Social Security and Medicare for Financial Planners

1
Social Security and Medicare for Financial
Planners

• Presented by
• L. Sue Andersen, JD

2
Contents of Presentation

• Overview of Social Security Benefits--Slides 1-5
• Overview of Medicare--Slides 6-24
• Eligibility and Enrollment
• Benefits
• Interaction with Employment
• Continuing to Work
• Retirement
• Medicare Part D--Slides 25-32
• Case Studies--Slides 33-41

New
3
Social Security Overview

• Who Receives Benefits in 2008?
• 31.5 million retired beneficiaries and family
  members
• receiving an average of 1,079 per month in
  benefits
• 91 of those over 65
• 6.5 million survivors and children of deceased
  workers
• 8.9 million disabled beneficiaries and family
  members

• Who Contributes in 2008?
• 163 million workers
• Employer/Employee each contribute 7.65 of wages
  up to 102,000
• Self-employed 15.30
• What counts as quarter of coverage?
• 1,050/quarter
• www.ssa.gov/policy/docs/quickfacts/prog_highlight
  s/index.html

4
Exempt Earnings in Retirement

• SSA beneficiary between age 62-64 13,560/yr
  (1,130/mo)
• Above this amount 1 of SSA benefit for every 2
  earned
• During year of 65th birthday 36,120/yr
  (3,010/mo)
• Above this amount 1 of SSA benefit for every 3
  earned
• At Full retirement age
• No reduction

http//www.ssa.gov/retire2/whileworking.htm
5
What is Full Retirement Age?
Year of Birth Full Retirement Age 1937 or
earlier 65 1938 65 and 2 months 1939
65 and 4 months 1940 65 and 6 months 1941
65 and 8 months 1942 65 and 10
months 1943--1954 66 1955 66 and 2
months 1956 66 and 4 months 1957 66 and 6
months 1958 66 and 8 months 1959 66 and
10 months 1960 and later 67
www.socialsecurity.gov/retire2/retirechart.htm
6
Overview of Medicare

• Enacted July 30, 1965 to provide health benefits
  to older individuals
• were unable to get insurance in private market
• Created Medicaid program for poor women and
  children at same time
• 1972--added disabled individuals and end-stage
  renal disease individuals
• Part of Title 18 of the Social Security Act
• Amended many times to
• add benefits/beneficiaries
• increase/decrease payment to providers
• add new providers

7
Parts of Medicare

• Part A
• The Medicare trust fund
• Funded by contributions from workers checks
  (FICA)
• Pays inpatient hospital care, nursing home care,
  home health care
• Part B
• Funded by premium payments from beneficiaries and
  taxpayer
• Pays outpatient hospital care, physician
  services, home health, lab and diagnostic tests
• Part C
• Managed care plans introduced
• Part D--later

8
Medicare Eligibility

• Anyone who is--
• U.S. citizen, or
• Legal alien resident and lived in the U.S.
  continuously for 5 years before application for
  Medicare.
• And.

• Individual who is 65 years and older, and spouses
  65
• Individuals who are disabled under SSA definition
• Who have received SSD benefits for 24 months
• Except individuals w/ Lou Gehrigs disease
• Individuals with end-stage renal disease
  (ESRD)--3 months after kidney dialysis begins

9
Who Pays for Medicare?

• Part A is free if--
• Work 40 or more quarters of Social
  Security-covered work during lifetime, or
• spouse has worked 40 quarters.
• (Quarter 1,050/3 months--see slide 3)
• ESRD patients with insufficient quarters of work
  can use parents Social Security quarters

10
Others Pay for Part A--

• You Pay for Part A if
• Work less than 30 quarters in SSA-covered
  work--pay 423/month in 2008
• Work between 30-39 quarters of SSA-covered
  work--pay 233/month in 2008

11
Part B--Is This Free Too?

• No. Everyone pays.
• 96.40 monthly premium
• In 2008, high income individuals pay more
• Individuals Married Individuals 2008
  Filing Joint Return Premium
• 82,000-102,000 160,000-200,000
  122.20
• gt102,000-153,000 gt204,000-306,000
  160.90
• gt153,000-205,000 gt306,000-410,000
  199.70
• gt205,000 gt410,000 238.40

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Medicare Enrollment

• Only during certain times. If fail to enroll,
• May have to pay penalty
• One 10 per month if you delay Part A enrollment
  (but only if you pay for Part A)
• 10 per month for each 12-month period you delay
  Part B
• 1 per month for each month you delay Part D
• BUT, several exceptions to penalty rules
• Delay in effective date of eligibility (until
  July 1)
• Can sign up for Medicare Part A B, or Part A
  only or Part B only
• Individual is Automatically Enrolled if--
• Sign up for SSA retirement benefits at 65
• If disabled, after 24 months of Social Security
  Disability payments.

13
Initial Enrollment Period (IEP)

• If dont collect SSA retirement benefits, first
  time individual can sign up for Medicare is IEP.
• 7 month period, beginning 3 months before month
  of 65th birthday and ends 3 months after month of
  65th birthday
• Effective date either the month of your 65th
  birthday or 1st month after you sign up.

14
Annual Enrollment Period (AEP)

• From January 1 to March 31 each year.
• For individuals who dont sign up during initial
  period and not eligible for special enrollment
  period
• Delayed effective date--Medicare is effective on
  July 1 of year in which individual enrolls.
• Penalties likely will apply.

15
Special Enrollment Period (SEP)

• SEP for Part A and Part B--
• Can delay Medicare enrollment without penalty--
• For individuals who work and covered by current
  employment health benefits, or
• Individual with employed spouse with current
  employment health benefits through spouse
• Individual is in SEP during other coverage and
  once current employment health benefits end, has
  8-month period from date of termination of
  employment health benefits to enroll.
• Do not have to wait until next open enrollment
  period
• No Part B penalty

16
COBRA AND MEDICARE

• Mary Smith will be 65 in two months and wants to
  retire. Shes currently covered by her
  employment health plan. She wants to know if she
  should take COBRA benefits for 18 months and then
  sign up for Medicare. What do you tell her?
• COBRA benefits are not current employment health
  benefits

17
COBRA and SEP

• COBRA benefits are not current employment health
  benefits.
• If she takes COBRA for 18 months, then signs up
  for Medicare, she will exceed her 8-month SEP
  period.
• Will pay a penalty for delay in signing up for
  Part A and B.
• She will have to enroll during the general
  enrollment period (January 1-March 31).
• Medicare benefits wont be effective until July
  of same year.

18
But, Might Take COBRA for Some Period.

• _____________________________________

SEP Period
April 1
June 1 Date of Retirement
February 28 Sign up for Medicare
July 1 Effective date for Medicare
June 1-July 1 Period of COBRA Coverage
BUT
SEP Period
September
May
March
Period of COBRA Coverage
19
Medicare Does Not Pay for--

• Eye exams, except for cataract surgery and 1 pair
  of glasses/contact lens following surgery
• Dental care, except if teeth extraction required
  for surgery
• Experimental treatment
• Routine physical checkups, except Welcome to
  Medicare visit for new beneficiaries
• Personal care
• Orthopedic shoes
• Personal comfort items (air conditioners, stair
  lifts)
• Services performed outside the US, except in
  emergencies, and
• Services for which the beneficiary has no
  obligation to pay (county ambulance paid for
  through local tax dollars)

20
Medicare Pays for--

• Part A pays for
• Limited inpatient hospital care, including
  psychiatric
• Blood (not 1st 3 pints)
• Hospice care
• Home health care
• Limited skilled nursing facility services
  (average of 28 days)
• Following 3-day hospital stay
• Need skilled nursing care or therapy 7 days/week
• Services only provided in inpatient setting
• Certified facility
• Drs plan of care

• Part B pays for
• Care in a physicians office
• Rehabilitation services--physical, speech and
  occupational therapy
• Outpatient surgery and diagnostic tests
• Ambulance service
• Durable medical equipment

21
Beneficiary Pays Part of the Cost of Care

• Part A
• Deductible 1,024 for each benefit period
• Hospital Coinsurance
• 1st 60 days 0 coinsurance
• 61-90 days 256/day
• 60 Hospital Lifetime reserve days coinsurance
  512/day
• After 150 days Full cost of care
• SNF Coinsurance
• 1st 20 days 0 coinsurance
• 21-100 days 128/day
• 101 days full cost of care

• Part B
• Deductible 135/year
• Once each year
• does not apply to mammograms, Pap smears
• Copayment 20 of most Part B services
• (50 copayment for outpatient mental health
  services)

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Beneficiary Cost-Sharing Paid By-

• Out-of-pocket
• Unpredictable cost
• Medigap supplemental insurance
• Federally regulated (Plans A-L)
• Retirement health benefits
• Decreasing availability
• Medicaid
• Must be really poor
• Then theres long term care--not covered long
  term by Medicare

23
Part D and Medigap Plans H, I, J

• Medigap--private insurance policies that pay
  expenses that Medicare does not cover. Plans
  A--J.
• After Jan. 1, 2006 Medigap plans H, I and J have
  been discontinued--
• People with these policies will be allowed to
  keep them as long as they dont enroll in Part D
  plan.
• If they enroll in Part D, prescription drug
  benefit must be eliminated and price of policy
  adjusted.
• If individual discontinues Plan H, I, or J, has
  guaranteed issue right to purchase Medigap Plans
  A, B, C, F or K or L.
• Two new high deductible plans will start--Plan K
  and L.

24
Medigap- 2008
25
Part C--Medicare Managed Care

• Cost-reimbursement plans first, risk plans
  introduced in 1997
• Medicare Choice plans included
• Health Maintenance plans--closed network
• Point of Service option--in-network, but could
  use out-of-network providers
• Preferred Provider Organizations--in or
  out-of-network providers
• Private Fee For Service
• Medical Savings Accounts
• Now, called Medicare Advantage Plans
• Annual Open Enrollment Period--11/15 to 12/31

26
Part D--Medicare Prescription Drug Benefit

• Began 2006
• Annual Open Enrollment Period
• 11/15-12/31
• May enroll in
• PDP standalone drug benefit offered by private
  company
• MA-PD Medicare Advantage plan offering
  prescription drug plan
• May also have Medicare drug benefit through
  retirement health plan (at least as good as)

27
Who Can Enroll?

• To enroll in stand-alone Prescription Drug
• Plan(PDP)-- individual must have Part A or Part B
• For Medicare Advantage Plan (MA-PD)--individual
  must have both Part A and Part B
• Individuals with both Medicare and Medicaid
  (dual eligibles) must participate.
• Must live in region offering the PDP or MA-PD.
• Pay the monthly premium--average of 39.86--
• Directly out of Social Security check
• Automatic credit card/bank withdrawal
• www.kff.org/medicare/healthplantracker/topicresul
  ts.jsp?i33rt1

28
Part D Enrollment

• Does a person with Medicare have to enroll?
• Mostly no. Is voluntary for everyone, except--
• A full benefit dual eligible--Individual with
  Medicare and Medicaid must enroll.
• If individual has other creditable coverage,
  does not have to enroll.
• Creditable coverage is other prescription drug
  coverage that is as good as or better from
  retirement plan, current employment plan.
• If have Medicare Part A or B, and have no other
  creditable coverage, and enroll late, then pay
  1/month penalty for each month delay enrollment

29
Whats the Benefit? Is a Good Deal?

• Benefits
• Reduced prices, maybe
• Government subsidy for all individuals with
  Medicare of about 1,200 per year. And more for
  low income folks.
• Catastrophic coverage for individuals with high
  drug utilization, depending on
• the number of drug used,
• cost of drugs
• Medicare Modernization Act set statutory benefit
• Plans may offer different benefit that is
  actuarially equivalent
• Plans are different--
• offer different/no deductible,
• different cost-sharing for generic/brand drugs
  (tiering) or
• require prior authorization or impose utilization
  limits on drugs

30
Statutory Part D Benefit
31
Only Certain Drug Costs Count!

• Called true out-of-pocket costs or TrOOP
• Dont count
• Drugs not on plan formulary drugs(unless granted
  an exception)
• Drugs purchased outside the US
• Over the counter drugs,
• Drug costs paid by other insurance
• Part D premiums.
• BUT NOTE Cost of drugs paid by charity, family
  member, or state pharmacy assistance program, or
  paid to drug company pharmacy assistance program
  do count toward TrOOP costs

32
Part D Retirement Health Benefits

• Employers/Unions offering Retirement Health Plans
  may--
• Purchase Medicare PDP or MA-PD plan for retirees
  including enhanced coverage
• Have retirees purchase Medicare PDP or MA-PD plan
  and supplement these benefits or pay part of Part
  D premiums, or
• Continue/Offer its own prescription drug plan
  that is actuarially equivalent
• Continue/Offer its own prescription drug plan
  that is not actuarially equivalent
• Discontinue retirement prescription drug coverage

33
Medicare Case Studies
34
Medicare and Employment

• Joshua, age 65 and Elizabeth Smith, age 62. Both
  are working, both have health insurance through
  their employers. Joshua decides to leave his job
  and calls you for help with Medicare. What do
  you need to know?

35
Medicare Choices (contd.)

• Joshua--He asks Cant I get COBRA and keep my
  insurance?
• Why?
• Cheaper? Not likely
• Better Benefits--possibly
• Yes, could get COBRA but COBRA ends once he signs
  up for Medicare.
• Could get Medicare, then continue COBRA benefits
• Probably doesnt make sense unless current health
  benefit pays for expensive care
• Better to go on Elizabeths health benefits, or
  Medicare

36
of Employees--Why Does It Matter?

• If he signs up for Medicare while he continues to
  be covered by current employment health benefits,
  Medicare will coordinate benefits.
• If employer has 20 or more employees, employment
  insurance pays 1st, Medicare pays 2nd.
• If less than 20 employees, Medicare pays 1st,
  employment health insurance pays 2nd.
• It doesnt matter really except for confusion
  about who pays what.

37
Medicare Enrollment Choices

• Joshua
• Does he plan to begin collecting his Social
  Security benefits?
• If yes, he will automatically be enrolled in
  Medicare. Does he have to take it? Why might he
  not want to take one or more Parts of Medicare?
• Doesnt have to get Medicare. Must affirmatively
  decline.
• May want to join Elizabeths health insurance.
• Better benefits
• Cheaper
• If enrolled in Elizabeths current employment
  plan, can defer Medicare enrollment without
  penalty.
• If he enrolls in Part A, or Part B of Medicare,
  may have to enroll in Part D, or be penalized.

38
Medicare While Working

• Earl is 67 and working with employment health
  insurance. He asks you whether he should get
  Medicarebecause he knows hes eligible. What do
  you ask him?
• How many employees does his employer have?
• Does his current health benefit plan pay for
  prescriptions and does he know if that plan is
  at least as good as Part D?

39
Part D--Why Does It Matter?

• If enrolled in either Part A or Part B of
  Medicare, and dont have employment prescription
  drug benefits that are at least as good as Part
  D, 1 penalty could apply.
• So, if Earl does have prescription drug benefit
  as good as Part D, he could sign up for Part A or
  B of Medicare.
• But why should he?
• Part A is free--yes but coordination might be an
  issue
• Part B--has to pay 96.40/month or more

40
Example

• Henry is 68 and stopped working 11 months ago.
  He had employment health insurance (with
  prescription drug benefit) and Medicare, Part A
  while he was working. He asks you whether he
  should get Part D now that he no longer is
  working? What do you want to ask him?
• Does he know if his drug benefit from his
  employment was actuarially equivalent to the
  Medicare drug benefit?
• On what date did his employment health insurance
  end?
• Why?

41
Thats All!

• Thanks for your attention.
• L. Sue Andersen
• Health Benefits ABCs
• 11101 Georgia Ave., 320
• Silver Spring, MD 20902
• [phone] office [phone] cell
• L.sue.andersen_at_gmail.com