For me, this is a year of "big" anniversaries. Sound Mind Investing turns 25, Susie and I will celebrate our 50th anniversary, and—stunning as it is for me to realize—I’ll be turning 70 in a few weeks.
That last item means I’m finally applying for Social Security benefits. I did that online recently in a relatively painless exercise. After a lifetime of paying in, it's time to begin receiving back. I've been told I'll receive my first monthly check for $3,368 next month. I don't know what rate of return that represents (I'll have to run the numbers someday), but I'm pretty sure it's not as good as what I would have earned on my own if the government had just let me keep all my money and invest it myself.
During that same process, I applied for Medicare. Of course, I had qualified for Medicare a few years ago, but wasn't eager to sign up. Why turn down "free" care? It's a bit of a long story, so if you're not at the age where Medicare is in your future any time soon, you might want to skip the rest of this article.
As you may already have found out (or will someday soon), attempting to understand the various complexities of Medicare Part A, Part B, Medicare Advantage, Medigap policies, and Medicare Prescription Drug coverage is not a task for the faint of heart. In greatly simplified form, leaving out the exceptions and the exceptions to the exceptions, here’s what I learned.
Medicare Part A (hospital insurance). This is the “free” part, that is, because of all the years of paying Medicare payroll taxes, I pay no premium for this coverage. Under Part A, Medicare pays part of the cost of my in-hospital care. So far, so good, I guess. The Medicare bureaucracy has the final say on which treatments it will pay for. You hear stories about Medicare refusing to authorize certain hospital tests that doctors want to run, but I don’t know if this is truly a widespread problem. Still, the thought is a little unnerving. For a list of what Part A covers, go here.
Medicare Part B (optional medical insurance at a cost). This covers doctors’ services and outpatient care. You aren’t required to sign up for this, but if you do there’s a monthly premium. For most folks, the premium is $104.90/month in 2015. However, that premium doesn’t apply to everyone. It goes up, depending on your “modified adjusted gross income.” Partially as a result of working diligently for the past 25 years to build our business (not to mention mortgaging my financial future and taking entrepreneurial risks to start SMI in the first place), I’ve been rewarded with a nice income. This display of courage and accomplishment now entitles me to pay a much higher premium: $335.70/month.
I would have thought that all those above-average Medicare taxes I have been paying for four decades would earn me a little favor, but alas, no. Here’s the way it works: the more you earn during your working years, the more Medicare taxes you pay. And the more Medicare taxes you pay, the
better Medicare deal you get worse Medicare deal you get. Nice.
Then there’s the question of having access to my current doctor. Under Part B, I would have access only to doctors who agree to accept the Medicare fee schedule. Mine doesn’t, so Medicare will be of no use with respect to his services. Then why would I want Part B? Because it’s likely I’ll need the services of a specialist or surgeon as I age. Those can be quite costly, so having insurance coverage seems like a smart move. For more on what Medicare Part B does and does not cover, go here.
After thinking it over, I decided I didn’t really want Part B — I just wanted catastrophic coverage with high deductibles that would cover the big items, like my current HSA arrangement provides me. I kept investigating my options.
Medigap policies (optional private health insurance). These policies are designed to help pay some of the costs that Medicare doesn’t, such as copayments and deductibles. I quickly discovered, however, that you generally must be enrolled in both Medicare Parts A and B in order to buy a medigap policy. So, no help for me there if I don't want Part B. For an overview of medigap policies, go here.
Medicare Part C, aka Medicare Advantage (private insurance approved by Medicare). This coverage became available in 1997, and replaces the need for a medigap policy. As with medigap, you must be enrolled in Medicare Parts A and B to qualify. There are many plans from which to choose, with a variety of premium levels and plan benefits. Again, due to the Part B requirement, this isn’t what I was looking for. For more on Medicare Advantage, go here. Consumer Reports offers shopping tips here.
At this point, I would have pretty much given up on adding anything to Medicare Part A. Would have liked to just sign up for Part A for hospital coverage and continue using my employer-provided HSA for doctors, etc. But then I discovered…the law says I can’t use an HSA if I’m entitled to Medicare Part A. But I like my HSA. I like having control over my choice of doctors, hospitals, etc. I like being the one to decide which tests I’ll get and which ones I won’t. Why couldn’t I just keep my HSA?
Well, it turned out I could keep my HSA arrangement if I give up my coverage under Part A. That’s the coverage for which I’ve spent a lifetime paying payroll taxes. If I apply for Part A, I can no longer contribute to my HSA, nor can the insurance company keep me as a policyholder. (There goes my catastrophic coverage.) This explanation from the AARP was helpful in clarifying my options:
Current law says that you can’t contribute to an HSA if you’re entitled to Medicare Part A (hospital insurance). But it’s important to know the difference in meaning between “eligible” and “entitled” as defined by government officials:
Eligible for Medicare means that you’ve met the requirements to qualify for Medicare Part A — in other words, you or your spouse have enough Social Security work credits — but you haven’t yet applied for it.
Entitled to Medicare means that you’re eligible, you’ve filed an application to receive Medicare Part A, and your name is already in the system — or that the application has been processed and you’ve been sent a Medicare card showing the date your coverage starts.
Turns out I’m “eligible” but not yet “entitled.” Who knew? So, which did I want more … my SMI-sponsored HSA or my “free” Part A coverage? I initially decided to keep my HSA (although I’m still a little steamed thinking about all those payroll taxes I paid). So, no Medicare for me, but at least I would have my Social Security benefits coming. Then I noticed this AARP comment:
If you’re eligible for Medicare but have not filed an application for either Social Security retirement benefits or Medicare, you need do nothing. You can continue to contribute to your HSA after age 65 and postpone applying for Social Security and Medicare until you stop working.
Wait a minute. Who said anything about giving up applying for Social Security? What if I wanted my Social Security but not Medicare? Amazingly, I discovered the government, under the Clinton administration, began forcing retirees into Medicare when they applied for Social Security. You can’t get one without the other.
This is particularly crazy when you consider the dire financial condition of Medicare. Here I am willing to forgo my benefits, which would help Medicare financially. But the government, which should thank me, won’t let me. Where did all this leave me? Applying for Social Security and, reluctantly, entering the maze that is Medicare Wonderland.
I'd be remiss to end this without mentioning that reports surfaced last week that Democrats and Republicans in Congress may have reached an agreement that would allegedly reform and strengthen the Medicare program. Here's a brief primer from the Heritage Foundation, a right-leaning think tank, that takes a negative view of the compromise because it will add to the federal deficit. Their main complaint is that the bill "would include roughly $200 billion in increased entitlement spending, with only $70 billion offset with spending entitlement cuts elsewhere."
Furthermore, since government rarely makes a promise it won't eventually break, some of the costs of the reforms will be paid for by a further "reduction in Medicare benefits for the wealthy." But of course.