Podcast: Speaking of Quality: Wealth Management Insights with Hank Smith
Season 4 Episode 7 Title: The Ins and Outs of Medicare

Episode Transcript:

Maxine Cuffe 00:06 

You are listening to Speaking of Quality Wealth Management Insights with Hank Smith, a podcast by the Haverford Trust Company. On Speaking of Quality, Hank chats with authors, influencers, and wealth management experts to bring a sense of clarity and calm to the complexity and stress of personal finance. And now here’s your host, Hank Smith. 

Hank Smith 00:27 

Hello and welcome to another episode of Speaking of Quality: Wealth Management Insights. I’m your host, Hank Smith, director and head of investment strategy at the Haverford Trust Company. 

On this podcast, we explore topics ranging from quality investing, retirement resilience, stock market trends, estate planning, small business ownership, behavioral psychology, and more. This season, we’re focusing on unpacking the economic drivers of today and tomorrow. 

Today, I’m joined by Diane Duda, who currently serves as a PA MEDI Medicare counselor. Diane spent 40 years working in the insurance industry and served as executive vice president and chief actuary at the United States Liability Insurance Group for 17 years before retiring in 2019. Welcome to Speaking of Quality, Diane. 

Diane Duda 01:19 

Thanks, Hank. Glad to be here. 

Hank Smith 01:21 

Well, it’s great to have you and this is a subject that I know so little about and I suspect there are a lot in our audience that fall into that category as well. So, why don’t we just jump in and talk about MEDI, which actually stands for Pennsylvania Medicare Education and Decision Insight. It is something I’ve never even heard of, and I do a fair amount of reading. Can you give us a little bit of the history of the organization and its mission and objectives? 

Diane Duda 01:53 

Sure. PA MEDI has been around since 1995 and it’s actually Pennsylvania’s version of a nationwide network. We’re actually part of a nationwide network of state health insurance assistance programs, which is often referred to as SHIP. So it’s a nationwide program providing free personalized objective, Medicare counseling assistance to people throughout the United States, people who are Medicare eligible or already in Medicare and have questions or issues. So MEDI is the Pennsylvania version of that, and I am a Medicare counselor in Montgomery County as part of PA MEDI. All the counselors that counsel for PA MEDI have undergone continuous training going forward to make sure that we’re up on all the current issues. 

Hank Smith 02:35 

So, is it also about advancing healthcare literacy, if you will? Is that part of the objective? 

Diane Duda 02:44 

Yeah. It’s really remarkable how many people who contact us who literally have no knowledge whatsoever of what their existing health insurance coverage is. We are here to help people who are becoming eligible for Medicare, or are already in Medicare, and we help them with all different kinds of decisions in terms of what kinds of coverage to get to augment their Medicare, what do they do if they’re already in Medicare and they have issues with a claim and they don’t know how to handle it. We help explain the coverage that they do have. Many times people will literally call me and I have to make them read what’s on their card to me. They literally don’t know what they have and we kind of help them negotiate their way through that system. The one benefit that people have that when they come to PA MEDI is that there’s a lot of insurance agents and brokers out there who also provide Medicare counseling and assistance. 

The difference that MEDI brings to that whole process is we have to sign something that says that we have no financial incentive in directing this person one way or another in terms of their decision. So we’re there wholly to give them objective advice and counsel. And so when someone asks me which is the best plan, I have to say, I can’t tell you what the best plan is. You and I have to talk and decide what the best plan is for you. So it’s all about trying to help them understand their options and then once they have the coverage, helping them negotiate their way through using it. 

Hank Smith 04:06 

I read about 50% of adults rated themselves as having a low health insurance literacy in a study done by the Institute for Healthcare Advancement. I put myself into that category. Very fortunately, I have an excellent healthcare plan, but not everyone does. But that is an astonishing number of 50%. So is part of that mission getting that number higher through education? 

Diane Duda 04:34 

Sure. Not only do we provide one-on-one counseling, but we also have counselors who will go out in the community and offer Medicare one-on-one sessions in various settings. I personally go to a local senior center every year at the beginning of open enrollment and give them a crash reminder course in Medicare and all the different options that exist for them. We’re always trying to get our message out there that there’s people to talk to, that you don’t have to worry about them putting the hard press on about selling their product to you. We’re just here to give you a good outline of all your options, and that way you can kind of figure out together with the counselor what makes the most sense for that person. We’re always trying to help educate people along those lines. 

Hank Smith 05:18  

It would seem to me that the goal should be to get a little bit more brand recognition out there, because again, it’s an organization I’ve never heard of and it sounds like it’s a very, very important service to us Pennsylvanians. 

Diane Duda 05:33 

Yeah. Often, we ask folks that contact us because most of the time the contact is done via a toll free hotline or phone line, and then we can do most of our counseling over the phone or sometimes we’ll meet with the person in various sites throughout the counties. But yes, that’s one of the reasons why I’m doing this podcast as a matter of fact, is to help people understand that this resource, which is free and objective, is out there for folks to help them. I personally have been doing this for about four or five years, and I’ve counseled over 600 people. So I think people tell their neighbors and their friends and things like that. That’s how the information is getting out there. We often tell people when you see someone selling them themselves as a Medicare counselor, you just got to make sure you understand if they have any underlying incentives, you need to be aware of that. We don’t have any of those. 

Hank Smith 06:20 

Well, I’m glad we can help with marketing this very important service. And you’re doing this as a volunteer, which is another way of giving back to the community. I applaud you. 

Diane Duda 06:33  

Correct. In Montgomery County, which is the county we’re most familiar with our services, we have 20 plus counselors and many of them have 15, 20 years of service. I mean, they are very experienced in this field, and that’s why we do it because we know there’s a huge need and we feel it’s very helpful to our neighbors in our community to help to figure out how to really negotiate. It’s a very important issue for most people’s lives. 

Hank Smith 06:55 

Well, that’s great. I wish you continued success in what really sounds like a very important endeavor. Diane, on this season of the podcast, I’m focusing on economic drivers, and the healthcare industry is certainly a key economic driver in the United States. The Philadelphia Fed reports that about a fifth of the country’s GDP comes from healthcare spending, and healthcare’s role in the economy continues to grow in large part due to the aging population in the United States. It’s expected that 23% of the US population will be 65 and older by 2050. So that brings us to Medicare, which most of us know is a government-provisioned health insurance plan for those age 65 and up. However, it’s a pretty confusing system and there’s been a lot of news recently around continued funding and the growth of cost of Medicare over the last 10, 20 years. So, could you give us an overview of what Medicare is and how it works? 

Diane Duda 08:03  

Sure. First, just to clarify, while Medicare is certainly a federally funded program for health insurance for people over 65, Medicare also covers people under the age of 65 for certain disabilities. If you have ALS or end stage renal disease, you are automatically eligible for Medicare. In addition, if someone has been receiving social security disability income benefits for at least 24 months, they become eligible for Medicare as well. The way it works is if you are already receiving social security benefits, either as a person who’s turning 65 or 65 and over or less than if you are receiving your benefits, you will automatically be signed up for Medicare. And what that basically means is you’ll automatically be signed up for Medicare parts A and B. A is generally inpatient hospitalization as well as care in a nursing facility after you’ve been hospitalized for something and also covers hospice care and some other items. 

You will automatically be signed up for A, if you have already been getting your benefit, and if you have or your spouse has been paying into social security for at least 10 years or 40 quarters, you will get part A for free. And then you’ll also automatically be signed up for part B if you’re already receiving your benefit. B is all the stuff that’s not inpatient for the most part, it is outpatient services at doctor’s offices, durable medical equipment, tests and diagnostics and things like that. And then there’s also a part D that you are not automatically signed up for D, you have to get that yourself. So that’s how it works. If you’re already getting benefits, if you’re not already getting benefits, you have to actually sign up for Medicare yourself for parts A and B, and you can do that online by contacting the Social Security Administration. 

The easiest way is doing it online, and that’s where a lot of people will come to MEDI for assistance in how to get started in that process. But if you’re working and continue to work past the age of 65, you don’t have to do it at all. You can just wait, or you can sign up for just free part A. Part B has premiums, which we can get into a little bit later, but it’s basically covering everything with A and B. That’s inpatient hospitalization or outpatient services. Part D is a separate part of Medicare. You are required to sign up for that once you start Medicare, and that’s for prescription drugs. 

Hank Smith 10:21  

In terms of news surrounding Medicare, what’s your advice to listeners who are either enrolled or looking to enroll and are worried about reports of changes in Medicare funding? 

Diane Duda 10:32 

Obviously, we can’t know the unknown here, but what that all involves is the funding of parts A and B are related to general tax revenues in different ways. Part A is generally funded by payroll taxes, which people pay while they’re working and earning income, as well as income taxes on social security benefits. And I know that last thing I think was one of the things that’s been talked about is potentially not having income taxes on social security benefits anymore. Clearly, that would actually affect the funding of part A because that goes into the trust fund for part A, and then part B is largely funded by people’s premiums for Part B as well as general federal revenues. So again, anything that’s going to affect tax revenues potentially depending on what they decide is going to affect what goes into funding Part B. So at this point, all people can do, I think, is contact their legislators and make sure that those legislators are aware of the fact that how very important health insurance is to people who need it, who are eligible for Medicare and that they continue to support that. 

Hank Smith 11:36  

So how is the premium actually calculated with respect to Medicare? And there’s an acronym IRMAA, income related monthly adjustment amount. I love these acronyms that come into play with Part B. What is the purpose of IRMAA and how does that affect the premium? 

Diane Duda 11:59  

Sure. So let’s go back just I said it a few minutes ago. So part A for most people is free if they or their spouse has been paying into social security for at least a period of 10 years or 40 quarters. There are premiums for folks who do not meet that requirement that are fairly significant. But generally speaking, the vast majority of people aren’t paying for part A. Part B, the premium for that, the base premium for Part B right now is $185 a month. Depending on your income, that may be all that you pay is $185 a month. Most people, if they’re already getting their benefit they have it deducted automatically out of their social security benefit. Otherwise, the best thing to do is have it automatically taken out of your bank account every month, so you don’t forget to pay it. 

But there’s also an income adjustment to that $185, and that’s where that, what you call IRMAA, the income related monthly adjustment amount comes into place because of just the way the timing of tax returns works every year in January for them to figure out if people are going to be levied a surcharge due to their income through the IRMAA-tiered premium approach. They look at your tax return from two years ago, so in 2025, they would look at your tax return if it’s filed jointly, your joint tax return from 2023, and depending on that income, there’s a table and it would basically say you have to pay in addition to the $185 additional dollars, could be $75, could be $100, could be several hundred dollars more depending on your income. And then there’s a separate process because of that time lag. Because if you often have someone who was making money and now they retire and their income two years ago was healthy and now it’s significantly less because they’re no longer earning an income at their job. There’s a process and a separate form which we can help them figure out, which is an IRMAA appeal form where you can basically send it into the social security administration and say that’s what I made two years ago. That’s not what I’m going to make this year and this year I should have an IRMAA charge of X or maybe no IRMAA charge because I expect my income is going to be far less because I’ve had a life change. So, they do offer an ability to do that. 

Hank Smith 14:07  

This is complicated stuff I think for most people, and it really is beneficial to have kind of a quarterback to help you navigate through all this. I wouldn’t be shocked that the average person, and I’m including myself as an average person, wouldn’t be able to do this on their own. 

Diane Duda 14:29 

Yeah, it’s a little crazy. There’s actually another piece of that goes into the premium calculation, and that is for part B. Now we’re talking about there’s also a late enrollment penalty for B and part D if you don’t sign up for Part D. So, kind of step back for a moment, the late enrollment penalty exists, and this catches a lot of people on the drug side. Part D, if when you first sign up for Medicare, let’s just say you’re not taking any prescription medications and so you don’t sign up for Part D. Well, the problem is insurance only works when everybody buys it. If the only people that need it buy it, the price of it would be too high for the people who need it. So, the whole point of insurance is they’d want everybody to buy it to spread the cost. So, there’s a requirement you need to buy your part D once you’re on A and B as well, one way or another, either have to get it through your Medicare Advantage plan, which we’ll probably talk about later or a separate drug plan. 

So for both B and D, the Medicare folks have instituted penalties if you don’t sign up when you need to and are supposed to. And those penalties once they’ve been assessed, unless your income becomes very low and you get them relieved due to Medicaid’s assistance, you have to pay that later on penalty for the rest of your life. So that potentially can be another charge on top of folks’ premium if they don’t sign up when they’re supposed to. I personally signed up somebody for Part D when they were like 80 years old, they had never had Part D and they had a late enrollment penalty of about $60 a month. They eventually got relieved because they were eligible for Pacenet, which is a state program to help with prescription copay costs, but until then, they were being assessed a $60 penalty on top of their Part D premium. 

Hank Smith 16:14 

I can understand the concept of if you’ve never taken a prescription drug and you’re healthy, it’s not even in your mindset that you’re going to at any point in time. Speaking for myself, I never took prescription drugs and all of a sudden I turned 60 and now I’m on four daily prescription drugs. If you had told me 10 years ago, I would’ve just laughed. I’d say there’s no way. But I also understand that for insurance to work for everyone, and it doesn’t matter what type of insurance, everyone has to pay into it to bring the premiums down. 

Diane Duda 16:52 

Exactly. We didn’t talk about part D very much because part A and part B, you’re signing up with them with the government, but part D is actually one where you can actually sign up on the medicare.gov site, but your contract is really with a private insurer. 

The government themselves are not providing that insurance. So medicare.gov, just to put a little commercial for the website, is a very rich website in terms of information for folks, and it does provide a really nice tool, particularly for part D prescriptions, where you can go in and type in a big gigantic dropdown menu essentially one by one all your prescriptions, and it will basically spit back to you what you would pay for those prescriptions at all the different types of pharmacies over the course of that particular calendar year. So, it’s a great way for people to decide which plan is going to be the most economical for them. There are tools out there to help folks make those decisions. PA MEDI counselors help folks with that as well. 

Hank Smith 17:49 

Let’s jump to Medicare Advantage plans, of which there are about 33 million people enrolled in 2024. What exactly are Medicare Advantage plans and how do they differ from the federal Medicare program? 

Diane Duda 18:06 

Sure. Medicare Advantage just in general, that’s a private plan alternative to Medicare. Now, it does get a little confusing because often it’s referred to as part C of Medicare, but it’s effectively an alternative to Medicare. So, if you choose to get a Medicare Advantage plan instead of a regular Medicare, then essentially your Medicare is going to be administered through your Advantage plan plus other benefits. One thing we didn’t talk about, and maybe this is a good time to mention it now, is if you just signed up for the required Medicare A, B and D, A has a deductible of about $1,676 for each time that you’re going into a hospital, and part B only covers 80% of the bills after a $257 deductible every year. So, the person if they only had A and B, has a fair amount of liability residing with them if they stopped there and didn’t get anything more than A and B. 

That’s why in addition to just plain Medicare, other solutions have cropped up and in our system we have two basic approaches that you can take. One of those is Medicare Advantage, because what Medicare Advantage does is it basically says, we’re going to provide all the benefits to this person. So, the federal government takes money from the various Medicare trust funds and tax revenues and basically gives it to the private insurer. Some of those plans don’t charge any additional premium to the plan holder, and some do charge a premium depending on the plan, but at any rate, that’s taking care of everything. And so those plans, what they do is they have all established a maximum out of pocket. So, the benefit of having Medicare advantages instead of Medicare, you do have a cap on what your out of pocket is going to be, but you have a lot more copays than you would under a supplement plan, which we’ll talk about later hopefully. 

It’s basically low or no premiums for Medicare Advantage, but there’s co-insurance, but to help limit your out of pocket to those copays and co-insurance, there’s a maximum out of pocket that tends to go in the $6,500 to $8,000 range, at least in our county for a calendar year. So, if you had, let’s just say you had cancer, most Medicare Advantage plans only cover chemotherapy 80%. So once your 20% hit your maximum out of pocket, you would no longer have to pay. So, most people, if they want something beyond Medicare, they might consider Medicare Advantage because it has that cap on the out of pocket, and it also provides some extras that you don’t get with Medicare, like there’s some routine dental, vision, and hearing coverage, which you don’t have in regular Medicare. Some of them give you some extra over the counter allowances that you can spend at the pharmacy on non-prescription medications, vitamins, band-aids, things like that. 

They offer some little nice little add-ons. Often, they offer a free wellness benefit, say a free gym membership, that kind of thing. So folks that are very healthy, I’ve actually seen a study by an insurance department that showed that people who are low to moderate users of medical services, their out of pocket is going to be pretty limited if they have a Medicare Advantage plan because they’re just not using services that often, and when they do, they have just a copay to pay. If they had a bad health year, it’s capped by the maximum out of pocket. So that’s one way that you can go to have a little bit more coverage than you would have with just plain Medicare, A and B and D. The Medicare Advantage plans include drug coverage if you need it in the coverage, if you’re not already getting it, for example, if you’re a veteran or something like that. So it’s a one-stop shop essentially. 

Hank Smith 21:51 

So, we’ve talked about Medicare, A B, C, D. Hopefully we don’t have to go through half of the alphabet and we can end it there. 

Diane Duda 22:00  

Well, there actually are some other letters that come up when we talk about supplements, but I do want to talk very briefly just to mention since we’re on talking about Medicare Advantage is the one thing about Medicare Advantage is because you’re dealing with a private insurer, there are networks to be considered, and some people think all Medicare Advantage plans are HMOs, they’re not. Some are PPOs, some are HMOs, but either way, you do have to be cognizant of the providers that you use and whether they’re in that plan’s network or not. So if I have someone coming to me that wants to get a Medicare Advantage plan, I will ask them to give the names of all their medications and all their medical and dental providers, and then I’ll check and make sure that those doctors are either in the network of various companies or tell the person, Hey, either you might want to talk to your doctor about this or may want to select a different dentist or whatever, just so they’re prepared. That gets to your literacy question earlier. It’s really important that you understand how your plan works and what providers will be covered by the plan. 

Hank Smith 23:03  

This is a lot to take in. And let’s add another issue. Medical debt is a big issue for Americans. I’ve read that two in five US adults report some form of medical debt due to medical or dental bills. How does Medicare supplement insurance, also known as Medigap, help Medicare users lower their medical debt? 

Diane Duda 23:26  

So it doesn’t really help them lower. It helps them avoid it. So again, going back to what I said earlier, if you just had Medicare A and B and D and you became seriously ill with cancer or something like that, if you only had A and B, your 20% of your outpatient medical costs could turn out to be thousands and thousands and thousands of dollars, and essentially you could go into medical debt and not be able to pay it. So people want to get something else to avoid that. The way the Medicare Advantage plans handle that, assuming you’re seeing a provider who’s covered by the plan who participates in the plan is they do have that maximum out of pocket. The other way that you can manage that potentially unlimited liability for medical costs is the other option that you have, which is getting a Medicare supplement plan or Medigap policy. 

That’s the other option where instead of replacing Medicare as Medicare Advantage does, the Medigap or Medicare supplement plan does exactly what its title says. It supplements Medicare. So if Medicare covers 80% after the deductible of your outpatient doctor costs, the supplement or Medigap plan will come in and pay the other 20% subject to rules depending on which supplement you choose. So that one kind of goes alongside and fills in the holes of Medicare more directly as opposed to Medicare Advantage, which kind of replaces it with something similar, but a different way of handling the copays and co-insurance. So that’s the other option that folks have is to get the supplement plan or Medigap plan instead of the Medicare Advantage plan. One of the cheap differences between going the two routes when you get a Medicare supplement or Medigap plan, those are being issued by private insurers as well, that they have premiums and probably the lowest premium to get away with is probably in the neighborhood of about a hundred dollars a month. 

There’s maybe seven or eight different supplement plan types, but the most common ones more letters is plans G and N. I know it’s terrible, but so those are the two most common ones. With those plans, you would have very little out of pocket except for the $257 at least this year, $257 part B deductible. However, you are paying a premium every month, a hundred dollars plus. Then as you age and as prices go up, those premiums continue to increase. So the downside of getting the supplement is you’re going to be paying more in premium. The positive is your out of pocket is going to be a lot more in a much smaller range than it might be with Medicare Advantage, where you could potentially go up to a seven or $8,000 out of pocket. 

In a supplement. It’s going to be basically your premium for the year plus that deductible, and then some of the plans. Plan N has a copay of up to $20 for doctor office visits, so you’re basically paying for the certainty or a little bit more certainty around your out of pocket for the year, but you’re paying a price for that. The other difference is if you have Medicare supplement or Medigap policy, you’re not going to have to worry about networks as you do with Medicare Advantage. When you have a Medigap or Medicare supplement policy, you just have to make sure that your doctor is a participating physician in the Medicare world. In other words, they accept the Medicare payment that they get. If they don’t accept it, then you could potentially be on the hook for an additional 15% beyond that. Or if they opt out completely the provider from Medicare, then you would not have any Medicare coverage there at all. So again, this goes back to your literacy. You got to understand whether your doctor, if you have a supplement or a Medigap policy, whether your doctor is participating in Medicare or not, or whether they have opted out. Most of the time medical doctors participate in Medicare. We do see a lot of mental health professionals, psychiatrists in particular, who have opted out of Medicare, but it’s rare that I see a medical doctor who’s opted out. 

Hank Smith 27:33  

Well, my strongest advice to our listeners is become familiar with PA MEDI. It sounds like your service is so helpful and it’s objective and it’s free, and it’s very, very important to navigate what could be a very complex topic of what we’ve just gone through with Medicare. 

Diane Duda 27:58  

Yeah, I mean it is complicated. There’s all kinds of rules about when you can do things as well. You can’t just make a change whenever you want to, and so the counselors can help guide you in that too. It sounds complicated in this conversation because kind of throwing it all out at once. Generally speaking, when we’re speaking one-on-one with somebody who’s come to us first, you flesh out what their needs are and then it’s a lot easier when you’re focusing just on one person and not talking about the general. Some people come in and they know they absolutely want Medicare Advantage because they have really bad dental issues, and they need the dental coverage. Some people don’t want to ever worry about networks, and so they know they want to supplement, and so that’s all we look at, and there’s lots of tools out there on the medicare.gov site as well. That’s another thing I would definitely encourage people is if you are already on Medicare or if you’re going to be becoming eligible for Medicare, once you get that Medicare card, it’s helpful to establish an account for yourself @medicare.gov and you can access a lot of information there, and even if you don’t have an account there, you can go on there and shop for plans on your own and then talk to a counselor. 

Hank Smith 29:03 

Well, Diane, thank you for joining us on Speaking of Quality. This has been such an insightful conversation, healthcare and the ins and out of Medicare. It’s been quite educational for me and I’m sure for our listeners. 

Thank you for listening to this episode of Speaking of Quality: Wealth Management Insights. Our next episode will be released shortly. In the meantime, please send suggestions or questions for me or the Haverford Trust team to marketing@haverfordquality.com and don’t forget to rate, review and share this podcast. Until next time, I’m Hank Smith. Stay bullish and stay healthy. 

Maxine Cuffe 29:54  

Thanks for listening to this episode of Speaking of Quality Wealth Management Insights with Hank Smith. To hear future episodes of speaking of Quality, please subscribe on Apple Podcasts, Spotify, Google Podcasts, or wherever you listen to podcasts. To learn more about the Haverford Choice Company, please visit www.haverfordquality.com. 

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