Medicare Must-Do’s

This week on The Long View, Mark Miller, retirement expert and author of Retirement Reboot: Commonsense Financial Strategies for Getting Back on Track, shares his advice on Medicare, Social Security, housing, and retirement investing.

Here a few excerpts from Miller’s conversation with Morningstar’s Christine Benz and Jeff Ptak:

Medicare, Healthcare, and Long-Term Care

Ptak: Let’s shift and talk about Medicare, healthcare, and long-term care. You write that navigating Medicare has gotten more complicated than it ought to be. What are the key contributing factors to that?

Miller: I think a big factor is the massive amount of privatization that we’ve introduced into Medicare over the last couple of decades. Privatization, in my view, is mostly needless. We’ve done that with the way we have people accessing prescription drugs in the Part D program and also, really importantly, with Medicare Advantage, also known as Part C, which is a commercial alternative managed-care version of regular traditional Medicare. So, these are programs that one accesses through these online marketplaces, and we force Medicare beneficiaries to shop these marketplaces and make choices between dozens of plan offerings that differ from one another. It’s a daunting task.

There’s also a lack of good advice. Some recent research I saw on this that we asked people where they get advice about Medicare enrollment. Many get it from insurance brokers, which can be OK. There’s lots of really knowledgeable insurance brokers out there. The problem with brokers is that they don’t represent the entire market. They’re going to represent one or two, let’s say, insurance lines. Beyond brokerage, a lot of people rely on friends and family for it. Or they say they rely on nobody for it. They just do it themselves.

An underutilized resource, I feel, is the so-called State Health Insurance Assistance Program, which is a national program. Every state has one. And these are programs that are jointly funded by the federal and state governments, and they are staffed by really knowledgeable volunteers who can help people with enrollment, but they’re vastly underutilized resources. And the market has just been swinging toward more and more privatization for reasons that I think we probably should talk about a little more.

Traditional Medicare Versus Medicare Advantage

Benz: I wanted to ask specifically about Medicare Advantage. One issue that you’ve written about is how people get enticed with a lot of bells and whistles like gym memberships or dental coverage or whatever it might be. And in reading your book, it seems like you’ve concluded that most people should in fact opt for traditional Medicare plus some sort of a supplemental policy. Can you just talk about how people should approach that fork in the road: traditional Medicare versus Medicare Advantage?

Miller: My message to people is, if you can afford the higher up-front premium cost, traditional Medicare is the way to go. It’s the gold standard of insurance from the standpoint of access to health providers. You can see almost any health provider in the United States when you’re on traditional Medicare. That’s something you can’t find really anywhere anymore. And it also is the way to get the most predictability in your out-of-pocket costs, because when you’re in traditional Medicare, you’re typically going to have a supplemental or Medigap plan that covers a lot of the out-of-pocket. So, you put everything into the premiums up front, which has more predictability to it. I think, in particular, probably for the crowd listening to us today, which I think it’s a fair bet is a more affluent audience, I would just say traditional Medicare is a great deal, and it has a couple of moving parts to it that you need to pay attention to. But it’s, over the long haul, going to be a much better deal for most people.

I think one of the biggest problems here is that people don’t understand the importance of this decision at the point that they initially enroll in Medicare. And here’s why this is so important and potentially an irreversible decision. When you first sign up for Part B, you have what’s called a guaranteed issue window for a Medigap that basically starts three months before and lasts three months after your enrollment in Part B. During that time, Medigap insurance underwriters, which are commercial entities, they must issue you a policy and they must do it at the best available price. That guaranteed issue window disappears after that period with the exception of a handful of states that have passed laws creating ongoing guaranteed enrollment, which is a very progressive and wise approach. But if you at the point of initial enrollment decide to go with Medicare Advantage, you will not be enrolling in Medigap. You don’t use Medigap with Medicare Advantage. It’s only used in the traditional program. And therefore, you’ve missed that guaranteed issue window. So, let’s say, a year later or two years later, you’re dissatisfied with Advantage and want to re-enroll in traditional Medicare—well, you can do that during the annual fall enrollment, but you may or may not be able to get a Medigap at that point. So, this is to me a critical thing that needs to be thought through at the point of initial enrollment. It’s one of the two biggest pitfalls that I see problems that people encounter at the point of initial enrollment. There are some others, too. The other big one is people who make errors on their enrollment timing and wind up with big late penalties as a result.

Why Isn’t Long-Term Care Covered by Medicare?

Ptak: You have a chapter on long-term care in the book. What are we talking about when we say long-term care, and why isn’t it covered by traditional healthcare programs such as Medicare?

Miller: Medicare is designed to cover medical care. And so, long-term-care services are not, technically speaking, medical care. They are services that help people who are frail or disabled with daily living needs, whether it’s bathing, or dressing, or making meals, shopping, walking, and taking medications. But having said that, that’s the reason historically, that it doesn’t. But I would add this that, I think, this area we’re starting to discuss now to me is maybe the most dysfunctional area of public policy in the retirement field. We are failing in how we pay for care and how we deliver it.

I think Medicare should actually cover some level. Medicare will pay for the first 100 days in a skilled nursing facility following a hospitalization. It’s not that it doesn’t pay for anything, but it doesn’t pay for those types of services that I was just describing. But given the dysfunction in the payment structures that we have to pay for long-term care, I’ve long felt that it would be a very smart thing to build in some kind of base level coverage for long-term-care supports and services in Medicare for retired people and to figure out how to do a better job perhaps in the Medicaid program than we do for younger people who need services because it’s not just the retirement question.

When you look at how we pay for this, affluent people, generally speaking, can afford to self-fund it. Low-income people get Medicaid. Middle-class people, who perhaps are in the most need of a commercial long-term-care insurance policy, struggle to afford it. This is something that can cost $4,000 to $6,000 a year in premiums and rising if you’re building in inflation protection, which you definitely need. So, it’s really dysfunctional. There aren’t good answers on the horizon unfortunately.

On the delivery side there are issues as well. We saw the nursing home crisis with COVID. Everybody says they want to age in place, but we’re really not prepared to handle that at the community level in the United States, both from the standpoint of our housing stock and the social infrastructure at the community level. Meaning, how are people going to get around? How are they going to socialize? How are we going to make sure that we’re monitoring how they’re doing in their homes? The Build Back Better legislation that didn’t make it was going to have a big injection of new money through the Medicaid program to infuse new funding into community-level care and that didn’t make it, unfortunately. It’s still an idea, I think, worth revisiting.