USA TODAY International Edition
Reducing health care costs doesn’t have to be hard
Planning can make huge difference in cost of Medicare premiums
Health care costs in retirement can be quite large. In fact, some estimate that a 65-year-old couple would need $250,000 or more set aside in today’s dollars to pay for 20 years of such expenses in retirement. But experts say there are steps you can take to reduce the cost of Medicare coverage. Here’s what Robert Bloink, a professor at Texas A&M School of Law, and William Byrnes, the associate dean of Texas A&M School of Law, had to say:
Q When should people sign up for Medicare Part B and Part D and/or Medicare Advantage and/or Medigap insurance? What are some of the more important Medicare timelines?
A: Individuals are automatically enrolled in Medicare Part A when they begin to claim Social Security. The only way to delay coverage is by delaying Social Security, a decision that should be made taking into account the individual’s financial circumstances and life expectancy.
There are three basic enrollment periods for Part B. The initial enrollment period begins when the individual turns age 65 and lasts seven months — three months before his or her 65th birthday, the birthday month and three months after. Special enrollment periods may apply if the individual loses other group coverage after the initial enrollment period has ended (this period is eight months if it begins due to termination of employment or termination of the particular health plan). A “general” enrollment period is available in January through March of each year, though Medicare coverage does not begin until July 1 if this enrollment period is used and late penalties may apply.
If a taxpayer fails to enroll in Medicare during the first three months of the initial enrollment period, he or she will experience a coverage gap (one to six months) if alternative health coverage is not available. The special enrollment period applies only if the health coverage that is lost was provided by an employer during a time when the individual was actively working — retiree health plans and COBRA continuation coverage do not count.
Medicare Part D coverage can be elected during the initial enrollment period or during a fall open enrollment period that begins Oct. 15 and ends Dec. 7 (a coverage gap will apply if the open enrollment period is used because coverage will not begin until Jan. 1). As with Part B, a special enrollment period may apply for Part D coverage if the individual loses employer-provided drug coverage.
Medicare Advantage can be selected during an initial enrollment period (the same that applies to Part B and D coverage) or an open enrollment period (Oct. 15-Dec. 7). From Jan. 1Feb. 14, the individual can switch back to original Medicare coverage if he or she didn’t like the Advantage plan.
Q Should older Americans decline Part B and, if so, under what circumstances?
A: Many individuals wish to decline Part B coverage in order to keep contributing to an HSA or because they have access to another form of health coverage they’re already comfortable using. Before making the decision to defer, Medicare-eligible Americans must be aware of potential lifelong penalties that can apply if
Individuals are automatically enrolled in Medicare Part A when they begin to claim Social Security. The only way to delay coverage is by delaying Social Security.
they choose to decline Medicare Part B after they have become eligible. In order to delay Medicare Part B coverage, the individual must have group health insurance that is provided by his or her employer (or a spouse’s employer), and that group coverage must cover 20 or more employees. The employer-provided health coverage must also provide prescription drug coverage that is “creditable” (meaning it is similar to Medicare Part D coverage). If the individual does not meet the requirements for deferral, the penalty for late enrollment in Medicare Part B is 10% for each year he or she is late in enrolling. Importantly, this penalty is cumulative and will apply for each year the individual was late, for life.
Q What do older Americans need to know about HSAs and Medicare?
A: Once an individual becomes enrolled in Medicare, he or she becomes ineligible to contribute to an HSA (all funds that are contained in the HSA can remain in the HSA and continue to grow tax-free). What many overlook is that when one begins collecting Social Security benefits, he or she must automatically sign up for Medicare Part A, and thus must cease making HSA contributions — and a six-month retroactive benefit period applies so that HSA funds contributed within the six months before Social Security benefits begin can lead to unexpected tax penalties. Taxpayers can specifically instruct a Social Security representative that they do not wish to receive the six months’ worth of retroactive benefits to avoid penalties on HSA contributions made in the six months prior to collecting Social Security. However, taxpayers who take this route should avoid enrolling online and should instead make a phone appointment or an appointment at a Social Security office.
Q What do older Americans need to know about income-based surcharges and how they can reduce or eliminate those surcharges?
A: Medicare income-based surcharges are determined based on a sliding scale that uses the recipient’s modified AGI to determine liability for Medicare premium costs. Five tiers of income levels currently exist, and the amount of an individual’s income-based surcharge is determined based upon the tier in which his or her income falls.
Importantly, beginning in 2018, a change in the rules will adjust the existing income brackets so that more moderate income taxpayers will find themselves in the tier that imposes the largest surcharge. It is also important to note that Medicare applies a two-year “look back” period in determining the income that will be used to determine premium costs. Basically, this means that an individual’s 2018 Medicare premiums are determined by looking at his or her income in 2016 — a system that can catch many by surprise.
Before an individual qualifies for Medicare, he or she can take steps to reduce modified AGI so more moderate income taxpayers will not be subject to the surcharges. For example, funds withdrawn from Roth accounts and HSAs are not counted as income for Medicare purposes and contributions to pretax retirement accounts and HSAs will reduce income accordingly.