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Group Health and Medicare

When you are on group health coverage and you reach that magical age of 64¾, in-other-words it’s three months before the month in which you turn 65, something MAGICAL happens: You become eligible to apply for Medicare!

I say MAGICAL because many, many times I hear from my clients that qualifying for Medicare brings magical never before seen health opportunities into their life. For instance, they have been on group health insurance and have needed a hip replacement for two years now but haven’t gotten it done because of the deductible and copays being just too darn steep. With most Medicare plans these lucky newly 65 year-olds will have NO deductible and much smaller copays than on their group health insurance. Going on Medicare means, “It’s New Hip Time!”

In turning 65 you have three options:

1. OPTION ONE: Stay On Your Group Plan and do nothing at all when it comes to Medicare. Be assured, you won’t have any penalties at all to pay  when you do go onto Medicare, just so long as your group has at least 20 employees and your insurance includes prescription drug coverage. Group health coverage enables you to defer Medicare (without penalties) so long as you remain covered.

Note: Many people elect to stay on group health insurance if they have a spouse who requires them to stay on Group Coverage, so their spouse can keep their healthcare coverage.

There could be alternatives though. Your spouse will be eligible to go onto COBRA for up to 36 months if you elect to leave your group health plan for Medicare. There could be other options to consider such as private insurance or the Affordable Care Act (Obamacare) marketplace. If you do consider Obamacare (ACA) it is a subsidized program and how much your spouse pays will be determined by your income.

2. OPTION TWO: Enroll in Medicare Part A. Part A (hospital coverage) costs you nothing and provides secondary coverage to your group health insurance. In essence you are getting something for nothing (rarely a bad thing) which may save you on deductibles and copays if you need to go into the hospital. Then when you leave group coverage somewhere down the line you would apply for Part B to be added to your existing Part A.

Applying for Part A is always a good idea with one key exceptionIf you are contributing to an HSA, then you don’t want to apply for Part A as it will kibosh your ability to keep contributing more funds into your HSA.

3. OPTION THREE: Quit Group and Go Onto a Medicare Plan. Even if you have signed up for your Group Health Insurance for the rest of the year, once you reach Medicare eligibility age you are entitled to leave your group health insurance and make the switch to Medicare.

And why would you? For the same reason that you might switch phone carriers or cable companies—Medicare is usually a MUCH, MUCH better deal.

IF YOUR GROUP PLAN HAS LESS THAN 20 EMPLOYEES

Medicare has some funny, funny rules. Here is one that could spell big trouble for some people. Whether you can stay on your group insurance (if you choose to) without any problems is determined by whether 20 employees are part of your group health plan. If you have at least 20 employees in your company on your group health plan, there is no problem with staying on Group Insurance. 19 employees (or less) = PROBLEM!

When there are 20 or more employees on a plan then Medicare becomes secondary coverage to your group health insurance, so if you are taking Part A it pays in the secondary position. With less than 20 employees though, the rule of who is primary payer takes a 180-degree turn. Medicare now becomes the Primary insurance and your Group Insurance, if you keep it, becomes secondary insurance.

The problem is that if you haven’t taken out both Medicare Part A and Part B, then there is no primary insurance in place and your Group Insurance has no insurance at all to be secondary to. Your group insurance now becomes like a horse trailer that has a horse in it but it doesn’t have a truck to pull it. That horse is just stuck where it is.

It could be worse for you than the horse though. You may well find yourself with a big medical bill with your group insurance health carrier looking to Medicare to pay the bill as the primary payer. That is a problem if you don’t have Medicare, including Medicare Part B, set up to be your primary payer. Many people have found themselves unknowingly in this difficult position.

YOU CANNOT HAVE BOTH GORUP COVERAGE AND MEDICARE ADVANTAGE 

If you stay with your Group Insurance it’s usually a good idea to sign up for Part A as secondary coverage to your Group Health Insurance but NOT PART B. Part A is after all free of cost, and free is usually good. Part B, on the other hand, costs $148.50 a month and so long as you have Group Coverage it won’t provide you much value.

It is critical to note that you cannot start a Medicare Advantage plan (even if you do have Part B) so long as your Group coverage is active. Although you can, and should, enroll for the date when your Group coverage will come to an end which will enable you to go seamlessly from one to the other.

COMPARING GROUP HEALTH TO A MEDICARE PLAN 

Some group plans are fantastic, giving their employees coverage through the ying-yang, with very low or no monthly premiums, copays that are next to nothing, and with low or zero deductibles. Some employers treat their staff like gold when it comes to their health insurance plans. Think of such employers and the amazing health plans they give their staff as being like oysters with pearls in them!

The vast majority of group health plans, however, are just so-so. Think of them as being oysters without any pearl in them, not even a tiny one. When you compare these group plans to what you can get in Medicare, they usually can’t hold a candle, especially to a Medicare Advantage plan.

I do a lot of comparisons for clients, comparing their group plan versus Medicare Advantage plan choices. It’s most often a complete mismatch, like comparing my golf game (I shoot 105 on a good day) to Tiger Woods.

HERE IS A TYPICAL GROUP HEALTH: MEDICARE PLAN COMPARISON

Note: As we discussed there are two types of Medicare: Original Medicare with a Medigap Supplement and a Standalone Prescription Drug Plan and Medicare Advantage. Group Health Insurance is set up similarly to Medicare Advantage so that is what we will use in our comparison.

Below is a typical comparison we see in comparing Group plans to Medicare Advantage plans for clients. We would be happy to do a comparison for you based on your Group Health plan. JUST ASK

1. Monthly Premium: Group Health plans have a monthly premium that varies widely. Around $200 a month seems to be around average. Most Medicare Advantage plans have ZERO monthly premiums. That said, what you are really comparing is the $148.50 you pay each month for your Part B to the government with the cost you pay each month for your Group Health Insurance plan.

2. Deductible: Most Group Health plans have a deductible that can range anywhere from $500 to $2,500. For most Medicare Advantage plans there is a ZERO deductible. This one item can make a humongous difference in Medicare’s favor. For example, if you have a $1,500 deductible with your Group Health plan that potentially adds $1,500 to your out-of-pocket cost. Medicare Advantage, on the other hand, rarely has any deductible at all.

People sometimes say to me that their deductible with their Group health plan is no big deal because they didn’t have much in the way of medical costs in recent years, just a doctor’s appointment now and then. But I ask them, “What if next year is different? What “could” your out-of-pocket costs be on your current plan if things went a little wrong?” After all, we all know medical costs are insane. One little test or procedure and you’re faced with that $1,500 deductible to pay in a flash.

3. Doctor Copays: Typically Group Health plans have around a $25 copay to see a Primary Care Physician and a $50 copay to see a specialist. Medicare Advantage is usually ZERO for a primary care doctor visit and around $25 for a specialist. Another big win in our comparison for Medicare!

4. Hospital Stays: This is another area where Medicare plans shine. Group Health Insurance uses coinsurance which is almost always 20%. The average cost of a day in the hospital is around $3,000 so a 20% coinsurance typically adds up to around $600 a day. Medicare Advantage uses copays which are usually in the $175 to $300 which usually works out to less than half of Group Health’s hospital cost.

5. Extra Perks: Most Group health plans charge extra for dental, whereas most Medicare Advantage plans include some dental coverage at no extra cost. Medicare Advantage plans also usually give you an allowance for eyeglasses and provide some hearing and hearing aid coverage as well. Then there are some commonly added perks such as free gym membership and an allowance for free Over-the-Counter-Products. With Medicare Advantage, you may never have to pay for your Tums again.

People often ask me this question, “How can Medicare Advantage be such an incredible bargain? How can I get all that I am getting and all I am paying is $148.50 to the government and nothing at all for my Medicare Advantage plan?” They think it is a classic case of Too Good to be True!

But it is true and there is a good reason why. The answer is that you have been paying something all along; most people have been paying into Medicare for better than 40 years. The bargain that Medicare plans offer is your payoff for the many years you paid into Medicare. You may be paying Medicare only $148.50 a month, but Medicare, in turn, is paying the plan you pick (reputed to be over $1,000 a month) on your behalf.

HSAs AND MEDICARE

Many people who have been on group health coverage have also been contributing to a Health Savings Account (HSA) which allows them to contribute funds tax-free as long as they are used for qualifying medical expenses. In other words, hair transplants don’t count.

If you enroll in Medicare, even if you just enroll in Medicare Part A, you can no longer contribute any further to your HSA.

Here is the good news. You can’t make any more contributions to your HSA but what you have contributed so far IS NOT LOST and is yours to spend going forward with Medicare. You may continue to withdraw money from your HSA to pay for your monthly Part B premiums including IRMAA, deductibles, and any of your copays and coinsurance. Any reimbursements which you make to yourself from money in your HSA account will be tax-free. You can even reimburse yourself tax-free if your Part B payment is being taken out of your social security benefit.

Note: If you choose to go with Original Medicare, the one cost that you cannot pay for with your HSA account is a Medigap policy such as a Plan G. You can still use your HSA balance to pay for your Part B premium and Prescription Drug Plan premiums, as well as your drug copays. You can also pay for your Plan G annual deductible of $203.

If you choose a Medicare Advantage plan, your HSA can pay for pretty much all of your out-of- pocket costs including all your copays and coinsurance expenses.

SWITCHING TO MEDICARE FROM GROUP COVERAGE

As we discussed in the section on penalties, Medicare has rules. And when you don’t follow the rules Medicare does not say to you, “Please follow them from now on.”  Instead, they issue you severe penalties.

The principal rule is that from the month you turn 65 you need to have what Medicare defines as being “credible coverage”. This includes coverage for both your medical needs as well as coverage for prescription drugs. Group Health Insurance qualifies as being credible coverage and allows you to delay Medicare without any penalties.

Having said that, when you apply for Medicare at any time that is after your Initial Enrollment Period ends three months after the month you turn 65, you need to show that you had Credible Coverage for the entire period that you didn’t have your coverage through Medicare because you were instead covered through Group Health insurance.

Medicare won’t simply take your word for it. They want to see THE PROOF.

The proof is called Evidence of Credible Coverage. You will need it under one of two circumstances:

1. You did not take out Medicare Part A (which is free) at the time you turned 65 and now you need both Part A and Part B.

2. You took out Part A at the time you turned 65 but did not take out Part B and now you need Part B. The only difference in your situation with Number 1 above, is that you will keep your same Medicare number but you will need to apply for a new Medicare card that shows you now have both Part A and Part B.

The process in both situations is the same. Because it can take up to two months to get your paperwork approved, I would suggest starting at least two months before the date you want to start Medicare.

STEP ONE: Go to your HR department or even your Group Health plan and tell them you need to have Evidence of credible coverage. You can also use a Form CMS L64 which you can get through this link: https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/CMS-Forms-Items/CMS009718

As much as we all love filling out government forms, most people find it a lot easier to ask their HR department to deal with providing what they’ll need. HR departments deal with Group Health to Medicare switchovers and providing Evidence of Credible Coverage all of the time.

STEP TWO: Armed with your Evidence of Credible Coverage you can mail or fax it to CMS. Sometimes it’s a good idea to get an agent with your local Social Security (Medicare) office involved especially if there is a tight timeline or any special circumstances involved that could result in glitches.

You do so by calling 800-772-1213 (have a book to read as it could be a long time on hold) and requesting an appointment with a local agent to handle your Part B application. Before the pandemic, this would take place at the Social security office, but now it will take place by phone. That person will probably have you email or mail your Evidence of Credible Coverage directly to them which will make the process of getting your approval go much smoother and quicker.

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