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What you don't know about Medicare could cost you a fortune, says Melinda Caughill, the co-founder of 65 Incorporated.
In a recent interview for the Decoding Retirement podcast at the 2024 Schwab Impact event (see video above or listen below), Caughill outlined some "dirty little secrets" about Medicare that every current and future beneficiary should know, from the importance of double-checking information from Social Security agents to reviewing your coverage each year.
Here are some of the potential pitfalls in the Medicare system Caughill highlighted.
Navigating Medicare enrollment is trickier than you think
Caughill explained Medicare enrollment as a six-step process that goes beyond merely selecting specific insurance providers like UnitedHealth (UNH), Humana (HUM), or Aetna.
The initial step is to decide the timing of enrollment, which is dependent on individual needs, such as whether to enroll at age 65 or delay enrollment.
The next step is to choose the type of Medicare coverage that best suits one's needs. This is often referred to as selecting a "path," since it can be a one-way decision with no turning back.
After determining the timing and path, individuals should select specific insurance plans. Enrollment in Medicare is then completed through the Social Security Administration, followed by enrolling in any additional coverage.
However, the process does not end there. The final step involves reviewing and potentially adjusting one’s coverage annually to ensure it continues to meet personal needs and circumstances.
An elderly man waits for his prescription to be filled on Oct. 3, 2023, at a CVS pharmacy in New York City. (Robert Nickelsberg/Getty Images) ·Robert Nickelsberg via Getty Images
"The sixth step of Medicare enrollment is reviewing your coverage each and every year for the rest of your life," Caughill said. "No autopilot."
Failing to review coverage means you’re essentially giving insurance companies a blank check. And “just because you haven't experienced any changes to your health or medications” doesn’t mean your health plan will remain the same year after year, Caughill said.
Premiums, deductibles, out-of-pocket copays, provider networks, and more can change each year, all while keeping the same plan name, she said.
Don't rely on advice from the Social Security Administration
When you contact the Social Security Administration (SSA) to enroll in Medicare, you may not only find it difficult to get helpful advice, but you also risk receiving incorrect information.
For example, Caughill told the story of David, an individual who had employer-paid COBRA health insurance through October.
In January of that year, David called the Social Security Administration and asked the agent whether he needed to enroll in Medicare. According to Caughill, the Social Security agent advised David to enroll in Part A but to wait until October to enroll in Part B, just before Nov. 1.
Unfortunately, this advice was incorrect and had devastating consequences.
According to Medicare.gov, if you have COBRA and you’re eligible but not enrolled in Medicare, COBRA may only pay for a small portion of the healthcare services you receive, leaving you to pay most of the costs yourself.
“It's really, really unfortunate that they got this guidance because, the truth is, when you have COBRA coverage after the age of 65, COBRA coverage is secondary to Medicare regardless of whether you get enrolled in Medicare or not,” Caughill noted.
David incurred between $800,000 and $1 million in medical bills over the next 10 months. Due to the Social Security agent's guidance, these expenses were not covered, leaving him and his wife, Julia, without the necessary coverage.
When Julia contacted the Social Security office to report receiving incorrect guidance, she was told there wasn’t enough information about the January call to review her case.
"The Social Security office said, 'Well, I'm so sorry, we'd love to help you, but we ... don't know who this employee was who helped you. So you're on your own,'" according to Caughill.
When dealing with SSA and Medicare, Caughill advised documenting any conversations with authorities, noting the date, time, what was said, and who you spoke with.
If things go wrong, she said, you must prove that you got bad advice. And even then, it's hard to get relief.
“Even with full documentation, it can be difficult, if not impossible, to get Social Security to make things right,” Caughill said. “But if you don't have any documentation at all, you've got no case.”
Medicare agents may not always have your best interests at heart
There are two paths to choose from when enrolling in Medicare, Caughill explained. One can enroll in Medicare Advantage, or what some call Medicare Part C, or enroll in original Medicare and purchase a Medicare Supplement Insurance or Medigap plan.
"The sad thing," Caughill said, is that Medicare insurance agents are paid much more to sell you a Medicare Advantage plan than a Medigap policy.
In fact, she noted that Medicare insurance agents make 40% more on the initial commission selling Medicare Advantage plans than Medigap plans. On average, they make $705 in commissions per Medicare Advantage plan, versus $483 per Medigap plan sold.
Isabel Diaz Tinoco and Jose Luis Tinoco look at a computer as Otto Hernandez, an insurance agent, shows them the different insurance plans available on Nov. 1, 2017, in Miami, Fla. (Joe Raedle/Getty Images) ·Joe Raedle via Getty Images
Over the course of 20 years, a Medicare insurance agent will earn $7,765 in commissions per Medicare Advantage plan sold compared to $3,381 per Medigap plan sold.
This does not mean Medicare Advantage plans or insurance agents are “bad,” Caughill noted in her presentation at Schwab Impact 2024. It just means that the business of Medicare insurance sales incentivizes agents to promote one type of product over another, regardless of what may actually be in the consumer’s best interest.
“You need to know this,” Caughill said. “Always know where the money is going, and make sure that the guidance you're getting is in your best.”
To find an agent who truly puts your needs first, Caughill suggested asking agents a few questions: Do they sell Medicare Advantage, Part D, and Medigap policies? What is their sales ratio of Medicare Advantage vs. Medigap policies? and how many companies are they allowed to sell?
Caughill also advised people to pay attention during the sales conversation. Does the agent prioritize discussions about low monthly premiums and extra free benefits? (Not good.) Does the agent talk about today only, stating that you can always change your coverage later on? (Not good.) Or does the agent talk about provider networks, medication formularies, prior authorization, and guaranteed issue rights? (Good.)
“There are good insurance agents out there,” she said. “There are also bad ones. ... So you need to ask those questions. And if you ask those questions and you find a good one, by all means, work with them.”
There are limitations on the $2,000 drug cap
The Inflation Reduction Act limits annual out-of-pocket drug expenses to $2,000. However, this cap only applies if the medications are included in your Part D drug plan, said Caughill.
If a medication is not covered by your Part D plan, the $2,000 limit does not apply, and you will be responsible for paying the full retail price, regardless of whether it's $200 or $20,000 per month.
“You will pay the full retail price for that medication,” she said.
Caughill said it's also important to note that drug plans can change their formularies, or the list of medications they cover, each year, meaning a drug covered this year might not be covered next year.
US President Joe Biden speaks about his plan to protect and strengthen Social Security and Medicare, as well as lower healthcare costs, in Tampa, Fla., on Feb. 9, 2023. (Mandel NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images) ·MANDEL NGAN via Getty Images
