really have to have your eggs in order, as far as to want to go on and live a comfortable life. So what's your advice for Jeanmarie? Just be aware. Pay attention. Ask questions. And enjoy your youth. That's my advice. But this is what you do. You learn from your friends. That's what I had to do. Friends that were older than me guided me in the right direction too. I guess I needed more older friends. We're learning. We're learning. Ever important question-- when do I enroll in Medicare? Absolutely. So upon your 65th birthday, most people are going to utilize their initial enrollment period, or their IEP, to enroll into Medicare. That's a seven-month window, three months before your 65th birthday month, then your birthday month, and then three months after. So you can utilize that time frame to enroll into Medicare. Now, again, if you are someone who is going to continue to work past the age of 65, and you're going to stay on your creditable group health insurance coverage, then you will actually utilize a special enrollment period when you come off of that group plan that helps you avoid any late enrollment penalties down the road. Do I need to revisit my plan once I've made it? Emphatically, yes. You should do that. So take advantage of Medicare's annual enrollment period. It happens every year, October 15 through December 7. Especially if you're enrolled into a Medicare Advantage plan or a prescription drug plan, you want to review your plan and make sure that it fits your needs at the lowest cost possible. Plans change every year. The benefits change every year. Your needs could change every year. So it's just really a great time to review that plan and make changes if necessary. What if I don't make any changes? If you don't make any changes, if you're happy with your plan, you continue to pay any premiums that are due, that plan will automatically renew January 1, and you'll continue on with the same plan. I want to give you the last word, but let's check in one final time with our roundtable. Overall thoughts about Medicare, now that you're in it. Janet. Medicare, it's done well for us so far. Again, we're new to it. But we haven't been hospitalized But what we have had to use so far, I've had no issues. Nancy, how about you? That's good to know. Yeah, I just want to stay healthy and not get sick. Jeanmarie, after you've heard everything, some flags and some goodness, just end of the day, how are you feeling now that you're getting closer? I think I'll be able to navigate it much more than If I hadn't had this conversation or had friends that are talking about it. And I will definitely do a lot of research. Ryann, we have definitely given people a lot to consider. If they're walking away from this conversation, you really want them to remember key points. What would those be? Sure. So first, know your enrollment time frames. Each person's time frame could be a little bit different depending on their unique circumstances. But do the research, plan ahead, so you are avoiding those possible penalties or missteps. Secondly, I would say ask a lot of questions. Find a trusted resource to gather that information so you can plan ahead and know what's coming at you and why Medicare is so different from what you're used to in health insurance. And lastly, review your coverage annually. This is so, so important for people to remember. Medicare's annual enrollment period is a prime time to do that because your plans could change. The cost could change. And you don't want to be on a plan that doesn't meet your needs. Ryann, we have jammed so much information into this conversation. But you made it really clear and understandable, so thank you and thanks for being here. Thank you so much for having me. If you need help finding the right Medicare plan for you, or maybe you're weighing whether to delay enrollment, we have some great resources on our website. It's Fidelity.com/MoneyUnscripted. Be sure to like, follow, subscribe to the podcast, and we'll see you next time. It's your life. Get your money's worth. [MUSIC PLAYING] [Disclosures] Investing involves risk, including risk of loss. We do not offer every plan available in your area. Please contact Medicare.gov, 1- 800-MEDICARE, or your local State Health Insurance Program to get information on all of your options. Fidelity Medicare Services is operated by Fidelity Health Insurance Services, LLC (“FHIS”), and FMR LLC (“FMR”) is the parent company of FHIS. 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