Enrollment Tips for Medicare, ACA Coverage

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Medicare open enrollment runs from Oct. 15 through Dec. 7. Joining me to discuss what seniors need to know during this season is Mark Miller. He is a retirement expert, and he is also a contributor to Morningstar.com.

Mark, thank you so much for being here.

Mark Miller: Thanks, Christine. Always good to be with you.

Benz: Mark, let's talk about what seniors need to know during this season. I know that you always say people should reshop their prescription drug coverage. What's going on with that coverage as you look upon the 2013 season?

Miller: I always try to nag people to do that. Not that many do, but the experts will tell you that it's a good idea to reshop your coverage for the prescription drug program or if you're in Medicare Advantage, if not annually, then at least every couple of years because the premiums and the offerings within the plans can change from year to year. Even if you like what you have it's good to do a check up and see what is exactly being offered for the coming year and compare it with what else is going on in the place where you live.

Benz: And seniors' drugs often might change, as well, so what might have been covered in the past, if you're on something new and different, it may not be covered?

Miller: Yes, your prescriptions might've changed, or what's called the formulary, which is the list of drugs that are covered and under what conditions and rules, can change from year to year.

Benz: Another important component of prescription drug coverage is what's been called the doughnut hole. We're seeing a shrinking of the doughnut hole, but what numbers do people need to be aware of?

Miller: This is a good news story from the Affordable Care Act. Under that law, this gap in coverage is shrinking over time and eventually will be eliminated completely. And what that is, is it refers to a gap in drug coverage for people who have relatively high spending, a so-called catastrophic level of spending. For next year, the overall hole gets $80 smaller.

What it means is that it's tracking the combined spending that you make and that your drug insurance provider makes combined. So, you fall into the gap next year [if your costs exceed] $2,850 and it ends at $4,550.

The other thing that the law did is it provides discounts on both brand name and generic drugs. For next year, the brand name discount stays where it was, which is 52.5%. The generic discount gets a little larger next year. If you're on a generic medication, the discount that's mandated goes from 21% to 28%. The hole gets smaller and the discounts on drugs get a little better, so this is a good improvement.

Benz: When the hole set to go away altogether?

Miller: I believe it's 2020. It's a gradual shrink down.

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Benz: Mark, I want to talk about what the Affordable Care Act means broadly for seniors, maybe those who are already 65 and receiving Medicare coverage and those who are not yet 65. Let's start with people who are already enrolled in Medicare?

Miller: The most important thing to know if you're already on Medicare is you don't really need to think about the Affordable Care Act. The law says that you have to have creditable insurance, and Medicare is considered creditable insurance. There are actually a lot of consumer groups that are quite concerned about scam artists and fraudsters trying to exploit confusion about the Affordable Care Act to do things like identity-theft scams on seniors by calling people or knocking on their doors or approaching people in malls and saying, "Hey, you need to renew your Medicare coverage." One line that's out there is that you need to get your Obamacare card, and then they'll ask you for personal information, Social Security numbers, and bank account information. There is no such thing as an Obamacare card.

The big message to get out is don't believe any of that. There's no big change that goes on with your Medicare. If you're on it, keep on keepin' on.

Benz: You'd be automatically enrolled?

Miller: There is nothing changing. If you're in Medicare already, then you're still in Medicare.

Benz: Got it.

Miller: But there's a lot of worry and concern out there that this is going to be a problem. That's the big thing to know if you're already on Medicare, other than the little changes like we just talked about with the doughnut hole, for example, but that's automatic. You don't have to do anything about that.

Benz: How about for people who are not yet receiving Medicare but are in need of health insurance? Let's talk about seniors, in particular, or people who might be retired. What are the implications of the Affordable Care Act?

Miller: That's where the big more dramatic story is. When you think about retirees, as I do, who are younger than 65, this is a big deal because we've had a lot of people over 50 who have had a lot of trouble getting good health insurance coverage due to pre-existing conditions; [these are] people who are no longer working, or retired, or lost their jobs during the recession.

Under the new law, they can't be turned away for a pre-existing condition, and there is a certain set of minimum level benefits that have to be provided. It's a big opportunity for retirees who aren't yet on Medicare.

You might have households where one spouse is already over 65 and one is younger.

Benz: Very common.

Miller: That younger spouse will want to enroll in a policy on the new Affordable Care Act insurance exchanges, or [the same notion applies to] individuals younger than [65]. So, it's a big dramatic positive change from that standpoint.

Benz: In terms of key pieces of advice you can give people in this group in terms of shopping around for the best coverage for them, are there any big headlines that you'd like to impart?

Miller: One thing to understand is that the new insurance exchanges are available in every state. There have been headlines about different states that decided to either opt out of this or that. The main thing to know about that is that there are some states that have decided not to accept the expansion of Medicaid health insurance for low-income people.

Generally speaking, the folks listening to us speak on Morningstar.com probably are not in that low-income crowd; they are more likely going to be qualified to go into these exchanges, which are marketplaces for private insurance. And that's available in every state. In some states, the state took the lead in developing its own exchange. In states that didn't want to develop their own, the Federal government is offering an exchange in those states.

It's important to know that it is available in every state, and basically what you're going to do is go on to healthcare.gov. Again back to the subject of fraud and scams, it's important to go through the Federal portal to make sure you get to the right place.

Benz: So find your state through that portal.

Miller: Yes. Go to healthcare.gov, you will enter your ZIP Code and your state, and it'll say your exchange is here, click here. So, go through that portal because another worry on the scam front is people setting up fake websites.

The other reason it's very important to go through healthcare.gov is because there's a system of tax subsidies and credits to make these policies affordable at different income levels, and those credits are only available if you go through the official exchange for your state.

Benz: Those credits apply at the federal level. They're not….

Miller: They're not state credits. It's dealing with your federal tax situation. And again for people who are retired, I think many retirees are going to qualify for these subsidies. They're available for individuals with annual incomes of $11,490 up to $45,960, and for a family of four for $23,550 up to $94,320.

So, if you're not working, very conceivably you could fall into that range where you get a substantial break on the price of your insurance.

Benz:  So that will make the care even more affordable if you are eligible for one of these credits?

Miller: Right. One of the questions that's come up has been, "How do I know?" This is dealing with 2014 income, so what you're going to have to do when you go in is you'll be asked to provide your best forecasts of your income. It's a modified adjusted gross formula that includes wages, foreign income, interest and dividends, and Social Security income, if any.

We could have some people over 62 who're already having some Social Security, but aren't yet on Medicare. All that cranks in and you forecast what you think you're going to make, it will tell you what your subsidy is. And then at the end of the day when you file your return next year, there will be a true-up against that if you happen to be off in one direction or another, just like we have the true-up in a tax return for everything else.

Benz: Right. Mark, lots of complicated issues here, we really appreciate you being here to talk to us about it.

Miller: My pleasure, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.