Tag Archives: Medicare

The Fate of Social Security for Younger Workers – And Three Things You Should Do Right Now

We constantly hear people wonder whether Social Security will still be there when they retire.  The question comes not just from people in their 20’s, but also from people in their 40’s and 50’s as they begin to think more about retirement.  It’s a fair question.

Some estimates show that the Social Security Trust Fund will run out of money by 2034.  Medicare is in even worse shape, projected to run out of money by 2029.  That’s not all that far down the road.

So how do we plan for this?

The reality is that Social Security and Medicare benefits have been paid out of the U.S. Treasury’s “general fund” for decades.  The taxes collected for Social Security and Medicare all go into the general fund.  The idea that there is a special, separate fund for those programs is accounting fiction.  What is true is that the taxes collected for Social Security and Medicare are less than the amount being paid out.

What this inevitably means is that at some point the government may be forced to choose between increasing taxes for Social Security and Medicaid, reducing or altering benefits payments, or going broke.

Another question is whether the benefits provided to retirees under these programs will cover the cost living.  Older people spend much more on medical expenses than the young, and medical costs are increasing much faster than the cost of living adjustments in Social Security payments.  If a larger percentage of a retiree’s income from Social Security is spent on medical expenses, they will obviously have to make cuts in other expenses – be they food, clothing, or shelter – negatively impacting the lifestyle they envisioned for retirement.

The wise response to these issues is to save as much of your own money for retirement as possible while you are working.  There is little you can do about Social Security or Medicare benefits – outside of voting or running for public office – but you are in control over the amount you save and how you invest those savings.

As we face an uncertain future, we advocate that you take these three steps:

  1. Increase your savings rate.
  2. Prepare a retirement plan.
  3. Invest your retirement assets wisely.

If you need help with these steps, give us a call.  It’s what we do.

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GE Retirees health insurance

GE is one of the companies that are working hard to reduce the amount it must spend on retiree health care. As people live longer, the cost of lifetime health care coverage for retired employees becomes a larger part of a company’s bottom line. GE recently offloaded the supplemental insurance coverage for salaried retirees to another company that specializes in employee benefits.

With that in mind, here is what a member of the GE employee family had to say about this. Even if you are not a GE retiree, the analysis is very worthwhile.  (edited)

When you turn 65, Medicare becomes your primary health insurance even (I think) if you are still working for GE, and definitely if you are retired from GE. … [But] one needs to sign up for Medicare within 3 months before or after their 65th birthday month, or face a lifetime late enrollment penalty.

You can either purchase a Medigap plan on the open market using Medicare.gov to search the available plans, or you can use OneExchange the same way. Or, if you’re feeling lucky/healthy, one can just use the 80% coverage of Medicare Part B and go without a Medigap plan – after all, Medicare Part B pays 80% of Dr. visits…The Medigap plans basically cover the 20% of OV’s that Medicare doesn’t – plus a few other things, but that’s their primary role. A person could do a simple break-even analysis and figure out how many OV’s they would have to have in a year to equate to the premiums they will pay for a Medigap plan. A healthy person would actually be better off financially (in the short term anyway) without a Medigap plan, as most people are paying at least $100 per month per person for that coverage, I believe. Of course, it is insurance, so what you really hope for is that you pay the premiums and don’t need it, right?

Since you also would be losing your GE drug coverage, you very much would want to enroll in Medicare Part D, drug coverage, or you will be paying the retail price for drugs, without the coverage of the Part D plan, and also without the negotiated drug prices the insurance carriers receive – a bad proposition all around. If one’s prescription drug needs are modest, there are very low-cost plans available like Humana/Walmart, which provide good protection at very low cost. If one’s prescription drug needs are a little more exotic, then it would pay to explore which plan would be best, using the plan selector engine at Medicare.gov or OneExchange. My experience using both plan selector engines was they came up with a very closely matching answer. In my case, even with one Tier 3 drug that costs $250 per month retail, Humana/Walmart was the least costly plan, but several others were very close.

Or, if this person was OK with using a managed care plan, there is also the option of going with a Medicare Advantage Plan, or a managed care plan, aka Medicare Part C. Those are the plans for which we get the flyers every Annual Enrollment period. I think generally these are very cost effective, often covering Medicare Parts A, B and D with a premium of zero dollars, but you have to be prepared for the restrictions on where you can go and who you can use, you generally need a visit with a Primary Care Physician (PCP) in the HMO before seeing a specialist, etc. My view on these plans is that you give up some choice and control in exchange for saving quite a bit of money on premiums. But watch out for the geographical and network restrictions.

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Over There!

From the Financial Planning.

Living abroad seems like an inexpensive option for some prospective retirees, and even some younger people who are not tied by a job to a specific location. 

But there are a number of issues that need to be considered before buying a ticket and pulling up stakes.  Without getting into details, here are the items that should be researched:

  • Tax Issues – first consult a tax lawyer. and see what the taxes will be and to whom you will pay them.
  • Health Insurance – no one living permanently outside the US can receive Medicare benefits.
  • Working Abroad – if you’re going to be running a small business abroad, be sure to know what the taxes, labor regulations and wage scales are.
  • Social Networking – it may be difficult to create a circle of friends in a new country unless you build a social network before you move.
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Hospital Admission Advisory

From the Hook Law Center:

Do you know the difference between being admitted to a hospital as an INPATIENT or as someone UNDER OBSERVATION? If you’re eligible for Medicare, the difference can be very costly. Consider the scenario of Laraine Sickels, a retired teacher from Whidbey Island, Washington. At 71 she went to the hospital because she had fallen at a friend’s house. It was determined that she had 3 breaks to her pelvis. She spent 5 days in the hospital, but during that time she was only considered “under observation.” Unaware of this, when it came time to be discharged, she was released to a skilled nursing facility. That’s where the problem started. She got good care there, but because she had not been spent 3 days in a hospital as an inpatient, her 10-day stay at the skilled nursing facility was hers to pay. Medicare covers the first 20 days in a skilled nursing facility completely as long as you’ve been in the hospital at least 3 days classified as “inpatient”. In addition, that same patient who was classified as “inpatient” will pay for days 21-100 at the skilled nursing facility at the rate of $144.50, a fraction of the true cost. (Amanda Gengler, “This could hurt–a lot,” Money Magazine, August 2012, p. 72-3)

So what’s happening? Well, Medicare is attempting to trim expenses. One way they’ve decided to do this is that, for certain cases, the patient who may have only one ailment gets classified as “under observation” while tests are run. This classification allows them to reimburse hospitals at a lower rate. “In 2009, the most recent data available, observation stays topped 1 million, up 25% from 2007, according to a study published by researchers at Brown University.” (Gengler, p. 72) From their point of view, your care is the same. Medicare just winds up paying a lot less.

What can you do?  Read the rest at the link.

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