With Jae Oh, Certified Financial Planner and Managing Principal of GH2 Benefits, Author of Maximize Your Medicare: 2020-2021 Edition: Qualify for Benefits, Protect Your Health, and Minimize Your Costs
Steve spoke with Jae Oh, Certified Financial Planner and Managing Principal of GH2 Benefits, about how Medicare is changing in 2020. These changes are important for you to know if you’re already using Medicare or nearing retirement age and preparing to sign up for it.
Medicare Premiums And Deductibles Are About To Rise
Medicare premiums are going to rise in 2020. This is primarily affecting Part B of Medicare. Most people will go from paying $135.50 to $144.60 per month. This is going to effectively use up all of the cost of living increase for Social Security, which won’t be growing at the rate that Medicare premiums are. This increase is a 7% rise, as opposed to Social Security which is only going to be increased by about 1.6%.
Medicare deductibles are rising too in 2020, from $185 to $198.
Why Are Medicare Costs Rising?
There are two primary reasons for these rising Medicare costs. (It’s worth noting, quickly, that legislation for these increased Medicare costs was passed a few years ago, which means we basically knew it was coming.) The first reason for the increased costs is the changing of income brackets. Each bracket has been adjusted to include slightly higher incomes. Also, IRMAA (income-related monthly adjustment amount) is just that: premiums for individuals are adjusted, based on their modified adjusted gross income. This is primarily focused on higher-income individuals, who are required to pay higher premiums on Medicare Part B.
The other reason is the rise in spending on drugs that can only be administered by physicians or medical personnel, typically in a hospital or office setting. Most of these drugs, chemotherapy and infusion therapy, for example, are very expensive. Although Medicare Part B covers most of these drugs, premiums and deductible costs are being raised to help providers cover their expenses.
A Silver Lining: The Hold Harmless Provision
There is a little silver lining to all of this news about Medicare increases called the “hold harmless” provision. This provision essentially prevents the government from increasing the monthly premium of those already receiving Medicare if the increase amount is more than your Social Security increase. But this doesn’t apply to anyone who is about to turn 65, new Medicare recipients who will be required to pay the increased premium amount.
Medicare Is Better Than The Private Market
Obviously, no one is going to be happy paying more for their healthcare coverage. But, it’s critical to point out that you’re still far better off with Medicare than you are with insurance from the private market.
If you’re in your sixties, you could easily be paying $12,000 a year for coverage in the private market. If you want coverage that looks anything like Medicare coverage, you’ll be paying at least $1,400 per month, plus incidentals. Compare this to the maximum monthly premium payments with Medicare, which are under $600.
You do have to remember, of course, that Medicare coverage stops at a certain point, and you are responsible for the additional costs. This is why a lot of people end up buying add-ons to their Medicare coverage. Medicare parts A and B have no maximum out-of-pocket limits. Medigap and Medicare Advantage, which are add-ons, do have built-in maximums. Medigap covers everything that Medicare doesn’t, once you’ve met the part B deductible.
To learn more about how to handle your personal and medical finances, head over to the GH2 Benefits website. You can learn more about Jae there as well. If you’d like to get more in-depth information about Medicare, go to maximizeyourmedicare.com where you can pre-order Jae’s new Medicare book, Maximize Your Medicare, coming out in January or click here.
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Steve Pomeranz: Saw an article the other day that stated that Medicare premiums are going to be on the rise. So I invited my next guest to join me who knows a lot about this topic. His name is Jae Oh, he is a Certified Financial Planner and Managing Principal of GH2 Benefits based in Ann Arbor, Michigan. Hey, Jae, welcome to the show.
Jae Oh: Thank you very much for having me, Steve.
Steve Pomeranz: So as I said, I’m understanding Medicare premiums will be rising in 2020. How much more will it cost for, I guess it’s Medicare part B, maybe part A as well. Why don’t you take us through that?
Jae Oh: Sure. The most notable is that the monthly premium that people will pay for Medicare part B will increase for most people. From $135.50 cents in 2019, up to $144.60 cents. If you go backward, this will largely eat most of the increase in Social Security benefits, which will not be growing at that same rate.
Steve Pomeranz: Right, right. So, let me do a little bit of math on my iPhone here. Nine divided by 135 is about a 7% rise, right?
Jae Oh: That’s exactly right. So nowhere near the 1.6%, I believe, for Social Security, that’s correct.
Steve Pomeranz: Okay, but this is a double-edged sword because it’s not only your premiums, but the other place of cost in this equation is the deductible. Is that changing?
Jae Oh: The deductible is rising. It’s going from 185 to 198 in 2020, which is marginal to some degree for higher-income persons. I think, to swerve back to the premiums that the premium extra amount, which is called IRMAA, if you will, that’s the shorthand, is also going to be increasing and the rate of increases also picking up as well.
Steve Pomeranz: The rate of increase.
Jae Oh: That is correct.
Steve Pomeranz: Was there a reason given for this accelerating increase in the premium and deductible for Medicare?
Jae Oh: Years ago, this was legislated, so we have known that this rate would increase. The flip side, I guess to some degree, is that the income brackets. So IRMAA is an adjusted premium amount based on your income on modified adjusted gross income, and the brackets have also been adjusted slightly higher along with CPI, which is the inflation index.
Steve Pomeranz: I saw something that said too that part of the reason for the increase was due largely to the rising spending on physician-administered drugs. Did you know about that?
Jae Oh: Well, I’d say, generally speaking, that healthcare costs, so complicated with humongous stakeholders, whether that’d be physicians, hospitals. You’re talking about very large knowledgeable stakeholders with enormous pressures of their own. All of us do. And there’s demographic reality. There’s no question that there are certain medications which are not administered at your home, meaning you don’t go and fill them at Walgreens or the pharmacy, but are administered in a hospital or an office setting, which are covered by part B, and those tend to be the very, very expensive medications.
Jae Oh: Infusion therapy, for example, chemotherapy, which is can be administered in an office. That these medications are covered by part B and they’ve experienced high in-group rates of increase in-group with regard to price.
Steve Pomeranz: Everybody thinks that Medicare is something like $140 a month, but it really depends on your income. I think a lot of people are shocked that $140 or so dollars a month, that’s up to, if you file an individual return, that’s up to an income of $87,000. Married filing jointly, it’s $174. But let’s say you make $160,000 or more, your premium can rise to $460. So, this is definitely a graded cost for those. Obviously, if you make more, you can pay more. I guess that’s fair, but to me, the degree of the increase was somewhat shocking.
Jae Oh: It would be surprising to many. As I said, right at my first comments, is that the rate of this increase, the angle, if you will, from $144.60, which is the base amount up to the maximum of $491.60 to those households or households that make over $750,000, the rate is increasing. We’re not going to settle this debate here, Steve, but you could call this double taxation because they’ve been withheld for the Medicare tax during their payroll deduction years.
Steve Pomeranz: The government has no trouble taxing us twice. We don’t have a lot of time, so I do want to make it clear that the fair amount of people won’t be paying these increases because of the hold-harmless provision. Can you explain that to us?
Jae Oh: Sure. This is another piece of legislation here. Hold harmless basically means that a large percent of the population can’t really have these rate increases, so as I said, most persons are at $144.60, but the reality is, is that if that is greater than the amount of your Social Security increase, then they cannot increase your Social Security premium. That said, if you’re a new newly turning 65 person, that doesn’t apply to you and you get the new rate, $144.60.
Steve Pomeranz: Yeah. Now, what if you decide not to take Social Security until age 70, so you’re not kept on the Medicare premium like you would be if you did take it at age 65.
Jae Oh: You’re talking about very subtle points here, but you are no doubt correct.
Steve Pomeranz: Oh, okay. So you know, it’s interesting because there’s a lot to consider about delaying your Social Security. I don’t know if this is a big deal because I haven’t really done the math, but here’s a little, an extra point that if you do wait, then you will absorb the full amount of the increase. Whereas, if you’ve taken your Social Security earlier, you’re going to be locked into a rate of increase that matches the rate of increase inflation adjustment on your Social Security. I don’t think that was too complicated, do you?
Jae Oh: Pretty complicated. You are right. In the overall context of the 5,000-foot view is that still Medicare, unless you’re at the very highest tier, the cost of Medicare is going to be far superior to the private market.
Steve Pomeranz: Yes, yes.
Jae Oh: It’s both from the dollar point of view, and that’s even before you actually use the coverage. So, what goes away from your individual health insurance? $5,000 deductible, $10,000 out-of-pocket maximum. Those disappear.
Steve Pomeranz: Yeah, and I think for private insurance if you’re in your sixties you’re paying upwards over $12,000 plus.
Jae Oh: Easily.
Steve Pomeranz: Easily, right?
Jae Oh: Absolutely.
Steve Pomeranz: You’re in this business. What is the typical premium at that age?
Jae Oh: Well, just before 65, if you’re 64 years old and anything close to what Medicare looks like, anything close, would be easily $1,400, $1,500 a month, plus.
Steve Pomeranz: Ah, so compare that to, at most, $500 we’ll call it.
Jae Oh: Exactly. Yeah, so $500, even if you had add-ons, add-ons or not, we’re not going to get into every little nuance here, but just generically speaking, depending on where you are in the country and your sex, somewhere between $100 to $300 a month. I realize that’s a wide range, but even at the high end, $300 plus $500 is $800, nowhere near where private health insurance would be or employer-sponsored coverage at the fully loaded price.
Steve Pomeranz: We’re not even talking, I think you just alluded to it, but we’re not really even talking about getting a supplemental coverage here because that’s that extra money that you’re talking about. Because, Medicare stops at a certain point and it’s up to the individual as far as paying part A, where it’s paying hospital costs, right? After 90 days, I think you’re responsible for $700 a day or something.
Jae Oh: So, what happens here is Medicare, I compare Medicare, the federally issued card to be a very good chassis to a car. That said, it’s not a complete car. It doesn’t have airbags and fenders, if you will, when fenders existed. What happens is, the federal card is a very good starting point, but yet, by itself, it does expose you to financial risk if you required healthcare services. And, the punchline here is the federal card part A and part B, they have no maximum out-of-pocket limit embedded.
Jae Oh: So, 20% for example, under part B, 20% of very huge numbers is still a huge number. Under the supplements, whether that be Medigap or Medicare Advantage, there are built-in maximums. In Medigap, the mechanism is slightly different, meaning that Medigap will cover the entirety of what Medicare does not, after you’ve met the part B deductible. Under Medicare Advantage, a slightly different set of mechanisms, but every Medicare Advantage plan must have, not can have, but must have a maximum out-of-pocket limit. So, those features by themselves are very important add-ons to the chassis.
Steve Pomeranz: Well, you know the idea of insurance is not to really take care of the little stuff. It’s to prevent financial disaster.
Jae Oh: 100%. Absolutely.
Steve Pomeranz: So, that’s what the supplement does. It basically caps your responsibility and caps your risk. Jae, we are out of time. My guest, Jae Oh, Certified Financial Planner, Managing Principal of GH2 Benefits. As I said, he’s based in Ann Arbor, Michigan. We’re speaking in November. What’s the weather like up there, Jae?
Jae Oh: Well, it’s colder here than it is there. One last thing, Steve, even though I’m not a politician and decidedly not so, you can find out more information about Medicare in my book. It’s coming out in January, being published by All Worth Press, MaximizeYourMedicare.com. It is available on pre-order now and there’s a YouTube channel so you can hear more important details, irrespective of net worth or account situation.
Steve Pomeranz: All right, say the name of the book again.
Jae Oh: Maximize Your Medicare.
Steve Pomeranz: Okay. And my guest is Jae, J-A-E, Oh, O-H. Also, Jae, when the book comes out, give us a call, we’ll interview you and try to give you a little boost and also learn some of the stuff from you.
Jae Oh: I appreciate the time, Steve. My privilege.
Steve Pomeranz: My pleasure. So, as you know, our mission is always to educate you and to remind you week after week that we love to get your questions because we do. These are complicated times and some subjects are complicated, and you want to be able to see them and reread them, and look at the transcripts and see the links to all of the things that we talk about. So, come to our website, which is stevepomeranz.com. While you’re there, sign up for our weekly update where, in your inbox every single week, you’ll see every single segment and commentary that I do. Again, that’s stevepomeranz.com.