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The Newly-Complex Medicare Decision!



The IRS has been in the news because of an unusual admission that they had been targeting conservative political groups for extra scrutiny (and many times, outright denial) related to non-profit status.

In these situations, I'm always reminded that however easy it is to see big organizations as monolithic monstrosities who act according to set rules, the more accurate assessment is that they are staffed by people -- warts and all.

Obviously, this wasn't the IRS' finest hour.

As we've corresponded with them over the years on behalf of clients, I always try to remember this truth. Because we all act differently when we remember that there is a real beating heart on the other end of our letter or email stream.

Now, speaking of monolithic government entities, I'm continuing my series about the Medicare Advantage decision, and its implications for those who are considering it. Let me know your thoughts...

Tony Khait, CPA, PFS's
"Real World" Personal Strategy Note

Medicare Non-Advantage?

Only a quarter of all Medicare participants have opted to use the private Medicare Advantage (MA) insurance option, and this number is expected to drop drastically over the next four years.

As I mentioned last week, the primary reason many choose MA is to minimize their monthly premiums. However, this monthly premium advantage could quickly become a disadvantage in several different scenarios.

The principal reason to avoid MA is because your options become limited to a predefined private health care network. Seeking care outside of this network will quickly lead to escalating financial woe.

The limitations of this network expand beyond asking your primary care physician if he or she participates. Consider that one day you may need a heart transplant or are stricken with a rare form of cancer. You can bet that the Johns Hopkins Hospital has never heard of your local insurance network.

A second disadvantage of MA exists for those who spend long periods away from home. MA plans are required to cover emergency services, so there's no reason to avoid a trip as brief as say, taking one more cruise ... but all nonemergency services will be charged at the out-of-network price. Some special policies allow snowbirds from the Northeast to remain in network when they winter in Florida, but this only applies to a limited set. If your vacation home is in Montana or the Cayman Islands, you should expect to pay a hefty price for things such as physical therapy, doctor visits and your prescriptions.

A third larger problem faces MA participants. The government pays a hefty subsidy to private health insurers for each MA plan, and these subsidies are scheduled to be drastically reduced in the coming years. The largest insurer, UnitedHealth, expects a 4% drop in subsidy beginning in 2014. And this is during a time when health care costs are expected to rise 3%, which means a 7% real reduction. By 2017, some are estimating that many regions (MA subsidies are set by county) will receive as much as a 60% cut in their subsidy.

Many of these cuts were part of President Obama's Affordable Care Act (ACA). The Congressional Budget Office projects that the law's payment cuts alone will result in three million fewer people enrolled in MA.

MA recipients should expect to see their monthly premiums rise to compensate for these cuts. As monthly premiums rise and extra benefits (like a gym membership and other preventive health measures) are cut back, seniors are more likely to switch their care to Original Medicare.

But some seniors will find themselves feeling trapped. Although MA participants can switch to Original Medicare every year during the open enrollment period without underwriting or extra cost, the same cannot be said for supplemental Medigap plans.

Medigap policies supplement Original Medicare by covering the excess coinsurance payments, among a number of costs, that would typically be out of pocket. A $100,000 doctor service could leave an Original Medicare participant with a $20,000 bill. Few retirees want to take this risk, and so they sign up for a privately managed Medigap policy.

These private supplemental policies offer essential coverage for what might otherwise be a financially catastrophic illness. But Medigap policies are allowed to jack up the premiums for those switching from MA with preexisting health conditions.

However, if your MA program shuts down and no longer offers insurance, you will be eligible for a Medigap policy without medical underwriting. Additionally, residents of New York and Connecticut have state laws that allow them to switch at any time without medical underwriting or extra cost.

Those who live outside of these states and have an imperfect health record will be asked to pay significantly higher premiums. And with MA in the crosshairs of a political battle over the future of government-funded healthcare, the reasons I've outlined here explain why so many are now opting or expected to opt, for Original Medicare.

All of this said, I should hasten to add that although I compiled this information through careful research, a decision of this sort should alwaysbe made with good counsel, for each person's unique situation -- all of which I obviously can't address here. So just let me know if you'd like me to point you in a good direction for that.


Tony Khait, CPA, PFS
(347) 673-6360