Healthcare

Mark Your Calendar: Medicare Open Enrollment Is Almost Here

You can’t tell it by looking at the calendar, unless you know what you are looking for, but we are getting ready to head into one of the most important times of the year. No, I’m not talking about the holiday season, although I’m sure we will be hearing Christmas songs sometime soon. It’s a particularly important time of year if you, or a loved one, are covered by Medicare. It’s the Medicare open enrollment period, the time when Medicare beneficiaries can make changes to their plan and pick one that works best for them. In effect, each year you get a “do-over” on choosing your plan. The open enrollment period starts on October 15 and ends on December 7.

Open enrollment is a big deal, but unfortunately, most people don’t take advantage of it. Make sure that you do not let December 7 slip by without at least reviewing your Medicare options. Don’t assume that the plan that was best for you in 2017 will be the best for you in 2018. Plans change every year, and the open enrollment period is your chance to trade in your old plan for one that fits you better.

Are you satisfied with your current Medicare plan? Has it changed? Have premiums or out-of-pocket costs gone up? Has your health changed? Do you anticipate any change in medical care or treatment? Is the drug coverage you have still appropriate? These are all important questions to ask yourself because during open enrollment, you can switch from Original Medicare to a Medicare Advantage plan, or from a Medicare Advantage plan to Original Medicare; you can change from one Medicare Advantage plan to another; you can enroll in a Medicare prescription drug plan (Part D) or switch from one Part D plan to another.

Speaking of prescription drug coverage, one of the big changes that occur every year is a plan’s formulary, the plan’s list of medicines that are covered and how they are covered. Drug makers can raise or lower their prices, which will have an effect on your plan. Maybe a cheaper, generic version of a drug you need has become available. A plan’s formulary is one of the things you must review when evaluating Part D coverages. What good is a plan if it doesn’t cover the drugs you need?

So, where do you start? First, you should receive a notice from your current plan about any changes that will occur in 2018. They are required to send the notice to you for review. And while it’s a bit of a long document, it’s not difficult to work through if you know what you are looking for. Here are some of the things you should be reviewing: monthly premiums—and any change from last year; deductibles—they generally change a bit each year, and some plans will absorb some of the cost increases; copays and coinsurance—and any changes in amounts or requirements; drug tiers—to see if any drugs that you take moving from one pricing tier to another; out-of-pocket-maximums—you may have two caps to review, one for health coverage and one for drug coverage; provider networks—to see if your doctor and hospital choices have changed; drug formularies—for the reasons mentioned above.

There are also two sites I would recommend that you spend a little time on. The first is Medicare.gov, which can help answer a lot of your questions. The second is Medicare Plan Finder, which will help you get specific information on the plans that are available to you.

Open enrollment is also important because it gives you, as a consumer, a big say in what plans are offered. The best plans available are rewarded with new business as consumers exercise their right to choose. The plans that consumers don’t like will have to either change or disappear. But while open enrollment is good in theory, most people typically stay with what they have, even despite evidence that they would be much better off by changing to another plan.

Don’t be most people. By spending a few hours each year reviewing the changes in your plan, and the other plans that are out there, you can become a savvy Medicare shopper. Many articles have been written about what health care costs will be in your retirement years. Here is one way that you can work to control those costs.

It’s No Secret: A Health Savings Account Can Make a Big Difference

A health savings account is the best type of investment account available that most people don’t know anything about. It can be better than a 401(k), an IRA, and even a Roth IRA. Those accounts are good, but this one is even better.

Maybe it’s not well known because of its name? Maybe people think of it as some type of insurance policy? No matter the reason, if you qualify to have one, you would be wise to learn a little more about this little-known investment account. It can make a huge difference financially for you and your family, especially in your retirement years.

So, what is this account that can be so powerful? It’s a health savings account, better known by its abbreviation, HSA. While your 401(k) and IRA accounts can provide a reduction in your current taxes and do not incur taxes as they grow over the years, you will pay income tax on the distributions you take to fund your retirement years. The Roth IRA doesn’t give you a current reduction in taxes, but the distributions you take at retirement are tax-free. The health savings account gives you triple tax benefits. The contributions you make are tax-deductible, the account grows tax-free over the years, and if managed properly, the funds are tax-free when withdrawn.

A health savings account is designed to help you set aside money for health care expenses. But unfortunately, not everyone is eligible for an HSA. To qualify, you must be enrolled in a high-deductible health plan (HDHP). For 2017, an HDHP is defined as a health insurance plan with an annual deductible of at least $1,300 for an individual or $2,600 for a family. The plan must also limit out-of-pocket expenses like copays and deductibles to $6,550 for an individual or $13,100 for a family.

The amount you can contribute to an HSA is limited. For 2017, the maximum contribution allowed is $3,400 for an individual or $6,750 for family coverage. If you are over 55, you can make “catch up” contributions of $1,000. You can contribute monthly, or you can make a lump sum contribution for the previous year up until your tax return comes due—April 15 for most people. If you have health insurance through your employer, and the plan qualifies as an HDHP, you can make your contributions via payroll deduction. Many employers will even provide a matching contribution as an employee benefit. It’s important to note that you cannot make contributions once you hit age 65 and are enrolled in Medicare. Your contributions into the account can be invested in a wide range of investment vehicles, including mutual funds, ETFs, stocks, and bonds.

The most important thing to know about health savings accounts is that the distributions are tax-free only if you use the funds for qualified medical expenses. You can make those distributions for yourself, your spouse, or your dependents. If you take a distribution and do not use the funds for medical expenses, the amount of the distribution is considered taxable income and there is a 20% penalty tax. The penalty goes away once you reach age 65.

You can make distributions anytime you have qualified medical expenses to pay. However, one strategy that many folks use is to pay the day-to-day medical expenses out of pocket and allow their HSA to grow. For most people, medical expenses are a bigger part of the budget in their later years. This strategy allows you to accumulate tax-free dollars for those expenses.

Maybe one reason that HSAs are underappreciated is because of some misconceptions that surround them. A lot of folks confuse them with flexible spending accounts (FSAs). These are the accounts that many people contribute to through payroll deduction. You can use the funds to pay for qualified medical expenses through the year, but these funds are “use it or lose it.” In other words, you must use the funds by the end of the year, or you lose them. Funds in your HSA do not expire.

Another common misconception surrounding HSA accounts is that you can have one only through your employer. This is simply not true. If you have a qualifying HDHP, you are eligible to contribute as an individual.

There are some rules that you have to know and follow to take full advantage of this special tax-favored account. But if you are eligible, this little-known account can have a big impact on your financial future.

Medicare—Which Path Is Right for You?

Enrolling in Medicare is not a simple process. As you approach age 65, there are several decisions that need to be made. Making a wrong decision, based on your circumstances, can have a big impact on your finances and your health insurance coverage. In the first part of this series on Medicare (Medicare Enrollment—Not As Easy As It Sounds), I discussed the importance of the timing of your enrollment. In this article, I will try to help you understand the different paths that you must choose from when it’s time for you to enroll.

It’s important to understand that you have two paths to choose from when enrolling in Medicare. You can select either Original Medicare or Medicare Advantage. Both paths have advantages and disadvantages, and what might be the best path for you may not necessarily be the best path for friends or family members.

Original Medicare

The first step in choosing the right path is understanding the difference between the paths. Original Medicare is administered by the federal government and consists of a few different parts. Part A is the coverage that pays for expenses incurred during inpatient hospital visits and for those in a skilled nursing facility. It also pays for some expenses related to home health care and hospice services. Medicare Part B pays for medically necessary services, like lab tests and doctor visits, to diagnose and treat your health issues.

When you choose Original Medicare, you start with Parts A and B, and then you can add optional coverages. Part D is an optional coverage that pays for prescription drug expenses. The other optional coverage is a Medigap policy. Medigap policies are administered by private insurance companies and offer a variety of coverages for co-pays and deductibles. It is important to note that not all health care providers accept Medicare patients, but most do, so you can choose from a wide variety of doctors and specialists.

Medicare Advantage

Medicare Advantage plans offer an alternative path for Medicare enrollees. These plans are administered by private companies. They are required to offer the same coverages as Original Medicare, and they often offer more, like vision, dental, or hearing coverage. Most of them offer drug coverage. They work with a network of providers and therefore have more rules when it comes to getting a referral to a specialist. The premiums are typically significantly lower than Original Medicare, and some plans are offered with zero premium. But zero premium does not mean zero cost. There are out-of-pocket expenses, usually with each service provided under the plan.

Which Path Should You Pick?

So, which path should you choose? Like most financial questions, the answer is … it depends. If your doctor is not in a Medicare Advantage network, you’ll need to find a new doc or go with Original Medicare. If you plan to travel extensively, you might also want to consider Original Medicare because you are not limited to doctors within a network. If your health is good and you don’t incur a lot of medical expenses, a Medicare Advantage plan can probably save you some money.

Of course, that leads to the question that many ask: “Why not sign up for Medicare Advantage while healthy and switch to Original Medicare and a Medigap plan when we need more services?” That would be nice, but it doesn’t work that way. Once you’ve decided which path is right for you, it’s not easy to change. There are certain times each year when you can apply for a change, and there are some rules you have to follow.

It’s relatively easy to switch from Original Medicare to a Medicare Advantage plan. But if you want to go from a Medicare Advantage plan to Original Medicare, it can get complicated. After spending an amount of time in a Medicare Advantage plan, you can lose the guarantee to get a Medigap plan. The Medigap insurance companies can put you through medical underwriting. That means if you have a pre-existing chronic condition, you can be denied coverage. And having Original Medicare without a Medigap policy can become cost prohibitive, especially if you have a chronic condition.

Remember, I said it isn’t easy. But the key to making any decision is to gather as much information and knowledge about the subject as you can. You can then weigh the pros and cons of each choice as they apply to your situation. The Medicare website (www.Medicare.gov) is a great resource and can help make sure you are on the right path.