With Jae Oh, Certified Financial Planner, Chartered Life Underwriter, and Managing Principal of GH2 Benefits
Steve spoke with Jae Oh, a Certified Financial Planner and Managing Principal of GH2 Benefits, and the author of, Maximize Your Medicare, about Medicare and how it can be incredibly confusing at times. Jae helped pull back the cover and reveal the facts we need to know when it comes to Medicare.
The Phrasing Of The Healthcare Problem Is All Wrong
Steve noted that everyone says healthcare costs are excessively high and that the fix is to change the way health insurance works. He then asked Jae to explain what’s wrong with the way that’s phrased.
Jae replied, “Insurance is calculated from healthy inputs, which are healthcare costs. The public debate is phrased completely backward, as if insurance was driving the cost. The cost of insurance is actually the risk of surgeries and being ill in general. The risk of incurring these costs is what drives insurance costs.”
Medicare has to determine what its expenses are going to be and what other future costs might occur. They have to calculate all of that and then determine what premiums should be. It’s the procedures and other items on which insurance is based, and that drives the cost.
The Biggest Drivers Of Health Insurance Costs
It’s no secret that health insurance costs have increased significantly in recent years. But major factors are driving these increases, the largest by far are hospitalizations, doctor visits, and procedures as well as costs related to drugs and skilled nursing facility care. Those big bills are then translated into the cost of health insurance.
Medicare covers some 61 million participants. Managing individuals, services, and costs for an organization that size is tricky. When Steve asked Jae how they manage it, Jae explained, “Medicare basically creates an indexed list based on location” which is then broken down by procedure. This is a complex world of medical coding. So, if a participant receives a procedure somewhere in the middle of America, it’s assigned a cost and Medicare pays that cost. But that same procedure will have a different price tag for someone in the South or in the Northwest.
What You Need To Know About Planning For Medicare
Going on Medicare demands prior knowledge and planning. You should be thinking about Medicare about 18 – 24 months before you’re actually eligible for it at age 65. One of the main implications of going on Medicare is the impact on your taxes. You have to look at what your income sources are going to be once you get into retirement, for example, retirement accounts, or interest and dividends from stocks or bonds, which are taxed at a certain rate. Also to be considered are any IRAs, which are taxed like ordinary income once you withdraw it.
Steve summed things up by saying, “The basic point is that your Medicare premium is dependent upon how much you make. So, you want to do the math on your income before you start taking Medicare, so you know exactly how to position yourself in the best tax way.”
Jae added, “If you’ve withdrawn too much from qualified funds, you may have unintentionally increased your Medicare premium by incurring IRMAAs”, which are basically extra surcharges to your premium.
The Gap Coverage You Need To Know About
There are some coverage gaps in Medicare that people are unaware of. They often don’t realize that the deductible for Part A—which covers hospitalization—is once per benefit period, not calendar year. So, if you have three medical events in one year and end up in the hospital, you’re going to have to pay the deductible, which according to Jae is $1,408 in 2020, three times.
Medigap plans are a great solution to this because they help cover the gaps not filled by Medicare. It is a standardized set of plans, lettered A through N, which vary in price but will be identical in coverage, regardless of carrier. The goal is to find the best plan and the best carrier in your area.
Who Can You Talk To About Coverage?
Steve asked Jae to advise listeners on how best to handle all these issues around Medicare. Jae’s advice is to speak with an insurance agent and a financial planner. In reality, a financial planner who can help you get into the right tax situation may be the person who will help you the most. A health and life licensed insurance agent who’s also a certified financial planner might be the ideal combination.
Before the conversation wrapped up, Jae had one final takeaway for listeners: “Number one, people are going to get older, and unless you’ve found the fountain of youth, the probability of incurring healthcare costs has increased. And as a result, premiums increase, too.”
If you’d like to learn more about planning for retirement and Medicare, check out Jae Oh’s website, maximizeyourmedicare.com!
Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.
Steve Pomeranz: Medicare got you confused? Well, you are not alone. I think probably most of the 61 million people who participate in Medicare are confused just like you, and really, a lot of times just like me. So let’s break down the wall a little today, and to do so I’ve invited Jae Oh. Jae Oh is a certified financial planner, a chartered life underwriter and managing principal of GH2 Benefits, which is a benefits consulting company, and he’s written a new book, Maximize Your Medicare, Qualify for Benefits, Protect Your Health, and Minimize Your Costs. Well, that sounds good to me. So, Jae, welcome back to the show.
Jae Oh: Thank you for having me back, Steve.
Steve Pomeranz: We frequently read or hear in the media that healthcare costs are excessively high in the United States and that the fix is to change the way that health insurance works. What is wrong with the way that is phrased, one?
Jae Oh: It’s an excellent question, Steve. The fact is that insurance is the calculated results from healthy inputs, which are healthcare costs. And the way that the public debate has it framed is exactly backward, meaning that as if health insurance is driving the cost of becoming a medical doctor. That’s just simply not the case. It is actually the cost of the risk of surgeries, of the probabilities of being ill, of incurring those costs which drive health insurance costs, not the way that the public debate likes to frame it.
Steve Pomeranz: Yeah, and the organization that’s providing that insurance like Medicare has to figure out what their expenses are going to be, what the possible future costs are going to be. They have to price all that in and come up with a premium, but it’s the object on which the insurance is based which drives the cost. Now, what are the biggest drivers of the current large increases of health insurance costs in the United States?
Jae Oh: Well, I think that you’ll see that recently Kaiser created and released some of the data, and by far the most is hospitalization, as well as doctor’s visits and procedures. It is not, for example, can be on drugs, for example, or on skilled nursing facility care. But the reality is is that’s the small minority compared to inpatient hospitalization, that those types of bigger costs, the big bills if you get hospitalized, come from there and how those then translate to health insurance.
Steve Pomeranz: Okay. So it’s not drugs as is a current political football. It’s just your basic sticks and stones of hospital visits, doctor costs and the cost pressures on those. It occurs to me that a program that covers 61 million participants, to me it’s amazing. I don’t even know how it’s possible to truly manage something of that size. How is the system built in order to do that efficiently?
Jae Oh: Well, what they do is they are creating basically an indexed list which is indexed by location. So, based on procedure. And this is a very complicated world of medical coding. And so what ends up happening is you receive a procedure in the middle of America, it’ll be assigned a cost and then Medicare will pay based off that cost. And then it will be different, for example, in South Beach. It’ll be different in Seattle.
Steve Pomeranz: I see, okay. When should one start thinking … Let’s say you’re not retired yet, but you’re approaching age 65 or you see that in your sites. When do you start thinking about Medicare, as you approach Medicare eligibility age?
Jae Oh: It’s a great question. I actually, my own view is somewhere in this 18 months to two years. And the reason I say not just in the prior year is there are a number of different implications. The first is tax. For example, the way that people receive their income from qualified or non-qualified funds can affect your Medicare premium, and this is IRMAA, for those persons who are in higher income levels, you can get a higher part B premium and part D premium.
Steve Pomeranz: Hold on. Yeah. Hold on, I don’t want to get into detail, but I just want to explain that a little bit. So as you’re approaching Medicare, you have to look at what your retirement sources of income are going to be. Some of those from your savings, especially, some of that money will come from taxable savings, money that’s already been taxed. Maybe you own stocks or bonds and you’re earning interest or dividends. Those are taxed at a certain rate. And some of your money is going to be in retirement accounts, which comes out as ordinary income when you start to pull it out.
Jae Oh: Exactly.
Steve Pomeranz: Now the point is that your Medicare premium is dependent upon how much you make. Because most people, 93% of Medicare participants, pay the lower rate, but 7%, over 4 million people, pay a much higher rate per month. I think that comes as a shock to them. So you want to do the math on your income before you start taking Medicare, so you know exactly how to position yourself in the best tax way. Correct?
Jae Oh: You’ve stated exactly along the lines that I was thinking, which is that … and this is why it’s just not three months prior.
Steve Pomeranz: I see. Smart.
Jae Oh: Because you can have a different calendar taxation year. and then because the way that Medicare premiums work is that they’re looking back two years to your taxable income. And so if you’ve withdrawn too much out of qualified funds, you have may unintentionally increased your Medicare premiums by incurring IRMAAs, these extra surcharges, if you will, to your Medicare premium. That’s why you really do need more than 12 months.
Steve Pomeranz: It’s weird too because, let’s say you retire and now your income drops, they’re still measuring your payment on the prior two years. So let’s say you’ve been doing extremely well. You made $500,000 a year for the two years prior to retirement and then in retirement, you’re getting $100,000 a year. Well, guess what? They’re still looking at the $500,000 a year, so you’re paying the higher premium. So you want to kind of know that going in and that’s why you want to give yourself plenty of time. Let’s move on a little bit. There’s all sorts of plans and these Medigap plans as well. What coverage gaps do you think people miss the most?
Jae Oh: Well, the first and most basic one is that people believe that part A, which is hospital, that they read the word deductible and they think that it’s an annual period, once a year because that is what they’re used to when you bought private health insurance or whether you got it from your employer. Under Medicare, part A, that deductible, the hospitalization deductible, is once per benefit period, which is not calendar year.
Steve Pomeranz: So if you go into the hospital three times for the year past these periods, I guess it’s 30 days or 60 days, forget what it is right now for the purposes of time, but you’ll have to pay three deductibles.
Jae Oh: Exactly right. I translated in public when I speak in public, benefit periods should be understood as medical events, medical episodes.
Steve Pomeranz: Medical events. So, if you have three medical events, you end up in the hospital, the deductible … Now the deductible is something like $1300 plus, right?
Jae Oh: It’s actually $1,408 in 2020.
Steve Pomeranz: It’s gone up.
Jae Oh: So this continues to creep up. Correct. And these are reset annually by the federal government
Steve Pomeranz: The fact too though is that’s just for 30 days. After 30 days, you’re paying $350 something a day.
Jae Oh: Well, yes. So once you pay the deductible, after the first 60 days, then you end up having to pay the $352 a day.
Steve Pomeranz: After 60 days, okay.
Jae Oh: But the main thing here, Steve, is really that people misunderstand the word deductible. So one of the things about the book is to say, look, the terminology may look similar, but under Medicare, they work differently.
Steve Pomeranz: The book is Maximize Your Medicare, Qualify for Benefits, Protect Your Health, and Minimize Your Costs. Go back to what you were saying, Jae, about some of the coverage gaps people miss.
Jae Oh: I think the other one is that the wrongly placed belief that the Medicare card alone is a complete solution because part A, part B alone have no annual out of pocket maximum. So as a result, while you can have this 20%, it can continue to run and run and run. And so what people think, well, I’ve received my Medicare card and that’s it and I have health insurance, but you don’t have a cap to the downside on financial costs. And this is the critical thing because then we get calls, I’m 68 years old, I’ve never been sick, so all I’ve had is Medicare. That’s all I needed. Well, not exactly. They find out that their downside is quite substantial.
Steve Pomeranz: Well, so there are policies in addition to that that are very widely used, Medigap policies and so on. So take us there a little bit and tell us what features are working and what to look out for.
Jae Oh: Sure. So there are two big groups and we’ll just keep them to the big groups. Medigap, as you mentioned, this is a standardized set of plans, lettered A through N. Now these plans vary in price. The premiums vary largely by age and location. So in other words, the most efficient carrier and the most efficient plan in Manhattan may or will not be the same one as in Phoenix. That is almost certainly not the case. But however, Medigap is outstanding because of its fact that as I said, it’s standardized. In other words, plan N from Steve’s insurance company will be identical to that of an Omaha insurance company.
Steve Pomeranz: Okay, stop right there. So are prices the same even though the benefits are the same?
Jae Oh: No. No, they will not be. My job is to identify the efficient carrier and the efficient plan in that location.
Steve Pomeranz: I think most people do this themselves. And you mentioned that your job is to do this. So who does someone go to if they’re looking for advice because going to Medicare is pretty much impossible to navigate. So if you want some outside advice, what kind of profession provides that?
Jae Oh: Insurance agents. You need to have an insurance agent license in life and health in your state. And they also must have permissions from carriers. So the way that I set up, the way that we set up is to make sure that there are no limitations so that if you call us from Phoenix, we’re going to be able to identify combinations of your location, your age, your sex, and the carriers. And you’re trying to find the efficient solution.
Steve Pomeranz: Are there additional costs for this service or is that built-in somehow?
Jae Oh: It will largely depend. So as a financial planner, the issue is is how complicated the matter will be. The first upfront call to us has no cost. It has no cost. If we know that it is boiler plate, you’re 65 years old, garden variety, can you just provide the brokerage service. We will do that without cost. However, if you’re married, you have one person who’s retired, one person who’s not with 20 different medications, that is a different story. There will be a one-time fixed cost irrespective of the number of hours that we’ve spent.
Steve Pomeranz: Okay. Well, I mean you have a profession and a service to render and you should be compensated for that. I just think it’s important for people to understand where they can go and what the cost may or may not be. All right, so once I’ve enrolled and I have these advantage plans or whatever, what else should I know? Now we’ve discussed a little bit about IRMAA, I-R-M-A-A. I said one of my questions was who is Irma and why do I care about her? But we kind of talked about that because that has to do with what you’re going to be charged as a premium based upon what you earn. Tell me what else we can discuss. For example, what is the state of inflation to these premiums?
Jae Oh: So IRMAA, if we go first to IRMAA, IRMAA is going to be now indexed to inflation. So the bracketing used to be fixed in terms of what earnings brackets and what IRMAA you were charged. That has now changed beginning in 2020.
Steve Pomeranz: You’re talking about tax brackets.
Jae Oh: That is correct.
Steve Pomeranz: Those are now indexed. So as your income rises because of inflation, let’s say theoretically, then it keeps pace with inflation. So, that’s a benefit to the user.
Jae Oh: That is true.
Steve Pomeranz: Right, okay.
Jae Oh: On Medigap premiums, what you can expect are two things. Number one, persons are going to get older, and unless you’ve found the fountain of youth, the probability of incurring healthcare costs has increased. So as a result, premiums increase. In addition to that, the barrier to that, or there are limitations to that, meaning that those increases have to be approved by the state, and the carriers must spend 80% of their premiums on healthcare claims. The carriers do not simply get to randomly increase your rate. It has to be justified by incurred cost or you get a refund.
Steve Pomeranz: All right, well, we are out of time, unfortunately. That went by pretty fast. The person I’m speaking with is Jae Oh. His last name is spelled O-H. And the book is Maximize Your Medicare, Qualify for Benefits, Protect Your Health, and Minimize Your Costs.
Come to our website at StevePomeranz.com and you’ll see it and we’ll have a link to it as well. And don’t forget while you’re there to ask us some questions. We’d love to hear your questions. Sign up for our weekly update so you can see what’s going on a weekly basis so you don’t have to miss any segments if you just happen not to be around when the show is being aired over public stations nationwide. Come to the website. It’s StevePomeranz.com as I’ve always told you, and you’ll see all that information, including a link to Jae’s book, Maximize Your Medicare, Qualify for Benefits, Protect Your Health, and Minimize Your Costs. That’s StevePomeranz.com.