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What you don’t know about Medicare could cost you a fortune, says Melinda Caughill, co-founder of 65 Incorporated.
In a recent interview for the Decoding Retirement podcast during the 2024 Schwab Impact event (see video above or listen below), Caughill outlined some “dirty little secrets” about Medicare that every current and future beneficiary should know, of the importance from double-checking information from Social Security agents to reviewing your coverage annually.
Here are some of the potential pitfalls in the Medicare system that Caughill highlighted.
Caughill explained Medicare enrollment as a six-step process that goes beyond just selecting specific insurance companies such as UnitedHealth (UNH), Humana (HUM) or Aetna.
The first step is to determine the timing of enrollment, which depends on individual needs, such as whether to enroll at age 65 or postpone enrollment.
The next step is choosing the type of Medicare coverage that best suits your needs. This is often called choosing a ‘path’ because it can be a one-way decision with no way back.
Read more: Medicare Open Enrollment: How to Add or Adjust Your Coverage
After determining the timing and trajectory, individuals must select specific insurance plans. Medicare enrollment is then completed through the Social Security Administration, followed by enrollment for any additional coverage.
However, the process does not end there. The final step is to review and possibly adjust the coverage annually to ensure that it continues to meet personal needs and circumstances.
An elderly man waits for his prescription to be filled at a CVS pharmacy in New York City on October 3, 2023. (Robert Nickelsberg/Getty Images) ·Robert Nickelsberg via Getty Images
“The sixth step of Medicare enrollment is to review your coverage annually for the rest of your life,” Caughill said. “No autopilot.”
Failing to check coverage means you’re essentially giving insurance companies a blank check. And “just because you haven’t experienced any changes in your health or medications” doesn’t mean your care plan will remain the same year after year, Caughill said.
Premiums, deductibles, copays, provider networks and more can change every year while keeping the same plan name, she said.
When you contact the Social Security Administration (SSA) to enroll in Medicare, you will not only find it difficult to get helpful advice, but you also run the risk of receiving incorrect information.
For example, Caughill told the story of David, an individual who had employer-paid COBRA health insurance through October.
In January of that year, David called the Social Security Administration and asked the agent if he should enroll in Medicare. According to Caughill, the Social Security agent advised David to sign up for Part A, but wait until October to sign up for Part B, just before November 1.
Unfortunately, this advice was incorrect and had devastating consequences.
According to Medicare.gov, if you have COBRA and are eligible but not enrolled in Medicare, COBRA can only pay for a small portion of the health care services you receive, leaving you to pay most of the costs out of pocket.
“It’s really too bad that they were given these guidelines because the truth is that if you have COBRA coverage after age 65, COBRA coverage is subordinate to Medicare regardless of whether you enroll in Medicare or not” , Caughill noted.
David racked up between $800,000 and $1 million in medical bills over the next ten months. Thanks to the social security agent’s guidance, these costs were not covered, leaving him and his wife Julia without the necessary coverage.
When Julia contacted the Social Security office to report that she had received incorrect guidance, she was told there was not enough information about the January call to review her case.
“The Social Security office said, ‘I’m so sorry, we want to help you, but we… don’t know who this employee was that helped you. So you’re on your own,’” Caughill said.
When dealing with SSA and Medicare, Caughill recommended documenting all conversations with authorities, noting the date, time, what was said and who you spoke to.
If something goes wrong, she said, you have to prove you received bad advice. And even then it is difficult to get relief.
“Even with complete documentation, it can be difficult, if not impossible, to get Social Security to make things right,” Caughill said. “But if you have no documentation at all, you don’t have a case.”
There are two options to choose from when enrolling in Medicare, Caughill explained. You can enroll in Medicare Advantage, or what some call Medicare Part C, or enroll in original Medicare and purchase a Medicare Supplement Insurance or Medigap plan.
“The sad thing,” Caughill said, is that Medicare insurers get paid a lot more to sell you a Medicare Advantage plan than a Medigap policy.
In fact, she noted that Medicare insurance agents earn 40% more on the initial commission selling Medicare Advantage plans than Medigap plans. On average, they earn $705 in commissions per Medicare Advantage plan, compared to $483 per Medigap plan sold.
Isabel Diaz Tinoco and Jose Luis Tinoco look at a computer as Otto Hernandez, an insurance agent, shows them the different insurance plans available on November 1, 2017 in Miami, Florida. (Joe Raedle/Getty Images) ·Joe Raedle via Getty Images
Over the course of 20 years, a Medicare insurance agent will earn $7,765 in commissions per Medicare Advantage plan sold, compared to $3,381 per Medigap plan sold.
This doesn’t mean that Medicare Advantage plans or insurance agents are “bad,” Caughill noted in her presentation at Schwab Impact 2024. It just means that selling Medicare insurance incentivizes agents to promote one type of product over another, regardless no matter what happens. are actually in the interests of the consumer.
“You need to know this,” Caughill said. “Always know where the money is going and make sure the guidance you receive is the best it can be.”
To find an agent who will truly put your needs first, Caughill suggested asking agents a few questions: Do they sell Medicare Advantage, Part D and Medigap policies? What is their sales ratio of Medicare Advantage versus Medigap policies? and how many companies can they sell?
Caughill also advised people to pay attention during the sales call. Does the broker prioritize discussions about low monthly premiums and additional free benefits? (Not good.) Is the agent only talking about today and saying you can always change your coverage later? (Not good.) Or is the agent talking about supplier networks, drug formulations, prior authorization, and guaranteed dispensing rights? (Good.)
“There are good insurance agents,” she says. “There are also bad ones. …So you have to ask those questions. And if you ask those questions and you find a good one, then definitely work on it.”
The Inflation Reduction Act limits annual out-of-pocket spending on medications to $2,000. However, this limit only applies if the drugs are included in your Part D drug plan, Caughill said.
If a drug is not covered by your Part D plan, the $2,000 limit does not apply and you are responsible for paying the full retail price, regardless of whether it is $200 or $20,000 per month.
“You pay the full retail price for that drug,” she said.
Caughill said it’s also important to note that drug plans can change their forms, or the list of medications they cover, every year, meaning a drug covered this year may not be covered next year.
U.S. President Joe Biden speaks on February 9, 2023, in Tampa, Florida, about his plan to protect and strengthen Social Security and Medicare and reduce health care costs. (Mandel NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images) ·MANDEL NGAN via Getty Images
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