Episode 47: Why Medicare belongs in your wealth plan

Oscarlyn Elder:

When you hear the word Medicare, what's the first thing that comes to mind? For most people, it's health insurance, but what you may not realize is just how much Medicare also affects your taxes, retirement income, and other important financial factors.

I'm Oscarlyn Elder, head of investment management at Truist Wealth. And this is I've Been Meaning To Do That, a podcast from Truist Wealth, a purpose-driven financial services organization. We appreciate you listening. Today, Tony Bryan and I are talking about why Medicare belongs in your wealth plan.

Tony's my colleague and a wealth planning strategist here at Truist. He spends a lot of time helping people find their way through the complicated world of Medicare. Over the years, he's helped numerous clients understand their options. Tony, thanks for being here.

Tony Bryan:

Thanks for having me. Great to be back.

Oscarlyn Elder:

Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.

Tony, there's a lot of terminology involved with Medicare. Can you walk us through the terms that we need to know as we have this discussion?

Tony Bryan:

Absolutely. So, it starts with Medicare Part A, which is the hospital insurance. It covers hospital stays, skilled nursing facility care, hospice, maybe some home healthcare, and there are no premiums to Part A. I don't like to say it's free because we've already paid for it.

And then next is Part B. So, think of Part B as medical insurance. Think doctor's office, outpatient care, covers preventive care, lab work, medical equipment, like walkers and wheelchairs. That's Part B. That's the one we all pay premiums for that one.

Now, Medicare Part C, this is what makes it really confusing. Part C is the term for Medicare Advantage. So, Part C or Medicare Advantage, they’re offered by private insurance companies, and it's an alternative way to receive your Medicare benefits, and it bundles parts A and B and usually a Part D drug plan into one plan.

And then Medicare Part D, that's prescription drug coverage, helps cover your prescription medications and is usually purchased separately with Original Medicare or included in many Medicare Advantage plans.

Oscarlyn Elder:

Thank you so much for those terms and definitions. Tony, many people think of Medicare and the choices and options it presents as being just connected to health insurance for people over the age of 65. But from an overall financial planning perspective, it's really about much more. What do people often overlook about what Medicare will mean for their wealth in their senior years?

Tony Bryan:

That's a great question. I think people often view Medicare too narrowly. They see it as purely a health insurance decision. They enroll, they choose their coverage, they get their Medicare card, and then they move on. But for affluent families, Medicare touches almost every part of their wealth plan. It affects retirement spending and income needs, it interacts with the insurance decisions, investment and withdrawal strategies, taxes, long-term care planning, survivor planning, and ultimately the wealth preserved for their family or charity. So, really Medicare is not merely an insurance conversation; it's a wealth conversation that happens to involve insurance.

And the other issue is the enrollment process demands so much attention. You meet parts A, B, C, and D, then maybe Medigap, Medicare Advantage, enrollment periods, networks, formularies. People understandably focus on choosing coverage, but what can get lost is a much bigger question. How will healthcare affect our financial life over the next 20 or 30 years? That question belongs in the same conversation as retirement income, investments, taxes, insurance, long-term care, and estate planning. Healthcare decisions can definitely change cash flow. It can affect which assets are used. It could reduce financial flexibility and influence what remains for a surviving spouse or the next generation. So, really the biggest Medicare myth is not that Medicare covers everything, the biggest Medicare myth is that Medicare only affects your healthcare.

Oscarlyn Elder:

Yeah. So, Tony, I heard a lot of very useful information there, but a couple of things really stuck out in my mind. Number one, enrollment decisions, the process, it is complicated. That's a universal experience, it seems like.

Tony Bryan:

Yes.

Oscarlyn Elder:

And then, number two, this is not just an insurance decision, if you will, but it is really understanding how will this decision potentially impact the future? And so, it's important to come to this point with not only making an enrollment decision, but to understand the implications for your wealth plan potentially long-term.

Tony Bryan:

Exactly.

Oscarlyn Elder:

Tony, what surprises clients most when you're first introducing this idea?

Tony Bryan:

Well, there are several, but I'm still speaking to clients who think that Medicare will make healthcare free. Now, don't get me wrong, Medicare's a great deal, but there are still premiums that have to be paid, deductibles, prescription costs, supplemental coverage, and expenses for services that are either limited or not covered at all. Some wise person told me, "Healthcare expenses do not retire when you do; they simply stop hiding in the employee benefits package and introduce themselves personally." It was such a great analogy.

Another thing that surprises people is the huge number of decisions that had to be made. When you're working, your employer has usually done a lot of the heavy lifting for you, right? You pick from a handful of plan options and move on. Then you get to Medicare, and suddenly you're comparing Original Medicare, Medicare Advantage, Part D plans, Medigap policies, provider networks, deductibles, premiums, drug formularies. And then somewhere around hour three of your research, you're convinced that Medicare has more letters than the actual alphabet.

But the good news is there are usually several good choices. The challenge is figuring out which choice fits your healthcare needs, travel plans, budget, and overall financial goals. And that's where many people realize Medicare isn't just an insurance decision; it's part of their overall wealth plan.

Oscarlyn Elder:

And, Tony, let's talk about the connection between Medicare premiums and income. Why is that such an important planning issue, especially for more affluent seniors?

Tony Bryan:

A lot of people assume everyone pays the same Medicare premium, but that is just not true. Medicare applies something called IRMAA, which stands for income-related monthly adjustment amount. I like to say that IRMAA is an extra Medicare premium charged to people with higher incomes. Medicare looks at your income from two years ago, and if it's above certain levels, you'll pay more for Part B and Part D coverage. IRMAA is what happens when Medicare discovers your retirement plan is working a little too well, I like to say.

Now, what makes this trickier is the two-year lookback rule. Medicare doesn't look at what you earn today, it generally looks at your tax return from two years ago. So, the income you create today may affect your Medicare premiums two years from now. That is so very important for clients to understand.

Oscarlyn Elder:

When Medicare tells us what our premium is going to be, that it's based on all of these factors, is there a way to appeal that premium decision?

Tony Bryan:

Actually, there is. Like I mentioned, IRMAA is generally based on an older tax return. So the Social Security Administration, and they're the ones who administer Medicare, recognizes that the income picture may have changed. If a qualifying life event caused a meaningful drop in household income, the person can ask Social Security to use more recent income information. These qualifying life events revolve around personal and family changes, such as marriage, divorce, maybe death of a spouse. The others are based on work and income changes such as retirement; that's the main one.

So if this is the case, then the person can request a new determination using form SSA-44, which is the IRMAA appeal form, and provide any requested evidence of the life-changing event and the lower income. Now, things like Roth conversions and large capital gains from a sale of a house or a business, those are not grounds for appeal. I just want to get that out there because many people and advisors think it is.

And here's an easy detail for married couples to miss. If both spouses are on Medicare, each spouse has an individual IRMAA determination. Even when they file one joint tax return, each affected spouse should submit a separate SSA-44 request. So you have one marriage, one tax return, but two Medicare beneficiaries, two forms.

Also, I have had clients who were very proactive. They knew they were going to be in an IRMAA situation, and they submitted their SSA Form 44 forms before they even received their Medicare premium notice. Don't do that. The forms are going to get lost. Sometimes it's good to be proactive, but with Medicare and Social Security, it generally is not good to be proactive.

Oscarlyn Elder:

We all expect that we'll qualify for Medicare when we reach age 65, but how far before that birthday should we start thinking about how it will affect our financial planning?

Tony Bryan:

Yes. So, most people think Medicare is something to worry about when they turn 65, but in reality, the planning often starts a few years earlier, and that's because decisions about retirement timing, health savings accounts, Roth conversions, and even your future Medicare premiums can all be affected before you even enroll. So, a good rule of thumb, in my opinion, and if possible, is to start discussing Medicare around age 62 and 63, and to get serious about your choices about six months before your 65th birthday.

Oscarlyn Elder:

And Tony, should there be discussions within your plan about the potential for a Roth conversion or sale of homes if that's part of the plan, and that also impacts the premium level that kind of speaks to perhaps there's some planning happening in your later 50s, certainly as you roll into your 60s, at a minimum an awareness of the different levers that get pulled when determining the premium amount?

Tony Bryan:

Absolutely.

Oscarlyn Elder:

Tony, do most financial planners have experience with Medicare planning, or does it take a specialist?

Tony Bryan:

Well, the honest answer is some do, many don't, and most are probably somewhere in the middle. Financial planners have to know a little bit about a lot of things, right? Investments, taxes, estate planning, insurance, retirement income, and more. Medicare is one part of that puzzle, but it can feel like a full-time job all by itself. Medicare comes with enough rules and acronyms, enrollment periods, and exceptions to make even the most seasoned financial professionals reach for another cup of coffee. And the stakes are real. A missed deadline, the wrong coverage choice, or an overlooked income-related premium can cost a retiree thousands of dollars over time. So, the better question isn't, “Does my advisor know everything about Medicare?” The better question is, “Does my advisor have access to the right expertise when Medicare questions come up?” And that's where the Truist one team approach makes a difference.

Our advisors can bring in specialists from across the organization rather than trying to be experts in every subject themselves. And for those keeping score at home, yours truly, as Truist's Social Security Medicare subject matter expert, that's how I spend my days helping clients and advisors navigate these rules and avoiding costly mistakes.

So, here's the bottom line. Most financial planners know enough about Medicare to recognize that it's important. The best advisors know when to bring in a specialist and leverage a team.

Oscarlyn Elder:

Beyond premiums and enrollment timing, what else about Medicare planning do people with significant assets sometimes overlook?

Tony Bryan:

I would start with health savings accounts, or HSAs. They can be one of the most valuable tax advantaged accounts in retirement, especially when the money is used for qualified healthcare expenses. But the rules are, to describe it in the best way I can, are suboptimal. Perfectly intelligent people violate them all the time, not because they're careless, but because the Medicare and HSA rules seem like they were written by two government agencies that were not allowed to talk to each other.

So, one common surprise is that once you're enrolled in Medicare, you generally cannot keep contributing to an HSA. So before enrolling, it's important to coordinate the timing and understand how Medicare enrollment may affect your contribution eligibility.

And then another issue is long-term care. And let's be honest, if Medicare is the broccoli of retirement planning, long-term care is the kale, which is horrible. Nobody orders it because it sounds exciting, right? Many families assume Medicare will cover extended custodial care. And when I say custodial care, I'm talking about needing help with activities such as bathing, dressing, eating, transferring from a bed to a chair, and some other daily tasks. Medicare was just not designed to cover that type of care.

Oscarlyn Elder:

Tony, that's extremely helpful. That's a major misconception. And then, you're also pointing folks to understand that if you are engaged with an HSA prior to enrolling in Medicare, it's important that you investigate and understand the rules around HSAs and Medicare. And again, we're not providing legal and tax advice here. We're trying to ensure that folks understand the areas that they may need to double click into with an advisor, with an expert as they walk the Medicare journey.

When Medicare enrollment time comes, there are a lot of choices to make. Let's talk about some of the key decisions when we come right back.

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Oscarlyn Elder:

Tony, at some point, most people will transition from employer-based coverage to Medicare coverage. Where do you see people getting tripped up during that transition?

Tony Bryan:

What I've experienced with clients is that just turning 65 is stressful for them, and this is especially the case if they're still working. Clients simply do not know if they need to do anything with Medicare at 65. Meanwhile, they're getting bombarded with unsolicited, well-intentioned bad advice from family, friends, and colleagues.

But let me say this, if you're still working when you turn 65, you may not have to do anything with Medicare, and I'm going to say it again because it is that important. Just because you turn 65 and you're still working, you may not have to do anything with Medicare. It all depends on your employer and how many employees you have. So, the magic number is 20. So, if you're turning 65 and your employer has over 20 employees, then there really is nothing that you need to do with Medicare. I cannot stress that enough. You can delay signing up for Part B until you retire.

Now you could sign up for Part A, which for most people is at no cost, and Part A is the hospital insurance part of Medicare, meaning if you're admitted to the hospital or need certain types of facility-based care, Part A is usually the piece of Medicare that helps pay the bill. However, if you're contributing to an HSA, or health savings account, then you may not want to sign up for Part A because then you would have to stop contributing to the HSA, and the HSA is such a great retirement tool.

Now, if your employer has less than 20 employees, then Medicare generally becomes your primary coverage, meaning you would need to sign up for Part A and Part B, and your employer plan could then become secondary, but you would definitely want to speak to your HR department to see and to completely understand how the employer plan works with Medicare. I cannot stress that enough also.

And another one of the biggest traps is COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act. And for those who may not know, COBRA is the temporary option that lets you keep your employer's health insurance after you leave your job.

I've seen many employers tell their retiring employee, "Hey, we're going to be very nice to you and we're going to pay your COBRA premiums for 18 months." And then naturally clients think, "OK, I'll keep COBRA for 18 months and sign up for Medicare when it ends."

Now, unfortunately Medicare may not agree with that plan. It is so important to understand that COBRA always pays secondary to Medicare, always. And if you're not signed up for Medicare, then by law, COBRA doesn't have to pay anything, meaning that if you have a medical claim you could get stuck with the entire medical bill.

So, I want to say it again because it is that important, COBRA always pays secondary to Medicare.

Oscarlyn Elder:

That's really good information for our listeners to know, Tony. So, thank you. I know it's about this time in a person's life when they get bombarded with information about Medicare. What kind of bad or just questionable advice should people watch out for when it's coming from all directions?

Tony Bryan:

Yes, this is a very stressful time as clients are inundated with tons of Medicare information, mostly through ads in their mailbox to commercials on TV, and then from family and friends and colleagues who are on Medicare.

The best advice I can give them is to try to tune them all out as best you can, because what is good for them probably will not be good for you. This is a time I tell clients that Medicare is extremely personal, and what may work great for one person may not work great for someone else. And this could even apply to couples. What may work best for one spouse may not work best for the other spouse, so it's absolutely crucial to work with the right professionals, ones who are ethical, professional, and knowledgeable, to help you get signed up for Medicare.

Oscarlyn Elder:

Well, Tony, one of the biggest decisions people have to make is between Original Medicare and Medicare Advantage plans. Knowing that there's not one best choice for everyone, how do you help people think through that decision?

Tony Bryan:

I often frame the Medicare decision this way. Medicare Advantage is usually a cost decision. Original Medicare, which is A and B by the government, an optional Medigap plan plus a Part D drug plan, that is often a flexibility decision.

So, in other words, someone who chooses Original Medicare will get access to any doctor who takes Medicare, and most of them do now. Generally, they will not need to get referrals for specialists. They're going to have more predictable out-of-pocket costs when paired with a Medigap policy, and now with that Medigap policy comes higher monthly premiums.

And then with Medicare Advantage plans, you'll usually have lower premiums and often includes extra benefits such as dental, vision, and hearing. You'll have an annual out-of-pocket maximum. These plans use provider networks and may require prior authorizations or referrals, and also benefits, networks, formularies can change from year to year.

So in other words, your doctor could get dropped from these plans, your hospital could get dropped, your pharmacy could get dropped, but they could get added to another plan. I guess the bottom line is that these plans and how they're working for you need to be evaluated annually every fall.

Oscarlyn Elder:

And are there a few basic questions a person should ask themselves as they start researching their choices?

Tony Bryan:

Yes. And really, I know this all sounds like a mouthful of fishhooks, I really do. So, I tell clients, don't ask which Medicare option is best. Ask which trade-off you're most comfortable making.

So, if you value freedom to see any doctor, also if you have multiple residences or you travel the country extensively, or you want access to top medical centers and you value predictable healthcare costs, then Original Medicare with the Medigap and the Part D drug plan often deserves strong consideration.

And then on the flip side, if you value lower premiums, bundled convenience, a strong local provider network, and some extra benefits like the vision, dental, hearing, although let me say that these benefits may not always be as robust as they are made out to be in advertisements, so scrutinize those, then the Medicare Advantage may be a reasonable fit.

So, I summarize it this way. Medicare Advantage is often the “save money today” option, Original Medicare with the Medigap and the Part D drug plan is often the “buy flexibility for tomorrow” option. That's probably the easiest way to put it.

Oscarlyn Elder:

You've walked a lot of clients through these choices, and I know that you've prevented a lot of mistakes. What are some of the easiest mistakes to make if a person isn't careful and doesn't understand a lot of the detail that you're trying to give voice to today?

Tony Bryan:

People assume the biggest Medicare mistake is picking the wrong plan. And honestly, I think the biggest mistakes usually happen before they even get to that point. If I had to narrow it down to just three, here's my list.

Number one would be missing an enrollment deadline. I know that sounds boring, but this one wins by a mile.

And we touched on this one earlier, but I think it's important enough to bring up again: Assuming employer retiree coverage or COBRA lets you delay Medicare safely. This one catches a lot of smart people. I cannot tell you how many times I've heard someone say, "Don't worry, I still have health insurance." And my response is usually, "OK, tell me more about that health insurance." Having health insurance and being allowed to delay Medicare are not always the same thing. Sometimes you're fine; sometimes you're not. The answer can depend on whether you or your spouse is still actively working, the type of coverage involved, and how that coverage coordinates with Medicare. So, don't assume anything.

And then the last one is missing an important Medigap protection window. One of the most important Medigap concepts is something called your Medigap open enrollment period. Think of it as your best shopping window. Generally, when you're age 65 or older and you first enroll in Medicare Part B, you get a six-month period when insurance companies cannot deny you a Medigap policy or charge you more because of health issues. Now, if you miss that window, all is not necessarily lost, certain situations can create what's called a guaranteed issue right, which is Medicare's way of saying, "OK, we'll give you another chance." For example, if you lose certain types of coverage or leave a Medicare Advantage plan under qualifying circumstances, you may be able to buy a Medigap policy without medical underwriting. The very, very important point is that these protections do not stay open forever.

So, here's the takeaway. Your first six months on Part B is usually your easiest and most flexible opportunity to get Medigap coverage. Medicare doesn't hand out a lot of do-overs, so this is one window worth knowing more before it closes.

Oscarlyn Elder:

Tony, a lot of very important information there. I'm going to summarize what I think the three takeaways are. Number one, missing enrollment deadlines is a problem. Number two, folks assuming that COBRA delays the Medicare choice, if you will. And very importantly, you've indicated it is important for folks to know who are on COBRA that it does not delay the need to make a Medicare choice. And the third is around the Medigap element, and it's very important that the Medigap protection enrollment period be adhered to. Did I get the three takeaways right there?

Tony Bryan:

Absolutely. You nailed them.

Oscarlyn Elder:

OK.

Tony Bryan:

The Medigap open enrollment period is so crucial.

Oscarlyn Elder:

There's so many choices involved in Medicare. Is there a point after enrollment at which you're done making decisions about Medicare?

Tony Bryan:

Well, Medicare is kind of like home ownership. There's always something to keep an eye on, but the good news is that once you're enrolled, most years don't require major changes. However, it's still really important to review your coverage each fall, especially if you have a Medicare Advantage plan or a Part D prescription drug plan. That's because you'll receive an ANOC, which is an acronym for Annual Notice of Change, which outlines any changes to premiums, copays, deductibles, drug formularies, or provider networks for the coming year. So, a plan that worked great this year might look much different for next year. A simple rule of thumb: Don't assume your Medicare plan is on autopilot. Spend a few minutes reviewing your ANOC every fall just to make sure your doctors, your medication and costs still fits your needs. I can't stress that enough because most people don't do that.

Oscarlyn Elder:

So, you're saying very clearly this is not a one-and-done situation. It is important that folks pay attention, especially in the fall, and that they are on the lookout for potential changes to their Medicare Advantage plan if that's what they're on, and or drug plans that they may be on.

Tony Bryan:

Exactly. And oddly enough, people get so much Medicare mail that it's so easy to have the ANOC come in the mail and they just throw it away. That happens probably eight times out of ten. So, you can call your provider and have them mail you another one, or you can review the ANOC online at their website as well.

Oscarlyn Elder:

Tony, Medicare eligibility and enrollment are one of the big milestones in life. It comes with a lot of important choices and decisions that you've really helped us to understand. We'll be back in just a moment to wrap up our conversation.

Tony, we've given listeners who are in the thick of Medicare planning a lot to do in this conversation, but if somebody is further out from age 65, is there something they should do now to position themselves better when their Medicare time comes?

Tony Bryan:

Absolutely. So first, have a plan for how you're leaving employer health insurance. A surprising number of Medicare mistakes happen because people assume their employer coverage or retiree plan or COBRA will automatically transition into Medicare; then age 65 shows up way faster than expected. So, remember, Medicare has enrollment rules, deadlines, and it's much easier to understand those a few years early than during your retirement party.

And then second, I know we've talked about this ad nauseam, but learn the rules around health savings accounts and Medicare. HSAs are fantastic, but once Medicare comes into the picture the contribution rules change. And again, I've seen plenty of very smart, successful people accidentally create problems simply because nobody explained the timing rules to them. And honestly, that's the theme with Medicare in general. You don't need to become a Medicare expert at 60; you just want to avoid cramming for the exam the night before.

And then lastly, make sure you create your own Social Security account on ssa.gov. This is where you'll sign up for Medicare, but creating and verifying an account before age 65 helps prevent login delays, identity verification delays, or enrollment delays when deadlines matter.

Oscarlyn Elder:

That's great advice, and a good chance for me to remind listeners that Tony has been on the show before, sharing a lot of great information about Social Security planning, specifically. You can find that episode in our archives at Truist.com/DoThat.

Now, before we wrap up, Tony, as you well know, being a returning guest, we have a tradition here on I've Been Meaning To Do That. We ask what's the one thing that you've been meaning to do that you haven't done yet, and that you're willing to commit to doing now with our audience listening?

Tony Bryan:

Well, I mentioned earlier that I wanted to sign up as a volunteer financial coach for a nonprofit organization called Wings for Widows. And so, this organization is great. It provides free financial coaching to individuals who've lost their spouse. So, I thought I would take this opportunity to tell you proudly that I have done all of the training and I've signed up, and so now I'm ready to start coaching.

Oscarlyn Elder:

Tony, that's incredible. And we look forward to hearing how that's going when you come back to I've Been Meaning To Do That. Tony, thank you again for joining me today.

Tony Bryan:

Thanks for having me. Great to be back.

Oscarlyn Elder:

And, listeners, I want to thank you as well. If you liked this episode, please be sure to subscribe, rate, and review the podcast, and tell friends and family about it. I also invite you to listen to the new podcast from Truist Securities, Navigating Beyond the Expected, at Truist.com/BeyondPodcast. If you have a question for me or a suggestion for this podcast, email me at dothat@truist.com. I'll be back soon for another episode of I've Been Meaning To Do That, the podcast that gets you moving toward fulfilling your purpose and achieving your financial goals. Talk to you soon.

Speaker 3:

Oscarlyn Elder is an investment advisor representative, Truist Advisory Services Incorporated. Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.