Decisions about Medicare Could Change Your Entire Financial Future

5 minute read

Part of the Social Security Act, Medicare was created in 1965 to address the problem that at least 56% of Americans over age 65 had no healthcare insurance (Centers for Medicare & Medicaid Services 2022). Today, there are over 60 million people enrolled, with women comprising 56% of beneficiaries (Kaiser Family Foundation 2019). The fact is that Medicare has played a key role in the overall financial security of millions of Americans for generations. However, due to its size, complexity, and frequent changes, it is critical that you stay up to date on the different Medicare choices and benefits, especially if you’re about to become eligible or already retired.

One of the major changes to impact Medicare benefits is The Inflation Reduction Act, which was signed into law on August 16, 2022. It was designed to help seniors and retirees pay for healthcare costs that have gone up in recent months due to inflation. According to Jae Oh, a nationally-recognized Medicare expert, author of the popular book “Maximize Your Medicare” and a certified financial planner –  “Starting in 2025 there will be a limit of $2000 that people will have to pay out of pocket for Part D and prescription drugs. This cost savings will be a game changer for people with health conditions that require drug intervention. Also, starting in 2023, vaccines—including those for COVID-19, shingles, and monkeypox—will be zero dollars in 2023, and Insulin will be capped at $35 as far as a copay goes.”

WATCH Your Money Map: Medicare 2022: The top 5 things you need to know

The A, B, C, Ds of Medicare

As most retired people know, even before this recent change, there is a lot to consider when deciding on Medicare coverage. And your decisions today could be life changing to your financial future in retirement. First, you need to know there are four parts to Medicare: Part A is Hospital Insurance (HI), Part B is Supplementary Medical Insurance (SMI), Part C is Medicare Advantage Plans (MA), and Part D is for Medicare prescription drug plans. Your next step is to decide which type of plan you want, and this is where things can get complicated and should be considered within a comprehensive financial plan for retirement. Will you choose Original Medicare (OM)? Add a Medicare Supplement Insurance (Medigap) to help fill “gaps” in OM? Or choose a Medicare Advantage (MA)? Though it’s wise to educate yourself and compare options on the www.medicare.gov/plan-compare website, it’s also prudent to seek out the help of a Medicare expert.

No matter what plan you choose, it is critical to know what is NOT covered by Medicare:

• Long-term care (LTC) coverage
• Premiums- monthly, Part B, Part D
• Deductibles
• Co-insurance and Co-payments
• Medigap insurance
• Most vision services
• Most dental services

Health can definitely hurt your wealth

Healthcare costs – both planned and unplanned – can become one of the biggest threats to what could be a long retirement. According to a recent study, about 15% of the average retiree’s annual expenses will be used for out-of-pocket (OOP) costs related to healthcare (Fidelity 2022). This helps explain why health expenses are the number one cause of household bankruptcy (American Journal of Medicine 2019). The best way to avoid this risk is to plan properly for your healthcare costs and spend just a little money to get the best advice from a financial planner. Also, knowing you have reliable sources of protected income – lifetime income you’re guaranteed to receive – can be a great way to plan and help manage your budget. There are only three sources of protected income for retirement – Social Security, pensions, and annuities. Since fewer and fewer people have pensions these days, a protected income source that can help fill this gap is an annuity. Some annuities even include an option that allows you to withdraw money without paying early withdrawal fees if you or your spouse becomes seriously ill. Undoubtedly, using your sources of protected income to cover some of your healthcare costs in retirement will give you greater peace of mind to enjoy the retirement you want. For the latest ideas, simple tools, and inspiring stories to help you navigate your next chapter in life, head to www.protectedincome.org.

Medicare To Do Items

• Start thinking about your options as early as age 63. These two years before you turn 65 can give you time to analyze your needs and reduce the stress (and mistakes) with a hurried decision.
• Enroll in Medicare on time to avoid penalties. Your enrollment window opens three months before you turn 65 and closes three months after. Even if you are still working (with medical coverage), you need to enroll.
• Coordinate your advisors. Medicare decisions impact both your assets and liabilities, so your tax preparer and financial professional should take a wholistic view of your coverage choice(s). Also, consider adding a Social Security/Medicare advisor for specialized expertise.
• Review your Medicare coverage annually once you are enrolled. Your needs can change as well as the benefits your plan offers. Remember- you can change your plan every year during the Medicare Annual Election Period (AEP), October 15 through December 7.
• Familiarize yourself with how the Inflation Reduction Act impacts Medicare benefits. Jae Oh has a six minute video that identifies some of the important changes.

Background on Guest: Bio
Jae Oh, MBA, CFP®, CLU® ChFC® is the Managing Principal of GH2 Benefits, LLC. He is a Certified Financial Planner, Chartered Life Underwriter, a Chartered Financial Consultant, and a licensed insurance producer in multiple states. He is a nationally-recognized Medicare expert, frequently quoted in the national press, including on USA Today, Dow Jones, CNBC, and Nasdaq.com, as well as on radio talk shows nationwide. Oh is the founder and current Chairman of the Great Humanity Healthcare Foundation, a 501(c)(3) organization, created to provide financial relief to those burdened by excessive medical debt. He is the author of a top-rated, top-selling book on Medicare, titled Maximize Your Medicare (2018 Edition): Understanding Medicare, Protecting Your Health, and Minimizing Costs.

We believe annuities—one of only three sources of protected lifetime income—can be an important part of the solution for retirement security in America. Visit protectedincome.org to find more resources and guides.