By Mark Miller
Tribune Media Services
My last column looked at rising Medicare premiums for the most affluent seniors under the new health care reform law.
The Affordable Care Act (ACA) boosts the income-threshold premiums for individuals with $85,000 or more in annual income, and joint tax filers with income over $170,000. The surcharges apply to Medicare Part B and D, and also impact seniors enrolled in Medicare Advantage.
The higher premiums come against a backdrop of dramatic increases in the overall cost of health care in retirement. The Employee Benefit Research Institute reports that a man with median drug expenses will need $124,000 in savings in order to have 90 percent certainty of meeting lifetime expenses; for women, the figure is $152,000 (ladies, that’s because you live longer than the guys).
But smart planning and management of your health-care expenses can help offset the impact of the higher premiums.
Here are seven strategies to consider that can help you control premiums, and also hold down overall health care out-of-pocket costs in retirement:
1. Avoid the surcharge. “The surcharges on Medicare premiums starting in 2011 can be steep,” says Christine Fahlund, senior financial planner at T. Rowe Price. “It’s important for retirees to work with their tax advisors to try to avoid them each year, or as often as possible.” One possible strategy is to take portfolio withdrawals from a Roth IRA, which are not counted in Social Security’s definition of taxable income. Or, alternate withdrawals from taxable accounts so you don’t have to pay the surcharge every year.
2. Challenge the surcharge. The Social Security Administration (SSA) will determine if you must pay the premium surcharge using your most recent tax return-in most cases, 2010. Eligibility is determined using your modified adjusted gross income (MAGI), which is the total of your adjusted gross income and tax-exempt interest income. If your MAGI is higher than the income threshold in any given year, you’ll get a letter from the SSA indicating your premium.
If your income has fallen since your tax return was filed, you may be able to appeal under certain circumstances. For more information, download a free guide to the income threshold at the SSA’s website here: http://1.usa.gov/hFJO6Q.
3. Work longer. Staying on the job even a few years longer than planned is one of the best overall ways to improve retirement security-and health insurance is one of the key reasons, because it means more years of employer-sponsored health insurance and delayed Medicare enrollment. If full-time work isn’t possible, try to stay on part-time if that will allow you to stay insured.
4. Shop the plans annually. Unfortunately, seniors need to re-shop prescription drug or Advantage plans annually to ensure that they’re getting the best price and appropriate coverage. Insurance companies often change their offerings year-to-year in ways that can increase premiums by thousands of dollars, or make it difficult to get certain drugs. And your health needs may change, too.
The annual enrollment window runs from Nov. 15 to Dec. 31, and with dozens of plans available in most parts of the country, shopping can be a complex chore. For the computer-savvy, the Medicare website offers an excellent Plan Finder tool (http://1.usa.gov/g0bX7S); more personalized help is available from your local State Health Insurance Assistance Program, a network of non-profit Medicare counseling services (http://bit.ly/8NtGXI). The Medicare Rights Center also offers free counseling by phone (1-800-333-4114).
If you’re willing to pay to get advice and help with paperwork, hire an independent, fee-based counseling service such as Allsup. For $200 to $300, Allsup assigns an adviser who will provide a written personalized plan analysis and offer phone consultations.
5. Consider long-term care. A long-term care (LTC) insurance policy can help protect against an outsized nursing expense that can wreck your retirement plan. The LTC insurance market is undergoing a shakeout as some big insurance companies leave the market and others have been putting through double-digit rate hikes, so look for carriers with a history of stable premiums. Self-insurance is an option if you have $500,000 to $750,000 in retirement assets available to fund an LTC need.
6. Buy Medigap insurance. Insurance companies sell Medigap policies to supplement Medicare’s basic coverage. Typical policies cover deductibles and co-insurance for long hospital stays and outpatient services. All Medigap plans insure against the risk of high out-of-pocket Part A and Part B co-insurance costs. Beyond that basic coverage, Medigap plans provide escalating levels of coverage-and higher premiums-as you move through the alphabet of options (http://bit.ly/bvMyN0).
7. Practice prevention. This last one may sound like mom-and-apple-pie, but exercising more and losing weight will not only make you feel and look better but also help reduce your risk of expensive chronic illnesses, such as diabetes and heart disease. Take advantage of the new Medicare prevention benefits by getting regular checkups and recommended screenings for diseases such as cancer.
Mark Miller is the author of “The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living” (John Wiley & Sons/Bloomberg Press, June 2010). Subscribe to Mark’s free weekly eNewsletter at http://retirementrevised.com/enews. Contact him with questions and comments at: mark@retirementrevised.com.
June 5, 11 – June 18, 11 Edition
