Financial Planners Association

Social Security and Medicare Presentation

Tri-State Area Spring Symposium

May 22, 2007

L. Sue Andersen

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Contents of Presentation

• Overview of Social Security Benefits--Slides 1-5

• Overview of Medicare--Slides 6-– Eligibility and Enrollment– Benefits– Interaction with Employment

• Continuing to Work• Retirement

• Medicare Part D--Slides

Social Security Overview

• Who Receives Benefits in 2007?– 33 million retired

beneficiaries and family members

• receiving an average of $1,044 per month in benefits

– 6.5 million survivors and children of deceased workers

– 8.6 million disabled beneficiaries and family members

• Who Contributes in 2007?– 163 million workers– Employer/Employee:

each contribute 7.65% of wages up to $94,200

– Self-employed: 15.30%

• What counts as “quarter of coverage”?– $970/quarter

Exempt Earnings in Retirement

SSA beneficiary between age 62-64: $12,480*/yr ($1,040/mo) Above this amount $1 of

SSA benefit for every $2 earned

During year of 65th birthday: $33,240*/yr ($2,770/mo)Above this amount $1 of

SSA benefit for every $3 earned

At Full retirement age:No reduction

Year of Birth* Full Retirement Age1937 or earlier 651938 65 and 2 months1939 65 and 4 months1940 65 and 6 months1941 65 and 8 months1942 65 and 10 months1943--1954 661955 66 and 2 months1956 66 and 4 months1957 66 and 6 months1958 66 and 8 months1959 66 and 10 months1960 and later 67

What is Full Retirement Age?

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

“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

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

Gehrig’s disease

• Individuals with end-stage renal disease (ESRD)--3 months after kidney dialysis begins

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 = $970*/3 months--see slide 3)

– ESRD patients with insufficient quarters of work can use parents’ Social Security quarters

Others Pay for Part A--

• You Pay for Part A if:– Work less than 30

quarters in SSA-covered work--pay $410*/month in 2007

– Work between 30-39 quarters of SSA-covered work--pay $226*/month in 2007

Part B--Is This Free Too?• No. Everyone pays.• $93.50* monthly premium• In 2007, high income individuals pay

more:Individuals Married Individuals 2007 Premium

Filing Joint Return $80,000-$100,000 $160,000-$200,000

$105.80*>$100,000-$150,000 >$200,000-$300,000 $124.40*>$150,000-$200,000 >$300,000-$400,000

$142.90*>$200,000 >$400,000 $161.40*

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.

Initial Enrollment Period (IEP)

• If don’t 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.

Annual Enrollment Period (AEP)

• From January 1 to March 31 each year.– For individuals who don’t 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.

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– NOTE: COBRA benefits are not “current

employment health benefits”

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)

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• Dr’s plan of care

• Part B pays for:• Care in a physician’s

office• Rehabilitation

services--physical, speech and occupational therapy

• Outpatient surgery and diagnostic tests

• Ambulance service• Durable medical

equipment

Beneficiary Pays Part of the Cost of Care

• Part A– Deductible $992* for each

“benefit period”– Hospital Coinsurance

• 1st 60 days: $0 coinsurance

• 61-90 days: $248/day• 60 Hospital Lifetime

reserve days coinsurance: $496/day

• After 150 days: Full cost of care

– SNF Coinsurance• 1st 20 days: $0

coinsurance• 21-100 days : $124/day• 101+ days: full cost of

care

• Part B– Deductible:

$131/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)

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 there’s long term care--not covered long term by Medicare

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

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?

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?

– Doesn’t have to get Medicare. Must affirmatively decline.

– May want to join Elizabeth’s health insurance.» Better benefits» Cheaper» If enrolled in Elizabeth’s current employment plan,

can defer Medicare enrollment without penalty.– If he enrolls in Part A, or Part B of Medicare, would

have to enroll in Part D, or be penalized.

Medicare Choices (contd)

• Joshua--He asks: “Can’t 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 doesn’t make sense unless current health benefit pays for expensive care

• Better to go on Elizabeth’s health benefits, or Medicare

Medicare While Working• Earl is 67 and working with employment

health insurance. He asks you whether he should get Medicare…because he knows he’s 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?

# 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 doesn’t matter really except for confusion about who pays what.

Part D--Why Does It Matter?

• If enrolled in either Part A or Part B of Medicare, and don’t 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 $93.50/month or more

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”)

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--$0 to $60--

– Directly out of Social Security check– Automatic credit card/bank withdrawal

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

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?

1. Does he know if his drug benefit from his employment was actuarially equivalent to the Medicare drug benefit?

2. On what date did his employment health insurance end?

Why?

What’s 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 or • impose utilization limits on drugs

Statutory Part D Benefit

Deductible Cost Sharing Coverage Gap aka“Donut Hole”

CatastrophicCoverage

You Pay $265 $533.75 $3,051.25 $2.15/generic$5.35/brand

Medicare Pays $1,236.25 Balance

One more Note:

These numbers change every year.

One more Note:

These numbers change every year.

Only Certain Drug Costs Count!

• Called “true out-of-pocket costs” or “TrOOP”

• Don’t 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

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

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 don’t 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.

That’s All!

Thanks for your attention.

L. Sue AndersenHealth Benefits ABCs

11101 Georgia Ave., #320Silver Spring, MD 20902

(301) 933-6492l.sue.andersen@gmail.com