073: How To Plan for Healthcare Costs in Retirement with Dr. Katy Votava
At some point in almost every single client meeting, we get asked how much health insurance is going to cost, what Medicare costs, how to prepare for long-term care expenses, what to budget for, and what additional coverage they should get.
The healthcare space is extremely complex, and that’s why Dr. Katy Votava is highly educated within it. A registered nurse with a Ph.D. in healthcare economics and nursing, she founded GOODCARE to help consumers, small businesses, and financial advisors make the best possible plan and live their lives as effectively as possible.
Today, Katy joins the podcast to tell the story of how her background as a medical caregiver helps her truly understand what people need to get great insurance, why the cost of healthcare continues to skyrocket (and what you can do to protect yourself from escalating fees), and why proper Medicare planning can be what saves you thousands, tens of thousands, or even hundreds of thousands of dollars each year.
Dr. Katy: Yeah. I’m a registered nurse and actually, nurse practitioner and what I bring to the table is the whole picture and understanding the clinical side of things and what people need to get good healthcare and good insurance. I’ll tell you a startling statistic is that 90% to 95% of people in Medicare all overspending, and that’s a shame when budgets are tight and why are they overspending and how are they overspending? They don’t have the right plan that meets their healthcare needs. Most typically, the medications they take are not as well covered in the plan they select. They could easily be well covered, better covered in another or their doctors and hospitals and physical therapists and so on are not what you call in-network, so therefore they either can’t go to the people they want to go to or are paying too much out-of-pocket. So, that’s what I bring. I’m not an insurance broker. There are great brokers out there, but I do consulting and the only person I represent is the consumer and…
Casey: Well, I wonder, I’m just thinking through this. There’s a lot that goes into medications if you’re selecting the right coverage and with your background in pharmaceutical experience maybe you can even give them alternative medications that they could switch to and maybe that can help lower the cost on that side and also give them a lower-cost plan.
Dr. Katy: Well, I’ll tell you what we do. We do focus on looking at the total picture. We’re not their healthcare provider but when we run into people and we often do, we had a client recently that was taking a lot of what I call brand-name medications and I’m telling you, when we look at Medicare plans for this person, his out-of-pocket cost was going to be $290,000 for a year for prescription drugs but most of his medications had generic equivalents and then we can drop it down. It still wasn’t cheap but it got to be about $7,000 out-of-pocket. That’s a huge difference.
Casey: You said $290,000?
Dr. Katy: That was the biggest we certainly see people over $100,000.
Casey: But you took them 290 to that 7.
Dr. Katy: Yes, we did.
Casey: I think you justified your fee.
Dr. Katy: More than that and made it easier for them because when I saw that number, I was startled, no less was this person in their family. So, what we did is we said, “Here’s a list of medications. Go talk to your care provider. The vast majority of medications that are generic equivalent, which is fine for people and so we said, “You got a little time. Talk with your healthcare provider and see what you could do about switching,” and guess what? It worked out great.
Casey: That’s amazing.
Dr. Katy: For his healthcare and certainly for his budget.
Casey: Well, and I don’t want to get too far down this medication rabbit hole because we could probably stay there all day, but I think one of the things that some will be confused by or have never heard of before is a fee-only health insurance consultant like yourself. I only know a handful that I’ve worked with in the past and I don’t know that there are that many people like you out there. I only know a handful and so just tell us why is it important to work with someone that is a, I mean, when it comes to fee-based financial advice that someone’s not going to get swayed to one product over another due to some mission or higher payout or revenue sharing agreement conflicts of interest they have. So, are you saying that there are similar conflicts of interest in the health insurance planning space and is that why it’s important to work with a fee-only health insurance expert like yourself?
Dr. Katy: You know, the thing is that even people who are wonderful brokers and we like actually referring to good brokers, they can’t possibly in the Medicare space represent every company because of the rules and regulations they face and how they had to be registered with so many different lines of business. It’s actually impossible for them to look across every possibility that puts them in good faith. That’s number one. Number two, there are a few brokers who have a nursing or healthcare background, but my healthcare background brings a whole different influence to what we’re doing and we look bigger and broader, to be honest with you than just the insurance plan. We look at people’s health, their lifestyle. Do they want to travel when they’re in retirement? Do they live in two places? Are they snowbirds? Those types of things. So, we have more latitude in what we’re doing and then when we know of a good broker in the area, there’s still a great role for them and we will refer to them as well.
Casey: Well, I know for me, I’ve made these referrals out in the past because I know you would say to that, there is a conflict of interest. I mean, whether there is Medicare Advantage, Medicare supplements, additional healthcare insurance. I don’t know that most are aware of the conflicts of interest that exist. Can you just quickly explain what those are?
Dr. Katy: Well, here’s the thing. When you are a broker like any insurance relationship, the broker is paid by the company. It’s not paid by you. Many people like that because they don’t pay a fee when they go to see them, but there is an inherent incentive for them to push certain things that a company may have. Many of them don’t. Many of them are wonderful goodhearted people but I’ll tell you one thing, legally, that they cannot, and I think this is ridiculous, but this is the law, if a person already has a Medicare Advantage Plan which we’ll talk about that has everything rolled together, sometimes those are not the best plans for people particularly folks who are real sick or people who live in an area where they don’t work well, but the broker is prohibited by law to say, “You might be better with something else called a Medigap Plan.” And to me, I don’t function under that rule and therefore I have the breath to say, “You know, I see you’re on an advantage plan. I think you should use a Medigap Plan,” whereas a broker, unless a person brings it up, cannot bring it up. And if the person knew about it, they wouldn’t be seeing a broker. So, that’s a reason why is actually years ago we considered providing insurance ourselves, but I couldn’t live within those limits and give consulting advice the way we wanted to at GOODCARE.
Casey: Well, I think it’s a pretty cool thing. I had mine. My mom ran through a fee-only healthcare process and it saved her some money and if nothing else, they give you some good peace of mind that she is making good solid decisions but I think the neatest thing about what you’re doing is you’re not just addressing the cost of the health insurance itself, but also maintaining healthcare. I mean, that’s so important as well. You can still have those discussions about what you need to do in order to minimize your ongoing healthcare cost by just taking better care of herself.
Dr. Katy: Yes. And if you have coverage that covers your healthcare needs, you will be able to take better care of yourself and then you will feel better and you will be able to enjoy that retirement that you worked so hard for.
Casey: Well, I think we need to almost think – we think about investments, your stocks and bonds, ETFs, mutual funds, all these things as assets or home but your health is an asset too and it needs to be protected or it could cost you. It could reduce your long-term rate of return if you don’t pay attention to your basic health needs at the same time. So, let’s talk on a bigger picture level here just about healthcare in general. It just seems like healthcare just becomes such a heated topic lately. Some people think it’s skyrocketing and expensive. Some people think if they were in a better place, do you think that in general, healthcare has gotten dramatically more expensive over the last several years?
Dr. Katy: Well, the answer is yes. Medicare and all healthcare has become more expensive, but it’s not just over the last several years. We’ve been in what’s called hyperinflation higher than regular inflation in healthcare for 40 years. So, when you think about compound interest when you invest your money or save it, the power of compound interest, well, the negative effect of hyperinflation in healthcare is that the costs are astronomically increasing to the point now when they’re crushing us in so many ways.
Casey: So, you’re seeing the cost of healthcare skyrocket. You’re seeing the coverage itself skyrocket as well. Your premiums are going up quite significantly. And so, where we go from here if we continue to see this hyperinflation environment for healthcare? Is it going to continue like this? What do you think the – I know you can’t get out that crystal ball and tell me exactly but, in your mind, in your experience with all your education, what do you think the future of healthcare is?
Dr. Katy: Gee, the future of healthcare is bright in many ways because we have so many advances, but we also have opportunities actually to do it more cost-effectively. We have not made the most of technology, believe it or not, in healthcare and communication technology. There are a lot of mistakes, frankly, that happened in healthcare that if we communicated better, that would be better for the patient. But in the meantime, costs are going up so high, but we haven’t put I don’t think enough muscle behind how to bring healthcare costs down, particularly prescription medications are astronomically high compared to the rest of the world and that’s a real issue that we could attack and bring that cost down by making pharmaceuticals face the world price rather than the US protected price. To be honest with you, if something’s $1,500, elsewhere in the developed world is going to cost $87,000 a year. That doesn’t make any sense and wouldn’t be tolerated in any other industry sector so that’s an important thing we need to work on really. But that’s a cultural and a legal thing.
So, where does that lead the consumer? That’s what I focus on then and say, “What’s your best coverage that does make the most of your medication coverage and which one should you stay away from?” That’s something a consumer can do and review their plans regularly. Most people don’t review their Medicare prescription drug plans every year and they should, but they don’t and then those costs go up 40% over a three-year timeframe. So, the consumer really needs to take a look every couple three years to say, “Could I do better?” and often they could.
Casey: I mean, it sounds like, to me, you’re coming at it from a different angle than what we hear in the national media constantly. It’s not about having the right health insurance whether we have national healthcare or Medicare for all. It’s not a problem with what we currently have. It’s the actual cost of these things. It’s the cost of healthcare that’s driving these premiums up and just because we get a good plan in place for the nation, it’s not going to solve the issue because the real issue is how much more expensive healthcare costs here than outside the US. I mean, I don’t want to go too far down this road but why is it that medication could cost $87,000 here and $1,500 in another country for the same medication. You said laws, rules.
Dr. Katy: Yeah. Federal laws allow certain pricing to go on in the United States and limit where prescription drugs can come from. Your local pharmacy has to buy at the US price whereas if they bought it at the price that’s sold in Canada or the UK or another place, it could be much more economical and those are laws that need to change predominantly at the federal level.
Casey: Well, okay, thanks for that. I find that very interesting but I really want to get into this Medicare and healthcare discussion because it’s something that comes up so much with the people we work with, and it’s along these lines. It’s a cost. What can I expect moving forward? What can I expect the cost to be in the future? How do I budget for something that has such a big question mark behind it? How do you think someone that say 60, 64 years old, maybe they’re retiring pre-Medicare, they’re retiring that Medicare age, how do you think they should budget for healthcare costs?
Dr. Katy: I think folks should take a real look at what might it cost them in retirement and you can do that. We actually have written a book that has information about it where you can see, “Okay, this is what the premiums, in general, are going to cost for me,” even before you look at a prescription drug plan. So, get an idea and I always say when a person’s in their early 60s, read the meter. Read the meter for yourself. Do you have a retiree health option or not? Many people don’t anymore, but some do, and look and see what the cost will be. We had people recently who a couple and the wife was in a teacher plan and they were just about to retire, in fact, her husband was already retired or who is going to retire and expected to go on her plan. They had no idea how costly it was going to be to go on that teacher plan. We tend to think historically that those are the best plans and then the best price, but in their case, it’s going to cost them $2,500 more a year to stay on a teacher retiree plan frankly than go with Medicare. And if people think ahead of time and just look at the numbers, it takes a little time, but you can look at Medicare.gov, their website, will give you some really good information about what it’s going to cost, and you can even shop yourself if you want to envision yourself today and needing a plan, you go to Medicare.gov on their website and you can search down to the county and zip code level of what would plans cost if you needed to get one right now. And that’s an exercise that we recommend for people to do so they’re not shocked when they get there.
Casey: Well, it sounds like if they come up with this premium, they figure out how much their cost are going to be for a coverage and then they figure out how much more their out-of-pocket cost could be on top of their premiums then you should apply an inflation rate to that number that is substantially higher than maybe what they’re used to. It’s not 2% or 3%. Maybe it’s closer to 6%.
Dr. Katy: You’re absolutely right. What I recommend is that people have a separate budget line in their retirement projection. Many people over time have put healthcare into the everything category and it doesn’t belong there. Have a separate line in the retirement budget, grow it by higher inflation rate, 2 to 4 times the CPI, that’s just the honest truth, and then figure out I don’t focus on big numbers like some of the organizations that say it’s going to be $250,000 in retirement for your healthcare. I focus on cash flow. What were your cash flow need to be in a year to pay for your needs generally speaking? Yes, it’s an estimate, but you can do it and that’s what’s really important is the cash flow. Where is the cash flow coming from for this? How much might it be? And that way you won’t get to retirement. If you don’t plan for that healthcare cost or not option, you can’t cancel them like a trip.
Casey: I like that you said you look at it from a cash flow perspective, lump sum, and then we seeing all these that hit the headlines that you’re going to need $250,000, $275,000 to cover your healthcare costs. Excluding long-term care costs, you go, “I only have $500,000 in retirement. How am I going to make it?” And it’s not that you need $250,000 the day you step in retirement. Maybe you need $5,000 a year. Well, that doesn’t take $250,000 to create $5,000 a year and so it’s just we don’t look at anything else that way. Social Security? We don’t look at it that way. You get $20,000 in annual benefit. You don’t look at it and go, “I’ve got $500,000 in benefits over my lifetime.” It’s $20,000 a year. We’re just looking at it and running the equation wrong, I think. That’s good insight. And so, what is really – is Medicare really all that different from traditional healthcare insurance?
Dr. Katy: Medicare is a horse of a different color. It is different than traditional insurance in several ways and some people may think it’s better. Some people may think it’s worse. In my experience, in our experience of good care, it’s all on how people put together. The difference is that Medicare has multiple parts and pieces that you have to choose from. And if you like a quick overview of those parts, I could do it in a couple of minutes. Medicare Part A is hospitalization. Part B is outpatient. Part A we paid for with our payroll tax. We have that paid for Part B and everything outpatient is very expensive now. So, we get the A and the B and then you have to decide. Am I going to get a prescription drug plan? You really need to have one. Some people think, “Well, I don’t take medications. I don’t need one.” But the day you get sick and have expensive medications, you’ll be sorry. And then there’s something called a supplemental. People use that term and there’s two main ways to put that into place. It’s a Medicare advantage plan which rolls all of your coverage together and then that’s kind of similar to an HMO or a works out a plan you’ve had already.
But if you keep your separate Medicare A and B and get something called a Medigap plan that works differently. It’s more costly on a monthly basis, but in a years’ time, it actually cost less if you have high healthcare cost. So, there are a lot of choices along the way that our individual like I mentioned earlier, plans vary down to the accounting zip code level.
Casey: Well, we often joke if the IRS had an easy way of doing something or a different way, it probably chooses the more difficult way. I can see along the same lines here. It is a complex stage of life. As you step into it, there are so many different parts and so much to understand that it’s kind of difficult to grasp and sometimes experience overwhelm and one of the things that just do I really need to know all this stuff? Do I need to go back to college, understand which plan that I should get? How much self-education do you think someone should do around Medicare before they sign up?
Dr. Katy: I think they should do a reasonable amount, but not overwhelm themselves and they could. We do webinars ourselves that go into more detail at times. We have our book, of course, but also there are great resources in every community and the place to go to find that resource that will have community sessions to tell you what’s going on where you live and help you figure out plans where you live and that’s a website for your folks to know. It’s called Eldercare.gov and you go to Eldercare.gov and put your zip code in and it will tell you what organization in your area is part of something called the state health insurance program. It operates in every county in the United States and their specific job is to assist consumers for a fee with Medicare choices. They’ll do consumer group meetings or they’ll be at senior centers and that type of thing. If you think about that resources, shop early, get on the list, go to their sessions, sign up early because in the following particular when it’s open enrollment, those sessions fill up very quickly and that’s why we got to think ahead but it’s a great resource. So, Eldercare.gov, put in your zip code and find who does what’s called a SHIP program, state health insurance program in your area and these folks are completely dependent. They will help you look at what options are available for you or your family member.
Casey: Well, we’ll make sure we put that link in the show notes. So, if you want to catch that, RetireWithPurpose.com/Podcast just go to the episode show notes, the link will be right there so don’t take any notes while you’re driving. Another great resource though, I mean, you put together a 40, 50-page book here that is actually a fairly easy read about a not so exciting topic but it’s an important one and those of you that want to get a copy of Making the Most of Medicare: A Guide for Baby Boomers, if you just go down, leave a review for us on the podcast, and shoot us an email at firstname.lastname@example.org, we’re going to send these out to you. Dr. Katy has provided to us with a boxful of these things so that we can make sure you stay on top of these important topics. So, Katy, we talked about Medicare, we talked about health insurance, how it’s changed over the years. We know how healthcare has changed. We kind of went over that. How has Medicare evolved over the years?
Dr. Katy: Medicare has involved in several important ways over the years. It was signed into law in 1965 by LBJ and the first Medicare recipients were President Truman and wife. At that time, it was Medicare A for hospitalization and B for outpatient. Well, we have certainly become more sophisticated in our healthcare and the outpatient benefit at the time cost $5 a month and now it costs a person out of their pocket at least $130 a month and the government kicks in a whole lot more than that. Why is it more costly now? We do everything outpatient. You can do outpatient surgeries, chemotherapies, and so on. So, Medicare has evolved to keep up with the sophistication of healthcare and covering anything that is legally approved basically but what was added about six years, eight years ago was prescription drug coverage. That was never a part of the original Medicare and one change in the world has been fewer and fewer people have a retiree health benefit, number one, or they have a plan but as I mentioned with the teacher plan, it’s very expensive and now more people need that prescription drug coverage so that was a newer benefit that was added in a few years ago and has changed somewhat over time, but it’s better than not having drug coverage.
But to be honest with you, it’s the most complex part of Medicare. We thank you for giving us a compliment on making our book easy to read and we call it kind of the cliff notes of Medicare to make it as simple as possible but the prescription drug benefit is new. The other thing is people’s lives have changed a lot. People are more mobile where they might in retirement where they want to go. There are so many choices in healthcare. We didn’t use to have urgent care, all that kind of stuff that can work into a Medicare plan, but given it’s more complex in the healthcare world, you have to know more about your Medicare plans, than certainly my parents needed to know.
Casey: Right. So, it’s getting more and more complex it sounds and getting down the rabbit hole here so that leads probably a lot of mistakes and that you probably put these mistakes into categories. You’ve got the number one mistake, maybe the most common mistake that people make and then the one that’s most costly, the biggest mistake. Can you speak on those two things that you see most often?
Dr. Katy: The two things that, well, yeah. One is people don’t enroll on time into Medicare and misunderstand when they need to start their Medicare plan. Full retirement age is now 66 but Medicare starts at 65, but people are working beyond 65. Sometimes, if you’re working beyond 65 or your spouse, you don’t need to get into Medicare right away, but sometimes you do. But if a person misses their window of opportunity to get in, then they have to wait to enroll, have to pay for their healthcare and that’s very costly and then they’ll pay a penalty the rest of your life. So, that’s number one is not knowing when to get into Medicare. Number two really is plan selection. With I mentioned earlier, my medications covered the way the best possible way they could be that varies widely amongst plans and the care providers I want to see in hospitals I want to go to, are they in the network of the plan or are they not? And when people don’t look ahead, most people don’t look ahead. Most people buy on premium and brand-name and they’ll look for the cheapest plan, which I understand that.
And if you don’t necessarily need the most expensive plan either but also, they’ll talk to a friend and the friend said, “Well, I had this plan,” and they’ll say, “Well, I’m going to go with that, but their health could be very different than yours.” Even with spouses, we often recommend two different plans because people’s health are different and one plan will suit the husband and the other one will suit the wife.
Casey: So, you talk about one of the biggest mistakes is being penalties that people face because they forgot to sign up or they forgot to notify that Medicare administration that they’re going to continue working and so then they face lifetime premium penalties. But there’s another penalty that a lot of people or quite a few people that we’re meeting with are starting to fall into and that has to do with our income, IRMA, income-related the adjustment amounts and we talk a little bit about avoiding those additional penalties.
Dr. Katy: Sure. Here’s the thing. Medicare did change actually under the Bush administration and has continued to today to adjust to change people’s Medicare premiums to a certain degree for Medicare Part B. And for the privilege to participate in a drug plan, you need to have that separately but it’s called it’s related to prison’s income. The higher the income, the more you’re going to pay for those two different elements there that’s called the income-related monthly adjustment amount and it’s covered in our book and people definitely need to plan ahead to say, “If I’m going to be in a higher income group, it’s going to cost me more,” or what can I do with my financial advisor to change my mix of where my cash flow is coming from in retirement so it doesn’t go into that income calculation? Because Medicare has a very specific way it looks at your adjusted gross income and tax-exempt interest, but if you can keep things outside above that calculation, for example, health savings accounts, people can put a lot of money and sock it away, and they aren’t even invested and then if they use that in retirement in their Medicare costs, that is part cash flow but not part of taxes.
There are certain things that people can do. If you invest in a retirement account, you’re going to pay the tax going in, but the money coming out is tax-free therefore, it doesn’t impact your Medicare premium. So, that’s why I really recommend for folks now if you’re a couple, married couple, filing jointly and you make over $170,000 a year or an individual making of $85,000 a year that’s when you want to plan ahead. In retirement, you’re going to be above that. You’re going to pay more. You won’t get in more. You’re going to pay more and work with your advisor to say, “What can I do?” and there are several other options we didn’t even to talk about yet that could give me cash flow retirement but keep my income for the Medicare purpose below that threshold, or in the lowest tier possible. There are six tiers now and have that conversation ahead in your early 60s so that you can position yourself best as possible, or if that’s the way it’s going to be, at least plan ahead and go big shot.
Casey: Well, we sure don’t like this IRMA. Let’s be very specific about that. We want to make sure we avoid her at all costs. You talk about tax planning and we help people in this realm with minimizing not just Medicare premium penalties but also getting substantially cheaper coverage in the marketplace just by keeping their income very low. I mean, we’ve got individuals that I got one that comes to mind all the time because he’s just so proud of himself working with us. We’ve been able to get him next to free coverage. It cost some less now in retirement 365 than it did when he was working with his employer. And then there are other people out there that find that some of those strategies that you’re utilizing they say, “Well, that’s immoral. I’m just going to go ahead and pay my penalty or pay my premium,” and they wouldn’t have had to had they just followed the letter of the law and done tax planning. They would’ve been able to reduce Medicare premiums and redistribute health insurance premiums. What are your thoughts on the morality of this?
Dr. Katy: The morality? I honestly think that doing what’s right includes what the options are in front of you and I see it as being good to be able to minimize your costs as much as possible, maximize your choices in healthcare so you could take care of yourself and your family and I’m a nurse at heart and that’s where I come from is do your best for yourself and your family and if that’s the way it’s part of doing it, then go ahead and do it. You’re not doing anything that’s illegal or in my opinion, immoral, and people who don’t plan ahead, what you do is you shoot yourself in the foot and it’s very painful later and you cannot undo some of these things and then you’re going to say, “I’ve worked hard for my retirement nest egg. Maybe I want to retire before I’m 65,” and you’re talking about income-related premiums for folks under 65 and can be substantially lower but the nest egg is always so big. You got to preserve that for a long time and so you got to think about from that perspective, is it right for me to spend money now that I could save and then perhaps cheat myself later when I have long-term care needs and I’ve overspent when I didn’t need to? So, it’s complicated.
And the other day, I always say it’s important to sleep at night. I tell people that all the time. “Here are your options. Here’s the information. You make your choice. Go with your gut and sleep is a beautiful thing. It’s good for your health. So, if you can sleep at night, that’s what’s important to me.”
Casey: Well, I think that’s important too and I might sleep better at night if we got a little bit extra income coming in, a little less going out and a little bit more our bank account. I can liken this to tax planning. We follow the letter of the law. We don’t get any extra reward by paying more than we’re legally required to do so take the deductions, take the credits, follow the law, know the law and you can keep more of your hard-earned dollars and they’re not going to penalize you for it because you just did what they put in place for you to do in the first place. I mean, that’s my personal take on it but, again, hey, I guess you got to sleep well at night. So, one of the other things that could cost a lot is what’s called the donut hole and I think there’s a lot of confusion about this donut hole. It’s not one of those tasty things you get from the donut man. It’s a little bit more that – well, I guess that could also be deadly, but it can be a little deadly than that. So, tell us a little bit about the donut hole and how we avoid it.
Dr. Katy: Yes. The donut hole you’re referring to, Casey, is an odd bit name, I think. I don’t know who came up with it. It’s really a coverage gap in the middle of the prescription drug benefit and I always say that it is insulting to my Grandma Naina. She used to make wonderful donut holes and when I was a little kid, we went nuts for that.
Casey: We’ve got Naina, we’ve got Irma.
Dr. Katy: Yeah. They’ll replace and took good care of us. And you know what, the donut hole in Medicare is not a sweet treat like my grandma Naina’s donut holes. It’s truly a coverage gap. They don’t call Medicare prescription drug coverage a high deductible plan but that’s what it is, in effect, that we have a chart in our book that shows you different points. There are four different phases of what’s covered and there comes a point pretty early in prescription drug coverage for many people who take brand-name drugs, the more expensive medication. We’re going to pay more out-of-pocket. So, in addition to premium, people this year have to spend over $5,100 out-of-pocket before they’re in the part of prescription drug coverage called catastrophic and then the coverage cost drops fairly. It can be substantial, but there’s no cap in Medicare prescription drug coverage. And that’s something that’s been talked about at the national level to fix. It hasn’t been fixed yet. We have a lot of folks in our practice here because of medications they need to take. There are no generic substitutes. They could be spending $5,000, $7,000, $10,000 out-of-pocket, people with diabetes. Insulin and diabetes medications can be very expensive.
And so, people also don’t have to be deathly ill to be spending a lot and that’s where it’s worth looking ahead when you’re in your early 60s. If you’re diabetic, you know it now and take a look and see what can I forecast for myself? Because in addition to premium, medications can really add up but, well, you mentioned earlier really looking at all the options for people because a lot of people say to me, “Hey, how can people pay all this? It cost so much money. How can my parents keep up with this?” Well, there is financial support for folks with limited incomes and it can help them with their Medicare premiums. They can help with their prescription drug costs out-of-pocket. So, that’s something to be aware of and look at what’s available in your area. Again, that SHIP program, the state health insurance program can help people in the area, particularly I’m thinking of the folks on this podcast that might not be now but it might be their parents that they’re taking care of whose incomes are very limited.
And they are helping mom and dad when they go to the store and they pick up the prescriptions and they themselves are paying for it but there could be assistance for people who just can’t pay these costs at all. Because some of them when you talk about the donut hole and prescription coverage can be very costly, but there is help for folks out there whose incomes are very limited.
Casey: Well, if we have means, is there some type of supplemented plan or some way that we can control this cost in some way?
Dr. Katy: There is no supplement plan beyond prescription drug coverage that works. There are some people who still have retiree health benefits and one time when we recommend people to keep it even if it’s more costly in the premium is if they have high prescription drug costs because most retiree plans like most employer plans have a limit on what you’ll spend but beyond that there isn’t anything so the best thing to do is to shop for the right plan. For example, I had a person recently who said, “I need to take this injectable medication four times a year. It keeps me healthy,” and this person is very healthy and active in doing stuff. He thought it’s going to cost him $45,000. Well, that would be true on one plan. Another plan it would cost him $5,000. Now, $5,000 isn’t small but it’s a whole lot less than 45 so it really I can’t say enough for looking for your health coverage in your prescription drug coverage and maximizing that coverage whether it’s – and then every person has an opportunity in the fall of every year to shop around and say, “Gee, what I had last year has become so expensive. Maybe they started me on a new medication or something,” and take a look at what your options are for the following year to see would I do better?
Casey: Some people think that a Medicare supplement is going to solve this problem. Talk to us a little bit about Medicare supplements and what they actually are for, what they do.
Dr. Katy: Yeah. Medicare supplements, it’s a term that people use. There are two different types. One is called a Medigap plan. One is called Medicare Advantage. They’re all private insurance regulated by the government but private insurance. A lot of people think everything in Medicare is government insurance but it’s not at all. So, a Medigap plan, it’s kind of confusing, there are 11 different styles. In most states, three states only have a couple of styles. Most states have 11 and we look at those in our book. I recommend that people get an F plan or a G plan. Right now, they’re the most comprehensive. Some of them are not. I don’t think they’re valuable at all. So, you want a solid plan that’s going to cover as much as possible of the copayments and coinsurance for Medicare A and B because Medicare A is designed to cover 80% of costs and B generally speaking, and the consumer pays 20, sometimes more, and that can add up to be a lot. So, that’s one way to do it is a Medigap plan. Another way is to do Medicare Advantage Plan, which is more of your HMO group health style and…
Casey: Just tell us a little bit about what’s that mean, an HMO group health style.
Dr. Katy: Health maintenance organization or preferred provider organizations, very similar to what you have when you are employed. We have one card, and it’s all about the network. What healthcare providers are in a network or not. A Medigap plan has no network. You can go to any doctor, any hospital in the United States that accepts Medicare.
Casey: So, in what type of markets or what kind of environment might you be where you’d say, “Really, I’d benefit more from the traditional Medicare versus a Medicare Advantage?
Dr. Katy: What the big variables of whether I should go Medicare Advantage or a Medigap are a few things. Where do you live? Some places where you live a Medicare advantage plan also known as a Medicare Part C is accepted by lots of providers. You’re talking to me from Rochester, New York today. Medicare Advantage plans up here are widely accepted and if you go to New York City, downstate, they’re not well accepted at all. So, they vary regionally and so you want to know for sure if you have a Medicare Advantage Plan, but no one takes it, you’re going to have to help yourself.
Casey: So, if you’re planning on moving or being mobile during retirement, a traditional Medicare might be a better way to go.
Dr. Katy: Well, if people say traditional Medicare, then I recommend a Medigap plan to go with that. Yes, that might be better and the other thing is a Medicare Advantage Plan typically has a lower premium. That’s great if you don’t have too many healthcare needs because they have a higher out-of-pocket limit somewhere around $6,700. So, you want to balance that up to say, okay, I like that little premium but if I go to a doctor a lot and have a lot of things I need of medical supplies, a Medicare Advantage Plan isn’t going to be my best bet. I’d go with a Medigap type of situation.
Casey: We see people come in that have Medicare supplements and there’s a wide range of premiums, and then we run them quotes and when we’re having quote, we can cut their cost in half for the same exact plan. With all the plans being the same, why would we pay more to one insurance carrier than another?
Dr. Katy: Yes. What you’re referring to, I think, is Medigap plans are offered by a wide variety of insurance companies and the benefits they’re all prescribed by law. So, you have a Medicare, Medigap G plan. It’s the same benefit. It doesn’t matter who you buy it from and you’re right that the premiums can be twice as much in one company versus another, and there is no reason to spend more on the plan. What I recommend is you want a solid company with a good track record. Basically, those are your branding companies that you’re familiar with. If you’ve never heard of the company and they’re cheap, I wouldn’t go with them. But look at your brand-name companies and then amongst them, look at your best price because you’re right. You could cut their premium in half many times with the same…
Casey: Well, I think that’s an important point and I say why did they end up spending so much more for this carrier when they could’ve got it substantially cheaper over here. That’s why you go to a fee-only Medicare provider like yourself because somebody’s getting a higher commission for the higher premium than the lower premium for the same exact coverage. So, you’re one of so many that’s independent, maybe fee-only at least to figure out which coverage you need initially. But there’s a lot of things that Medicare doesn’t cover. Your Medigap doesn’t cover. Your Medicare Advantage doesn’t cover. We’re in a situation recently with my mom. She’s got some major dental surgery that she needs done. What type of unforeseen circumstances might we run into that we haven’t thought about that maybe traditional Medicare, Medicare Advantage and something with or gaps, Medigap didn’t cover?
Dr. Katy: Well, you mentioned dental, I think. That’s a standard thing that people will spend money on in retirement. Medicare has never covered dental and so look to see some Medicare Advantage Plans will give you a little bit of a dental benefits, basically, public cleanings. Some won’t. Be careful you’re not paying more for that. There are a few private dental plans available on the market. There used to be none but now there are some. People could look at those to say, “Is that going to help me?” The other thing that’s not covered in Medicare that’s a common thing is eyewear and I find it confusing because people will say, “I want vision insurance.” Well, your Medicare covers your doctor for your glaucoma checks or other things but basically, the rest of it is eyewear. And so, shop around for your best price. There are a lot of discounts now on eyewear and contacts and even people are buying on the Internet. So, being a smart shopper for your eyewear the way you would be for anything else. When you have dental, if you don’t have dental insurance, talk to your doctor ahead of time. Don’t wait until you get to the counter and they give you a big bill and say, “You know, I don’t have insurance. I would like your best possible price,” and make sure you can afford it. And if not, dental care is competitive and shop around. And then the other big category that is in public is long-term care and many people needed that.
Casey: Well, let’s get into that in just a minute. I want to cover that broadly but before you go there, I just want to know your opinion. Now, you talk about vision, you talk about your dental, and our plans out there that you can get vision coverage, dental covered, when you get into this demographic, you get over 65, you start to have more of these issues, dental problem, vision problems, you think people should have those types of plans. Are you an advocate of those plans or supplement plans?
Dr. Katy: I’m an advocate of people to have a good cover system that works for them. The reason I say that, well, some of the plans are worth buying and some are not. So, look and see how much am I paying? Is there an exclusion period? If I sign up for new dental care, and I can’t use it for six months. If the limit that they cover is really low, if your doctor isn’t in their network, it’s probably not worth buying but some of them, so you have to look at the details. The other thing is that’s an example where you want to save a certain n amount ahead of time so you’re not shocked to say, “Okay. I’ve got to buy glasses.” So, it really depends. When people are leaving employment and they might have something called COBRA coverage, which is a continuation of employer coverage, even if they don’t have retiree plans but they’re leaving, let’s say they’re leaving employment. They’re over 65. Their health insurance basically needs to be Medicare but if they have a COBRA option at least for 18 months that’s economical and they like, they might actually be able to continue their dental and their vision coverage for at least 18 months at a discounted price because those group plans can be pretty economical.
Casey: Well, I like the idea of budgeting for those things, the dental and vision because as you said, they’re competitive across proprietors and you’ll have to negotiate the price so you can also budget for those things. They shouldn’t be catastrophic in nature unless you’re getting some gold-encrusted glasses which aren’t necessary. Excluding long-term care costs, home healthcare, assisted living, nursing home care, that whole long-term care discussion, sometimes I ran into people that have this fear that even with really good coverage so I get the best Medicare plan, the best Medigap plan, or the best Medicare Advantage Plan that I could still lose everything if I have a catastrophic health problem. There are no guarantees. What are your thoughts on? What do you answer some of that? How’s that fear?
Dr. Katy: I think that that’s understandable what people have that fear because they probably have seen it happen to someone. That’s when I say you got to plan upfront. Most of the horror stories I’ve heard about Medicare are people who were in a plan that didn’t cover well, to be honest with you, and there’s a totally different plan that would help them out. So, make sure you are doing the best for yourself or your family when you go into Medicare and reevaluate it on a regular basis. And Medicare itself the big-ticket hospitalization and outpatient, if you have a medic, I’ll be honest with you, the most opposite coverage you can get is Medicare A and B and a Medigap F or a G, and you won’t have any surprises for those big-ticket items. Prescription drugs are a different story because there’s no cap in the prescription drug program. You just have to be very careful about those and if you do wind up in that category above $10,000, $12,000, work with your doctor. In some cases, with those super expensive medications, they might have discount plans with the pharmaceutical company or something that that can help out, but it is an issue there but it’s the lack of planning that hurts the most.
Casey: So, it’s really if you have good Medicare coverage, get you’re A, B, get a Medigap plan, get an F plan, G plan. Now, the prescription drugs are where you could really get hurt, and so there is some truth there, but it’s going to be also the prescription drug realm because we don’t have a maximum but then as you mentioned of long-term care. So, I want to close our discussion with a discussion about long-term care. Some people believe that, well, Medicare is going to cover that. We have to go to a nursing home. I’ve got Medicare but that’s not necessarily the case.
Dr. Katy: Yes, you’re right. Medicare does not cover long-term care per se. Even if you look at the Medicare booklet, it says you get 100 days. Well, very few people you get 100 days. Most of them are three weeks and it’s for something specific you have to say or hip replacement or something. It is not long-term personal care that a person needs in a skilled nursing facility, assisted living, or at home and it isn’t covered by Medicare. They would cover home care very shortly after hospitalization, but not in the long-term and I think what’s important is to think ahead and try to envision where will you be. Do you think you’ll be where you are now? Will you move closer to family or something like that? Because it isn’t just the money. It’s how’s it going to work for you? You can’t envision everything but how might it work? And then you can look to estimate the cost of care and figure out, “Okay. I’m going to cover a certain amount myself but maybe I get a hybrid plan. I’m not sure.” You probably are very familiar with those life insurance with a bunch of care writer or an annuity or some of these one-peg plans. So, there’s a variety of options people should talk with you about to say, “Okay. I know that I can cover X dollars in my savings but if I go beyond that, how will I be able to manage that type of truly catastrophic cost?” And again, it’s all about planning ahead.
Casey: So, you’re saying let’s figure out where you might need care and is it going to be where you lived today or somewhere else. There’s a drastic difference in the cost of care in Indiana versus California and New York and so we want to know where we might need to care, budget it out, put together your retirement plan, see how much you might be able to absorb and cost for yourself. Maybe you want 100% covered or maybe you want it partially covered and then evaluate those different options from there. So, I’ve got a fan question here which will be a good lead-in to what I would think is a good direction for us. Brian Abel asked, “Do you recommend long-term care insurance as part of a retirement expense? If so, which kind with which options?”
Dr. Katy: Wow. I recommend long-term care planning as part of a retirement plan and so like I said, to me, it’s bigger than insurance. An insurance may be a part of it and then what I say is work with your financial advisor because there are more options than ever now of what type of plan, what the pricing might be. The underwriting can change dramatically. Underwriting means will I qualify for a certain type of plan or another type of plan? And they are very driven by health situations and maybe gaps on pre-existing conditions. It doesn’t mean you will be excluded every plan but you might be excluded from some. And so, I think you got to think about it and work with your professional advisor on making these choices. And if you don’t and you need care, you will really regret it. Not having thought about it.
Casey: So, plan for it. At least recognize it. It’s kind of like, I mean, think about death. A lot of people don’t want to think about death but it’s one of those things that’s inevitable. Maybe long-term care is inevitable, but there’s high likelihood that it could occur so why not plan for it? And then the second part of that question being which kind of options? There are so many different options out there today. We’ve seen a drastic reduction in the traditional type of long-term care insurance that most people are used to that use it or lose it insurance, you pay your premium and then if you never use it, it’s kind of like your car insurance or your home insurance. Now, we’re actually seeing more of these hybrid policies being sold than traditional long-term care insurance. Why do you think that is?
Dr. Katy: I think that you hit the nail on the head when you said use it or lose it the premiums on what traditional long-term care insurance, those premiums are really high. Those plans are hard to get. The premium…
Casey: Hard to qualify for.
Dr. Katy: Hard to qualify for. The premiums are escalating. So, even if you still qualify, it might become prohibitively expensive to you and a lot of people say, “I’m going to spend $3,000 or $5,000 a year. I feel like I’m throwing money down the drain if I don’t use it.” I do believe that’s why what you’re calling hybrid plans which typically are life insurance with a long-term care writer or an annuity with a long-term care writer that those plans are very appealing to people plus some of those one pay or five pay plans where you have a chunk of money and if you don’t use it for long-term care, you can get a return out of that anyway. And that way a person always gets something and that is appealing to people.
Casey: This increasing premium thing, I mean, premiums have skyrocketed for some of those older long-term care insurance plans are issued say in the 90s and early 2000s and then I’ve read some articles. I’ve heard some long-term care insurance salespeople say, “Well, that’s not the case anymore. You can buy this policy today. You don’t have to worry about premiums skyrocket anymore. They’ve got it under control.” Do you think they have it under control or can we expect to buy a policy that cost $3,000 today and it cost $6,000 in ten years?
Dr. Katy: I think that unless the plan you’re buying guarantees that your premiums won’t change and if they don’t unless you’re talking about like a five-pay plan, you do it over five years and that’s done or a one pay plan, now, those are pretty expensive. People have to have pretty good chunk of change to do it, but to say that that typical old-fashioned long-term care insurance has figured out all the problems in the underwriting, I don’t agree with that. It’s highly unlikely. They will continue to escalate in cost and there is no reason to think that they won’t level off. I’m not so sure how soon it will level off and so that makes it difficult for people to feel comfortable that, okay, I’m paying $3,000 now. Will it be $6,000 in five years? And that just doesn’t fit into my picture or companies that leave the market space and someone else buys both plans. They still kind of work though for people and really there is variability there. So, to say that it’s all figured out? No, I don’t think it is.
Casey: I think that there are some that will find it more appealing. I found individuals we might only do one or two traditional long-term care policies a year but we do tons of these hybrid policies just because that’s what people want these days and, frankly, I don’t want to be sitting across the table from someone 10 years from now and telling them that their premium’s doubled and I can’t do anything about it. I don’t really want to have those discussions for the most part.
Dr. Katy: Right.
Casey: Yeah. And I own long-term care insurance myself but in hybrid policy. My parents are the same way and I’m in my mid-30s. My parents are in their mid-60s and we’ve all gotten at different times. I’ve had it since I was in my early 20s and I know it’s unusual and it seems to go against kind of the gradient of your typical advice. You’ve heard, well, don’t even look at it until your 60s. Some people say 50. Some people say 55. When should we start looking at long-term care insurance? When should we buy it? And who should we buy it from?
Dr. Katy: Right. When should we start looking at long-term care need is what I think about, and depending on your – it is somewhat age-driven because there’s another piece, particularly in younger years as disability insurance and person who is you know that’s to have a conversation with your advisor. The person who’s having a family who still in the working years and needs particularly if they work on their own and don’t have any through work, disability insurance is an important piece of the long-term-care puzzle at a certain point in life. And then beyond that, people think, well, I’m going to wait until my 60s. Well, maybe your health won’t support you getting that coverage in your 60s. And also, that’s what’s important to think about where do you see yourself for your long-term care? And you don’t, you know, no one has a crystal ball, but think about what it might be involving for you and for your family. People might think, “Well, I’ve got kids and they’ll take care of me.” Well, your kids are all working outside the home and have families because they have resources from a long-term care policy or a hybrid somehow make it a whole lot easier for them to take care of you.
And who should you buy it from? I’m always thinking want to go with reputable companies that have a solid track record, and I’m sure that you and your team only recommend those types of companies.
Casey: What are the type of agent do we work with? Is there some type of quality that we should be looking for in that individual?
Dr. Katy: The qualities of a good agent I think are, and you’ll know it by working with them, people who are upfront with you, because good agents can tell you ahead of time, “Listen, I’m going to run a prescreen for some of these things,” so that you can find out would this company even consider me? Because you don’t want to go into a company and get declined and have that on your record. An agent should be able to prescreen things for you and steer you in one way or another. And to work with a financial advisor, what can I afford? Because depending on your level of asset, you don’t want to also overbuy long-term-care insurance or I’m in favor if you want a traditional long-term care insurance is to buy what I call a short bet policy meaning you get a lot of benefits but for short period of time, maybe three years. I do not even recommend a lifetime policy anymore because most people don’t need long-term care more than three years. If you can afford to cover those three years, the likelihood of more and, yes, people are afraid of it, but you want to be able to have a premium you can afford and then protect also your other assets as best as possible so that you haven’t impoverished your spouse, for example, by spending all the money and caring for one member of the couple. So, it’s a complicated decision. I really do think that people need folks like you to walk through those objects.
They get a hybrid policy or maybe they just buy a life insurance policy that now maybe have an old life insurance policy. They paid for a new one. Now, they can accelerate the death benefit for long-term care needs. Do they cancel the old one? Keep the old one? It’s a dangerous predicament for an advisor to be in the say, “Oh, yeah, go ahead and cancel it,” and then their new policy doesn’t have enough coverage in them.
Dr. Katy: Right. Right. Well, when you mentioned partnership policies, they are in most states in the United States and the value of a partnership policy is protection, generally speaking, of other assets such that if you use long-term care for a certain amount of money or a certain amount of time, your assets are protected and you can use Medicaid as your backup long-term-care insurance provider. So, again, complicated. You might want to look at what other assets the person has. Homes will always be exempted if you got a couple but it can offer a lot of protection beyond providing dollars for long-term care. It can help protect your other assets. And so, would you need both? Maybe. It depends on the amount of money that’s covered. Some people have those plans but they’re $100 a day. Most places are a $300-a-day skilled nursing facility so if you have $100 a day, you’ll be discounted but you’re still going to be paying $200 a day. Where is that going to come out of the rest of the resources? So, some people may layer a policy. So, that might be a good idea. Not necessarily but you want to look at it in the context of the financial plan.
Casey: Right. Yeah. It’s a scary thing to cancel those old policies, especially if you have asset protection involved in them. It’s going to be a risk to cancel the old policy and you just have to determine I think for Greg here if that’s a risk he’s willing to take or not. Nobody can make that decision for him.
Dr. Katy: No.
Casey: Hey, you know, lately we’ve heard a lot of talk on changes to our healthcare system and Medicare. One, in particular, saying Medicare for all and I read some of your comments on Medicare for all and what you think of this concept. Could you just offer us up your thoughts on Medicare for all?
Dr. Katy: Medicare for all has become quite a book. I say it’s either a slogan or a battle cry for a lot of people but Medicare for all is not specific enough to really evaluate what it will be. There are six different proposals now at the federal level for laws. They some have some similarities. Some are quite different, and no one has really answered the question of how we will be paid for. I’m a nurse and I’m an economist. You don’t have to be an economist to know about like in any family budget, how will it be paid for? That’s still mysterious. So, what I really still focus on is that the real problem is the cost is too darn much. And I think the funds we focus on what’s this structure going to be, we are kind of sort of like rearranging the deck chairs on the Titanic because the cost is crushing us and to deal no matter what, people will not like the cost of it. They didn’t like the Affordable Care Act. It did a lot of things that improve things for people, but I think one of the biggest mistakes in that was call it affordable because unless you’re very low income, it’s very costly. And Medicare for all, whatever form it’s going to be in unless someone has a magic wand is going to be very costly. So, honestly, the rubber hits the road for me on dealing with cost.
Casey: Yeah. So, everybody is looking for a slogan and a battle cry or something.
Dr. Katy: That’s what I think.
Casey: …to tell people on that sounds really good so they get themselves in office or elected but in reality, nobody seems to be addressing the real issue, which is the actual cost of healthcare, not the cost of health insurance itself. I love that. Let me finish with this one question and that is I know you’re not retired yet but what does retirement mean to you?
Dr. Katy: What does retirement mean to me? I heard someone speak the other day. I think it’s about, first of all, that retirement, the word retirement I think is ill-fitting for many people, but basically, you have financial freedom to make your choices to live your specific goals in your life. Some people want to leave formal employment. Some people don’t. I personally love what I do and is there a point in life where I would not do that at all? If so, I would be doing something else I’m sure. And so, I think it’s about financial freedom and having – what if somebody say recently having enough money, having the purpose to wake up in the morning, and having enough money so I can sleep at night. And I thought that was a really good way to put it. And so, if someone would come up with a nifty word, I haven’t heard anyone else come up with something different than retirement, but it’s about personal freedom financially and creatively and personally with your family.
Casey: I like that. Jamie Hopkins was on a past podcast guest. He said rewirement. That was one of the…
Dr. Katy: Oh, that’s right. His book is Rewirement. Yes.
Casey: I like that. We need to rewire the way we think about retirement because those are not five or 10 years. For a lot of people, it will last for 30 years and it’s an all-new career for that matter or following a dream that they’ve been holding onto since their childhood. It could mean so many different things to so many different people, but at the core, it is the freedom to choose. I think the freedom to choose and have the options follow those passions. Dr. Katy, as we wrap up here, I just want to mention, again, your book, Making the Most of Medicare: A Guide for Baby Boomers, a fantastic guide if you’re looking to evaluate where you’re at today. If you just want to get more education, whether you’re getting ready to make that decision, I would really encourage you to pick this book up and read it. As Dr. Katy had said here, you need to have some education, at least a basic foundation before you start making these decisions so that you don’t get yourself into one of these areas where you’re spending too much or making some big mistakes and I think this book can help a lot.