How can I switch Medigap plans?
Q: I have been enrolled in Medigap Plan G for several years, but because of price increases, I would like to switch to another Medigap plan. I am concerned that I will lose coverage for preexisting conditions if I switch. What are the applicable regulations?
A: Unfortunately, according to Medicare’s Annual Guide to Medigap, if you no longer have guaranteed issue rights, private insurers may be able to charge more for a new Medigap plan or decline to sell you a plan. Guaranteed issue rights are in effect only for the first six months after a person is enrolled in Part B of Medicare.
Here is guidance from Medicare.gov: “In most cases, you won’t have a right under federal law to switch Medigap policies, unless one of these applies: You’re eligible under a specific circumstance or guaranteed issue rights, or you’re within your 6-month Medigap open enrollment period.”
However, if your state has more generous requirements, or the insurance company is willing to sell you a Medigap policy, make sure you compare benefits and premiums before switching.
If you bought your Medigap policy before 2010, it may offer coverage that isn’t available in a newer Medigap policy. On the other hand, Medigap policies bought before 1992 might not be guaranteed renewable and might have bigger premium increases than newer, standardized Medigap policies now being sold.
If you decide to switch, don’t cancel your first Medigap policy until you’ve decided to keep the second Medigap policy. On the application for the new Medigap policy, you’ll have to promise that you’ll cancel your first Medigap policy. You have 30 days to decide if you want to keep the new Medigap policy. This is called your “free look period.” The 30-day free look period starts when you get your new Medigap policy. You’ll need to pay both.
My advice to you is to touch base with a Senior Health Insurance Program (SHIP) representative in your state (each state has a SHIP group, funded by the federal government) for assistance in evaluating whether it is to your advantage to switch to a new Medigap policy or stay with your existing plan.
Q: I will turn 72 in June 2021. When will I have to initiate required minimum distributions (RMD) from my IRA?
A: You will have up to April 1, 2022 to take your first RMD. However, if you do wait until 2022 to take that distribution, you will also have to take an additional distribution by the end of 2022. If you want to avoid taking two distributions in one year, you can take your first distribution by the end of 2021. Then you will be required to take one distribution by the end of each year after that.
Q: I received an IRA inheritance from my father in 2020. I understand that I am not required to make any withdrawals until the 10th year after his death. However, then I would be faced with a large federal income tax. What is the best strategy to grow the account and minimize taxes?
A: The best strategy will vary for each individual, and depends to a large extent on the federal marginal tax bracket in a specific year funds are withdrawn. For example, if an individual expects to be in a low marginal tax bracket 10 years after inheritance, then it makes sense to postpone making distributions until the 10th year. An individual who expects to be in a high marginal tax bracket in year 10 should consider partial withdrawals in, for example, years six through nine in order to avoid a large tax bill in year 10. This strategy takes advantage of tax-deferral of gains in the account for several years and avoids a large federal tax bill in the 10th year.