It’s still open enrollment, which means there is still time to make some changes to your healthcare. Today we are tackling the overwhelming topic of Medicare. And by we I mean me and Paul Ashley of First Person Advisors. He is my go-to benefits guy. He explains benefits issues with clarity and confidence, so I knew he would help explain this complex issue with alacrity. Check out this segment from The Pete the Planner Show where Paul gives his tips and insights into what you should know about medicare this open enrollment season.
Medicare is REALLY complicated, and the idea that at age 65 you will magically understand it is ludicrous. But this is the common expectation, that it will all just come together and work out when you are of age. Don’t let chance lead your decisions this open enrollment, the only way you’ll have the healthcare coverage you need is if you actually spend some time doing your research. Here are several important items you need to know and understand about Medicare going into this open enrollment season:
Understand Medicare Advantage:
Medicare Advantage or Medicare Part C is a package of benefits which includes Medicare Part A (in-patient hospital, skilled nursing) and Medicare Part B (physician visits, outpatient visits). This package will often also include Medicare Part D (drug coverage). This package is great because it doesn’t require the purchase of separate supplements, but the downside is that it’s a lot like an HMO in that it has a narrow network. This may be a problem for those who travel a lot or live in multiple locations.
What your HSA has to do with Medicare:
If you are currently contributing money to an HSA, good for you. HSAs are a very smart move. So what do your HSA dollars mean while you are on Medicare? The good news is that while those dollars can’t be used to pay Medicare premiums, they can be used for any out of pocket medical expenses you may have. And depending on how much you have saved you may not need to purchase supplemental Medicare if your HSA can cover you.
Keep adding new money to your HSA as long as possible:
Your HSA is an extremely valuable tool, but when you accept Medicare you lose the ability to add new money to your HSA. If you are planning on staying on as a full time employee beyond the age of 65 beware of automatic enrollment into Medicare. If you have the ability to continue to put new money into an HSA don’t lose the opportunity because you aren’t educated about enrollment.
One thing not to do and one thing to do:
If you spend HSA funds on non-qualified (meaning non-medical) expenses before you turn 65, say you buy a Harley with your HSA funds, then you will have to pay a 20% excise tax plus income taxes on the funds you used. This is obviously not a good idea. But what’s interesting is that after you turn 65 your HSA is available for medical expenses AND can also be used as income. This means you have the opportunity to use your HSA as a partial retirement savings account. The government’s cap on 401(k)s is $17, 500 this year and the cap for HSAs is $6,550 for families and $3,300 for singles, which means you can also use your HSA as a retirement savings account. Use your HSA for the necessary medical expenses, then leave the rest alone until retirement. This is my plan and it’s why I max out both contribution limits each year.
Attaining Medicare isn’t a win:
I talk to a lot of people about their retirement and many many people talk about Medicare like attaining it is some finish line they will cross into “free” healthcare territory. Let me demystify you of this notion immediately. Medicare isn’t free. Don’t believe me? Go back and look at every pay stub you’ve ever received. See those FICA taxes? Those pay for Medicare A. Want Medicare B? That’ll cost you $100-$300 a month depending on your income level. Want prescription drug coverage? Add another $30-$130 a month. Stop thinking of Medicare as something it’s not. More than anything you are just switching plans, and the cost may be less or more than you are paying now. It really just depends on what you determine to be your need at the time.
More than anything this post confirms how confusing Medicare really is. Research is really your only hope for understanding what is being offered and what you need to accept. As always, hit me up with any questions you may have and I’ll try my best to answer them. Also, shameless plug, I cover a lot of these Medicare issues in my book Your Money Life: Your 60s which will be released in January. Stay tuned for more info to come about book release details.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.