The Biggest Surprise About (My) Retirement

My “retirement” isn’t even a year old—and for the most part, it’s played out pretty much as planned.  There was, however, an area that caught us a bit flat-footed.

For us (and this has very much been a joint effort between me and my wife), that surprise was…Medicare. 

Don’t get me wrong; to date the coverage has compared favorably with what we had pre-retirement—mostly because we coupled “standard” Medicare with a Medicare Advantage plan (which has actually provided some nice enhancements over our pre-retirement coverage). 

That said, here are some things we’ve learned along the way that we either didn’t know or hadn’t thought about “before”:

Medicare isn’t free. 

Well, technically speaking, some of Medicare comes without additional premiums/cost, at least if you’ve worked at least 10 years and paid into that system. 

There are two “core” parts to Medicare; what are affectionately referred to as Part A (hospital coverage)—which is “free” (in that your historical payroll deductions fund it) and Part B (medical insurance, which covers outpatient care, services from doctors and health care providers, some preventative services)—which, like your current health insurance, has premiums that you have to pay.  More on that in a minute.

While certainly of benefit, those coverages won’t replace everything covered by the health insurance you’ll have carried pre-retirement (those are likely included in what are called Part C (vision, hearing, dental, and Part D (prescription drug coverage). The bottom line here is that your post-retirement spending plans need to include something for health insurance (more precisely, your Social Security benefit will be reduced by that amount). You can find out more at: https://www.medicare.gov/basics/costs/medicare-costs

You (may) need to apply for Medicare before you “take” Medicare.

Once you start receiving Social Security benefits, you are automatically enrolled in Medicare A. But if you work past age 65 (as I did) and don’t start taking Social Security (like me), then you have to sign up for Medicare—even if you’re still working, have insurance, and don’t plan to use Medicare (this will, of course, confuse your current health care providers, at least momentarily. Everyone assumes when you turn 65, you’re on Medicare). 

There’s a seven-month initial enrollment period that begins three months before the month you turn 65 and ends three months after your birthday month. Now, there are some exceptions to that timing, but—the bottom line is, you’ll likely find it to be less complicated to sign up around your 65^th birthday, and then you don’t have to worry that you’ll run afoul of deadlines that can cost you a lot later on.

There are no Medicare “family” plans.

You may be accustomed to choosing workplace health insurance based on the needs of your family, or at least you and your spouse. For years I have “delegated” that responsibility to my wife, who has always had a better sense for the family doctors and our coverage needs. But we each had to sign up for Medicare separately (though we did “coordinate”).

That said, there can be complications if you are retiring at a different time than your spouse, particularly if you’ve shared coverage under a family plan. We had planned to let my wife (who is the same age, though she maintains that the five-month differential in our dates of birth makes her younger) go on Medicare while I continued with my workplace plan. Now, there is a process that allows for this, but it’s a bit of an exception and—well, we got close to the deadline, and rather than have coverage at risk, we just waited until we could both switch at the same time.

Your Medicare premiums are based…on your income.

One of the biggest surprises (to me, anyway) was to find my Medicare health insurance premiums were based on income. And if you’ve filed jointly, BOTH of your premiums are based on your adjusted gross income (AGI). But that wasn’t the biggest surprise… 

Your Medicare premiums are based on your income…from two years ago.

When it comes to figuring out your income for establishing your Medicare premiums, you might expect that a government agency would turn to an official government record of your income—and that turns out to be your AGI, as noted above. The jaw-dropper (this was the biggest surprise) was that it was our AGI from TWO YEARS AGO. 

Now, mind you, we’ve planned our retirement income needs just fine—but my AGI this year is going to be significantly less than it was when I was employed full time. And that makes a BIG difference in those monthly Medicare premiums. 

Fortunately, there is an appeals process—and even more fortunately, with my wife’s persistence we were able to rectify that situation BEFORE the first premium came due. It’s something you’ll want to get a jump on, as gathering the data/proof, getting it to Social Security—not to mention getting it to the attention of someone at Social Security—can be time consuming. For more information on that process, see https://www.ssa.gov/medicare/lower-irmaa or on the issue here.

The bottom line is that you want to start thinking about Medicare BEFORE you start filing for it. 

- Nevin E. Adams, JD

Cost Conscience

In about a month my eldest will be setting up a new home in a different state. It won’t be her first time living in another state, and it won’t be her first apartment. It will, however, be her first apartment as an entrant into the full-time career workforce, and so the criteria—and budget—are quite different than our past experience(s). And while she’s done a great job of constructing a budget (including savings), I can’t help but notice that she also spends “her” money a little differently than when Dad was footing the bill.

My daughter’s spending inclinations aren’t unusual, of course. As parents we tried to give our kids a sense of the cost of things, certainly as they grew older. There were, however, plenty of times over the years we didn’t share that information, either because it wasn’t important, or, in some cases, because we didn’t want them to make a decision based solely on price.

There’s a similar logic afoot with consumer-driven health plans (CDHPs). Advocates of these programs¹ contend that providing participants with an account and subjecting their health insurance claims to high deductibles will induce enrollees who would likely be spending more of their own money (than might be the case with traditional health coverage) to make more cost- and quality-conscious health care decisions. On the other hand, CDHP skeptics caution that these individuals lack the kind of information they need to make good decisions—and, worse, might make cost-centric choices that aren’t the best health care choice, and might even prove to be less cost-efficient (and even more expensive) over the longer term.

In one of the first studies of its kind, EBRI has analyzed detailed claims data over a five-year period from a large Midwestern employer that adopted a high-deductible health plan with a health savings account (HSA) for all employees in place of its traditional health care offering. The research, published in the July EBRI Issue Brief,² found that in this case, where the HSA plan was the only type of health plan the employer offered, the HSA reduced the plan’s total health care spending by 25 percent in the first year ($527 per person in the aggregate). Moreover, the cost savings continued over the succeeding three years—albeit at a slower pace.

The study also found that each category of health spending experienced statistically significant reductions in the first year of the HSA plan, with the exception of spending on inpatient hospital stays. Spending on laboratory services and prescription drugs had the largest statistically significant declines (36 percent and 32 percent, respectively). Indeed, reductions in pharmacy spending were large and mostly sustained over the four years after the HSA was adopted. In the first year of the HSA, pharmacy-spending reductions were 40–47 percent for individuals in all but the highest quintile of spending.

There are some limitations to what can be inferred from this particular study, which focused on the experience of a single large employer, and participants with continuous coverage throughout the study period, among other things. While it did not allow for distinguishing utilization of discretionary from necessary services, the data suggest that the highest users were least affected and that moderate users were most vulnerable. If the cost savings trends don’t necessarily speak to the quality of those health care decisions, the report clearly adds to the consumer-directed-health-plan literature, and our understanding of how these programs can influence cost and utilization—information that is essential to our understanding of the value of account-based, high-deductible plans.

After all, when you don’t know the cost of something, it’s hard to appreciate the value.

Nevin E. Adams, JD

¹ A recent EBRI report notes that employers have now been using CDHPs for over a decade. In 2012, 22 percent of smaller employers, 36 percent of larger employers, and 59 percent of jumbo employers offered some form of a CDHP, and nearly 1 in 5 workers were enrolled in one.

² “Health Care Spending after Adopting a Full-Replacement, High-Deductible Health Plan With a Health Savings Account: A Five-Year Study” is available online here.

Balancing "Acts"

Last week we looked at how the trends in employment-based retirement plans and employment-based health plans seem to be heading in opposite directions: fewer choices for workers to make in the former, more in the latter (see Consumer “Driven,” online here.  Recent EBRI research suggests a potential divergence in other areas as well.

According to the EBRI/MGA Consumer Engagement in Health Care Survey, 26–40 percent of respondents reported some type of access-to-health-care issue for either themselves or family members last year. “Access” in this case refers not to availability, per se, but is broadly defined as not filling prescriptions due to cost, skipping doses to make medication last longer, or delaying or avoiding getting health care due to cost.

Not surprisingly, access is more of a problem among those with lower incomes, who appear to be forgoing spending on health care. In fact, regardless of health plan type, individuals in households with less than $50,000 in annual income were more likely than those in households with $50,000 or more in annual income to report access issues. In sum, a number of individuals, notably lower-income workers, were restricting their spending on healthcare.¹

Another recent EBRI analysis  found that lower-income workers were withdrawing money from their individual retirement accounts in much greater numbers, earlier, and at much larger percentages, than other workers. In fact, the report noted that nearly half (48 percent) of the bottom-income quartile of those between the ages of 61 and 70 had made such an IRA withdrawal, and that their average annual percentage of account balance withdrawn (17.4 percent) was higher than the rest of the income distribution. In sum, a number of individuals, again, notably lower-income workers, were withdrawing more from their retirement savings accounts than those in higher income groups.

One of the great hopes behind a growing emphasis on consumer-directed health plans is that individuals would make different, perhaps more efficient decisions about their health care. Of course, one of the looming concerns is that individuals would make ill-informed decisions influenced by short-term personal economic (rather than health) factors. Similarly, there have been concerns expressed that, left to their own devices, individuals will withdraw too much money too soon from their retirement accounts—that their decisions too will be motivated by short-term needs, rather than by a full appreciation for the longer-term consequences of those actions.

As previous EBRI research has documented, the availability of health insurance may not only affect retirement decisions, but the costs of health care and long-term care can have a very real impact on retirement income adequacy.² The trends highlighted in the EBRI analyses suggest that some—notably lower-income individuals—could be spending less on healthcare than they might, and perhaps drawing more from their retirement accounts than they should.

What’s not yet clear—and what future research may shed light on—is whether these actions are borne of necessity, are simply random and potentially ill-considered, or are the result of conscious (and perhaps conscientious) choice.

Nevin E. Adams, JD

¹ Some additional evidence of the trend was highlighted by EBRI research recently published in Health Affairs, specifically that consumer-directed health plans (CDHPs) were shown to reduce the long-term use of outpatient physician visits and prescription drugs. Link is online here.

² See Views on Health Coverage and Retirement: Findings from the 2012 Health Confidence Survey, and ‘Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News.” 
See also “Lessons From the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research,” online here.

“Wishful” Thinking?

Last week the Wall Street Journal reported that Sears and Darden Restaurants were planning a “radical change in the way they provide health benefits to their workers,” giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace, or exchange1. “It’s a fundamental change,” EBRI’s director of health research, Paul Fronstin, noted in the WSJ article.

Indeed, this is the time of year when many American workers – and, by extension, most Americans – will find out the particulars of their health insurance coverage for the following year. For most, the changes are likely to be modest. And, based on the 2012 Health Confidence Survey (HCS), not only do most Americans seem to be confident in those future prospects, they would seem to be satisfied with that outcome.

More than half of those with health insurance are extremely or very satisfied with their current plans, and a third are somewhat satisfied. Nearly three-quarters say they are satisfied with the health benefits they receive now, compared with just 56 percent in 2004.

Dissatisfaction, such as there is to be found, appears to be focused primarily on cost; just 22 percent are extremely or very satisfied with the cost of their health insurance plans, and even fewer are satisfied with the costs of health care services not covered by insurance. Perhaps not surprisingly, about one-half (52 percent) of Americans with health insurance coverage report having experienced an increase in health care costs3 in the past year, though that was the lowest rate since this question was added to the survey in 2006.

The HCS found that confidence about various aspects of today’s health care system has remained fairly stable2 – and undiminished either by the passage of, or the recent Supreme Court decision on, the Patient Protection and Affordable Care Act (PPACA); more than one-half (56 percent) of respondents report being extremely or very confident that they are able to get the treatments they need, and another quarter (27 percent) report being somewhat confident. Only 16 percent of 2012 HCS respondents said they were “not too” or “not at all” confident that their employer/union would continue to offer health insurance for workers – though that was more than twice as many as expressed that level of concern in 2000.

While respondents were generally supportive of the measures broadening access and/or choice in the PPACA, nearly two-thirds said they hadn’t yet noticed any changes to their health insurance – and among the 31 percent that had, 70 percent said the changes were negative, including impacts such as higher premiums, higher copays, and reduced coverage of services.

Despite a falloff from previous surveys, more than two-thirds (69 percent) of employed workers said that benefits were “very important” in their employment decision, with health insurance topping the list of those important benefits by an enormous margin. Nearly six out of 10 said that health insurance was the most important employee benefit, as has been the case for some time now.

All of which reinforces that, while many see room for improvement in the current system, those that have employment-based health insurance now like it, and want to keep it.

It will be interesting to see if, in the months and years ahead, they get that wish.

- Nevin E. Adams, JD

More information from the 2012 Health Confidence Survey (HCS) is online here. The HCS is sponsored by EBRI and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm, and made possible by the generous support of the HCS underwriters, listed here.

1 More information about private health insurance exchanges is available in the July 2012 EBRI Issue Brief “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?”

2Asked to rate the health care system, survey respondents offered a diverse perspective: 17 percent rated it either “very good” or “excellent,” 28 percent consider it to be “good,” 28 percent say “fair,” and 26 percent rate it “poor.” However, the percentage of Americans rating the health care system as poor doubled between 1998 and 2004 (rising from 15 percent to 30 percent).

3Of more than passing concern is the finding that among those experiencing cost increases in their plans in the past year, nearly a third had decreased their contributions to retirement plans, while more than half have decreased their contributions to other savings as a result.