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Medicare IRMAA Shock: The Hidden Retirement Expense That Could Cost You Thousands · The Happiness in Retirement® Hour

• 0:00
  Joe Ritter: Do I have to take Medicare? Am I going to be penalized if I don't take Medicare? Because everyone's telling me I'm going to be penalized. I want to be crystal clear about this. Medicare is optional if you're still working, but Medicare is a time machine.
• 0:16
  And what I mean by that is your Medicare cost is based on your household income. So think two years prior, what was your household income? You'll get an additional bill. It could be as high as $6,700 per month in addition to what we agreed upon because their income was a lot higher two years ago.
• 0:39
  Bill Del-Sette: Welcome back to the Happiness and Retirement podcast. You know, one of the things we talk about all the time is that retirement planning goes well beyond your investment portfolio. And one of the biggest pieces of the retirement puzzle is healthcare. Medicare is something almost everyone eventually has to deal with, but most people don't really understand it until they're suddenly faced with a bunch of decisions. So with that in mind today, I've invited Joe Ritter who specializes in Medicare planning to help us make sense of it.
• 1:11
  Joe is the founder of Valley Forge Medicare and Insurance You Keep based in Phoenixville, Pennsylvania. Joe can be found at www.insuranceyoukeepall1word.com. Joe, welcome to the Happiness in Retirement podcast.
• 1:27
  Joe Ritter: Bill, thank you for having me and thank you for taking, you know, some time to discuss something as important as Medicare and how that kind of fits into the whole having a successful retirement, which you do.
• 1:43
  Bill Del-Sette: I
• 1:44
  Joe Ritter: believe in a team concept where you have one place, everyone is a specialist and we all work together because retirement can be pretty complex.
• 1:56
  Bill Del-Sette: It sure can. And certainly Medicare in and of itself, as you have done is, you know, built a career around health insurance and Medicare. It's it's so complicated. And so on, on that note, when someone is approaching 65 and Medicare is suddenly on the horizon, what do you see as the biggest misconception out there?
• 2:15
  Joe Ritter: Well, Medicare has become very fragmented in the sense that it used to be people retired at 65 and they took Medicare. Now it's more like turning 67 or turning 72. Now people are working longer. They're living longer. They're not always taking Medicare at 65.
• 2:35
  So one of the biggest things that I get is people call me at 64 and they're like, do I have to take Medicare? Am I going to be penalized if I don't take Medicare? Because everyone's telling me I'm going to be penalized. I want to be crystal clear about this. Medicare is optional.
• 2:53
  If you're still working, if you're covered under your spouse and they're still working again, Medicare is optional. You can always do what they call a late part B enrollment. You can take Medicare at 70. You could take Medicare at 75. You don't necessarily have to take Medicare at 65.
• 3:11
  It's purely an economic decision. Are you paying more or less than as of the timing of this podcast? Medicare costs $202.90 per month, but Medicare is a time machine. And what I mean by that is your Medicare costs is based on your household income. So think two years prior, what was your household income?
• 3:34
  Was it above a certain amount or below a certain amount?
• 3:37
  Bill Del-Sette: Sure. Yeah, absolutely. I know that's a good place to start. And so there is this assumption, you're just going to go on Medicare automatically at 65. What do people tend to assume Medicare will cover that it actually does not?
• 3:51
  Joe Ritter: It's actually the last thing that people want to think about is the stuff that Medicare doesn't approve. Right. And one of the biggest things is extended rehab, long term care beyond the a hundred days. And it's actually, it's, it's actually for a lot of people, it's more important for them to have a plan for that than it is to have a Medicare supplement or an advantage plan, because you have a lot more to lose when it comes to what Medicare doesn't approve.
• 4:20
  Bill Del-Sette: Interesting. Very interesting. And so do people underestimate how complicated the enrollment decisions can be for Medicare?
• 4:28
  Joe Ritter: Yes, because there's a lot of moving parts. There's a financial aspect to it. There's an economic aspect to it. You know, it's, it's very individualized because you've got certain people that they take very expensive prescriptions. You know, like myself, I just got prescribed Repatha because I guess I have genetic predisposition to cholesterol, even though I'm in perfect health.
• 4:54
  You know, things like Repatha can be $67 800 per month. Right. Or maybe you have somebody that doesn't take prescriptions. Their main concern is dental. I can ask you a bunch of questions and within five or ten minutes, I know exactly what the recommendation should be.
• 5:11
  So it's, it's very individualized. So if you're researching, you know, terms online, like is Medicare advantage good? Should I do a supplement or should should I do an advantage? You really need somebody that knows the game and all the players, and it's always changing and reach out to somebody that's really good that has like, you know, really good reputation and consult with them. Costs you nothing.
• 5:37
  Bill Del-Sette: Sure. Yeah. Great advice. And how early before age 65 should someone start thinking about Medicare?
• 5:44
  Joe Ritter: So that's a great question. And some people say you should start thinking about it a year before you're going to retire, but I think people should start thinking about it as soon as possible. For example, when is a good time to start planning for your retirement? Right? Is it in your thirties?
• 6:02
  Is it in your fifties? Is it when you first start working? I think it's like, as soon as you can, I think people should start planning for their retirement? Start thinking about like, what do you want your retirement to look like? How much income do you need?
• 6:15
  What is Medicare going to cost? What type of health insurance are you going to need? What about your spouse? Start thinking about that stuff today.
• 6:24
  Bill Del-Sette: Yeah, Yeah. It's a great point. Of course, health insurance is a big number. Cost of healthcare in retirement is something that needs to be factored into a retirement plan, whether you're 20 or 60. So that's a great point.
• 6:40
  And are there mistakes that during the initial enrollment period can follow someone for years?
• 6:46
  Joe Ritter: Some of the biggest mistakes is people are ultra fixated on what Medicare supplement they should buy. And they're not even signed up for part a and B in Medicare, which is a prerequisite for anything that you do. So you definitely want to prioritize, make sure you have a before you start going into the supplements and make sure you have a prescription drug plan because the government requires you to have one. Remember Medicare supplements are optional, but you have to have a part D drug plan and you have to have a and B a Medicare. And if you don't, and you don't have a legitimate reason, like you're still working or you're covered under your spouse, you could end up paying a penalty for the rest of your life.
• 7:30
  Bill Del-Sette: And that can be a big penalty too.
• 7:33
  Joe Ritter: Because one of the biggest things that I've run into is I'll have a client come to me, they'll sign up for a Medicare plan. My job is done for the most part, and then they'll get a bill. You know, they'll get an additional bill. It could be as high as $6,700 per month In addition to what we agreed upon, because their income was a lot higher two years ago because they did a Roth conversion or they sold a property or they took money out of their retirement or they were still working. All that needs to be managed.
• 8:04
  Bill Del-Sette: So let's talk about costs because this is something we deal with constantly in retirement planning. What typically happens to someone's healthcare expenses when they move from private insurance onto Medicare? And I know we just talked about IRMAA, but can you talk about that a little bit in terms
• 8:21
  Joe Ritter: of So there's a plan, there's a planning and a management component to all this. As long as everything is done properly, I've found that people are surprised at how comprehensive Medicare is. Usually for most people, Medicare is much better than the insurance they had when they were working or their individual plan or their group plan. Usually there's little or no deductible, no copay for the doctor. If there is a copay, usually it's pretty minimal, reasonable, but Medicare, whether it's Medicare advantage or Medicare supplement is much more comprehensive than group coverage.
• 8:58
  And people are pleasantly surprised because they're worried, you know, what it's going to cost to go to the hospital, what it's going to cost to go to the doctor. The thing that you have to think about is the long term planning, you know, are you a good candidate for long term care? You know, whether it's the economics or your health, you know, what can you do to ensure that whatever it is that you want your retirement to look like that you're successful in that endeavor?
• 9:25
  Bill Del-Sette: Sure. Yeah. Great point. And, and so for someone retiring early, say at 62 or 63, how challenging can those years between retirement and Medicare eligibility be?
• 9:38
  Joe Ritter: They can be super challenging because between the ages of 60 and 64, if you have a private individual plan, an ACA plan, like a marketplace plan, that's the most expensive time for health insurance, unless they can work with someone like you and take income from certain buckets that maybe it doesn't count towards the household income. For example, money that you take out of your Roth doesn't count towards your household income
• 10:10
  Bill Del-Sette: and therefore it doesn't increase the premium. Correct. And so what expenses should retirees actually budget for once they are on Medicare?
• 10:20
  Joe Ritter: That's a great question. And it's, it's super individualized. They should budget anywhere between 0 and $2,500 per person per year for prescriptions. They should budget anywhere from 0 to $7.800 per month for insurance costs. And I hate to give you a range like that because it's, it's very individualized.
• 10:45
  There's a lot of moving parts. There's a lot of factors. What about dental? You know, do you get a plan where dental is covered? They did a survey one time of retirees and seniors, they said, out of everything you can think of, what is the most important thing to you?
• 11:00
  Guess what the number one thing they said? Dental.
• 11:03
  Bill Del-Sette: Interesting. I wouldn't guess
• 11:05
  Joe Ritter: because dental can be super expensive. Think about what it costs to get an implant. Think about what it costs to get a root canal or a bridge or a cap.
• 11:15
  Bill Del-Sette: But isn't it, is it your experience? I know it's been my experience personally, that my dental insurance doesn't cover a whole lot. I'm still paying a lot of out of pocket.
• 11:23
  Joe Ritter: Yeah. So the individual dental plans aren't as good as the ones that are included with the Medicare plans, right? The ones that are baked in. So you talk about being a whole lot holistic planner. We want to look at the bottom line, bottom line.
• 11:40
  What is this going to cost me? You got to factor in what are your dental needs? What are your dental costs? That's got to play into your budget. If you are on a fixed income and you get a thousand dollar, dollars 3,000, dollars 5,000 dental bill, that can be a pretty rough month.
• 11:57
  Bill Del-Sette: And if so, if a 60 year old told you, I want to retire at 62, what healthcare questions would you want them to answer before they make that decision?
• 12:06
  Joe Ritter: What is your household income? What is your health history? Are you a relatively healthy person? And we just got to strap some duct tape on this thing and push it over the finish line. Maybe we just need catastrophic coverage to bridge the gap between 62 and 65.
• 12:23
  You know, why can't, why, depending on a person's assets and their health, why can't they just get an umbrella like a catastrophic insurance policy to cover them from 62 to 65? Cause they're going go on Medicare anyway. And then if something bad happens, they can always hop on ACA in November. That's another trick that I share with people. Think about, Think about somebody that's like, they've got a significant amount of assets.
• 12:53
  They're very healthy. They want to retire essentially. Maybe they want to do consulting or something or a part time gig, but they want to retire at 60. They're not going to take social security at 62. They're not going to take it at 65.
• 13:07
  They're going to wait until 68, but they know they're eligible for Medicare at 65. Right. But they're healthy. They're pretty healthy. Why would someone like that pay a thousand, dollars 2,000 a month for health insurance that they're not going to use that has a huge deductible anyway, that has a huge maximum out of pocket anyway, why wouldn't they self insure up to a certain point and then just get an umbrella, a catastrophic policy to cover them for that gap between their retirement and 65?
• 13:40
  I would imagine that that's like a pretty savvy strategy.
• 13:45
  Bill Del-Sette: It's definitely sounds like it for people that fit into that category.
• 13:49
  Joe Ritter: Yeah. It's, I will admit, you know, you have to fit into, you have to fit into a certain situation, right? You have to be close enough to Medicare where you can take a little bit of risk, you know, and you can self insure up to a certain amount. Sure. Maybe it's 50,000 or something.
• 14:07
  Bill Del-Sette: Right.
• 14:08
  Joe Ritter: Right. Then just get like a catastrophic policy for cancer, heart, throat, something like really bad, you know, just in case.
• 14:19
  Bill Del-Sette: Right. And that would save a lot of premium dollars then. And so let's talk about dear aunt IRMAA. Everyone has heard of IRMAA, right? But what is IRMAA and why should retirees even know that acronym?
• 14:33
  Joe Ritter: So IRMAA is I R M A A. It's the income related monthly adjustment amount. It's a two year time machine. It pertains to what you pay for Medicare. And it's an abstract concept that a lot of people don't understand until they're right in the thick of things, so to speak.
• 14:54
  So essentially what it means is if your income is higher, if your household income is higher, whether you're a single person or, you know, married filing jointly, if your income is above a certain threshold, you're going to pay two, three, four times what the average person pays for Medicare, which as of the timing of this podcast is $202.90. It goes up every year. So a bunch of things play into that, right? If you take money out of your retirement accounts, you know, if you're, if you're collecting money, capital gains, more things, right?
• 15:34
  Bill Del-Sette: Yeah.
• 15:34
  Joe Ritter: You know, you could pay more for Medicare than you actually have to.
• 15:38
  Bill Del-Sette: Yeah. And so it's, it's interesting, you know, and it's a cliff, right? So once you hit another bracket, basically what it means is the higher your income in retirement, the more your premiums are going be. And a lot of people don't, first of all, they get very upset when they learn that they've paid into the system all this time. And then they have to pay premiums again.
• 15:57
  And then those premiums can be higher. If they happen to have done a great job planning and saving, they could get into trouble and actually pay those higher premiums based on, on, you know, two years back. And again, it's something that just people don't even realize is going to hit them until they open their mail one day. And as you said, you know, that time machine two years back, something happened. Maybe like, as you said, there's large capital gains or maybe what we said in the beginning of the podcast, there was a Roth conversion.
• 16:30
  And of course the Roth conversion looked great on paper, you know, when you're just looking at the taxes, but nobody looked at IRMAA. So all of a sudden somebody has an additional you know, I don't know what you said the highest IRMAA bracket is, but you know, hundreds of dollars more a month as a result of a financial decision made two years ago.
• 16:50
  Joe Ritter: Yeah. And keep in mind folks, anybody that's watching this it's it's applied to both the individual and their spouse, even though their spouse, their income is very, very low. Right. They look at you when you're married, they look at you and you file jointly. They look at you as one person.
• 17:08
  So you've got one person with a high income. You've got one person with a low income. They are both assessed up to $689 per month, times two people. Very
• 17:19
  Bill Del-Sette: important. Absolutely.
• 17:22
  Joe Ritter: There are additional $91 for the drug plan.
• 17:25
  Bill Del-Sette: Great. I'll just throw that in there. That's just, you know, a little insult to injury. You know, so they're really the point here when, you know, talking about Roth conversion planning and tax planning and IRMAA planning when you decide. And so, you know, when it, when it comes to setting up an income for a retiree, hopefully they have multiple buckets from which to pull from, right?
• 17:48
  Maybe some Roth money that doesn't show up and cause a higher IRMAA, you know, combined with some IRA, traditional IRA money and taxable money, but you know, you're a dollar over that bracket, whatever that bracket may be, you're going to, you just go $1 over. So you really got to do a lot of planning and stay on top of this. And people frequently come to us after they've already done something like a Roth conversion or realized a huge capital gain. And maybe there was something we could have done to offset the income or, you know, some. And so now let's kind of shift gears a little bit because one of the biggest misunderstandings in retirement is people hear Medicare and assume they're protected if they eventually need long term care.
• 18:35
  So what does Medicare actually cover?
• 18:38
  Joe Ritter: Medicare gives you a hundred days and they only cover skilled nursing. They don't cover custodial care, intermediate care. And if you have a Medicare plan or a supplement, you can kind of fill in some of those gaps. Right. But at the end of the day, get a hundred days.
• 18:54
  That's it.
• 18:54
  Bill Del-Sette: So does, does everyone get a hundred days?
• 18:57
  Joe Ritter: Everyone gets a hundred days per occurrence. Medicare doesn't cover long term care. Medicaid covers long term care. But in order to qualify for Medicaid, you got to spend down your assets
• 19:11
  Bill Del-Sette: first. Yeah. First, absolutely. Always call a Medicaid planning attorney. It's like, we got to have one on speed dial.
• 19:21
  Right. And, and so this idea of Medicare, many people think it actually pays for long term care, but so it's a hundred days. Only a hundred days. Now I believe in New York and don't
• 19:32
  Joe Ritter: And quote me on only if it's skilled nursing.
• 19:34
  Bill Del-Sette: Right. And so I believe in New York again, don't quote me on this that the, the person has to go to a hospital first and then to the nursing home. I don't know if that's true.
• 19:45
  Joe Ritter: Yeah. So that's remember Medicare is federal and Medicaid is run by the state. Medicare is federal. So you have to spend two days in a twenty four hour skilled environment. That's one of the many qualifications to get the a hundred days.
• 20:03
  If it's intermediate care or custodial care, it's no bueno. So you might get zero days for long term care.
• 20:09
  Bill Del-Sette: So it has to be, tell me again, what it needs to be skilled nursing care?
• 20:13
  Joe Ritter: It needs to be classified as skilled nursing. Need twenty four hour round the clock care. If you get bumped down to intermediate care or custodial care, you're self pay.
• 20:24
  Bill Del-Sette: Very interesting. So again, the bottom line is Medicare does not pay for nursing home care.
• 20:31
  Joe Ritter: They you a hundred days of short term skilled only nursing and home care.
• 20:38
  Bill Del-Sette: So really then it comes down to being impoverished and qualifying for Medicaid or self paying for long term care, which again, get it. We should do another whole podcast on long term care planning. So at what age should families start having the long term care conversation in your opinion?
• 20:57
  Joe Ritter: In their fifties.
• 20:58
  Bill Del-Sette: Yeah. So we talk a lot on this podcast about having an annual financial checkup. Should retirees also have an annual Medicare and insurance checkup?
• 21:07
  Joe Ritter: So if you like your plan, if it's working for you, everything renews automatically. Of course we offer it to everyone. We have in person events and we have zoom meetings, but if you like your plan and nothing's changed and it's working for you, everything renews automatically.
• 21:27
  Bill Del-Sette: Interesting. Very interesting. And so what should be reviewed every year?
• 21:32
  Joe Ritter: What you do, you know, the financial stuff, the taxes.
• 21:38
  Bill Del-Sette: Yeah.
• 21:39
  Joe Ritter: You know, if things change with your health, if things change with your spouse, those are all things that we want to get ahead of.
• 21:48
  Bill Del-Sette: Yeah. So people, I mean, they shouldn't necessarily automatically keep the same Medicare coverage just because it worked well last year. I mean, we're getting more, aren't we close to open enrollment?
• 21:58
  Joe Ritter: We are, we are. And just because it's Medicare enrollment doesn't necessarily mean that you have to change your plan. We've gotten into a situation in this country where seniors are playing musical members. One year they're with Aetna. Then they moved to United Healthcare.
• 22:16
  Then they move to Blue Cross. Then they move here. Then they move there. You never want to change your plan based on one benefit. Because remember bill, they always take your peanuts and give you popcorn.
• 22:29
  You know, you might be changing from Aetna to UnitedHealthcare, UnitedHealthcare to Aetna because your copay is $5 less for the doctor, but it turns out the hospital copay is more, or now you don't get as much dental. View in one area they take from somewhere else. They only got so much money to work with. Right.
• 22:49
  Bill Del-Sette: Yeah. That's a great, that's a really great point. Yeah. So it's, it's the same playing field again, right? It's just, like you said, it's kind of like where do you need stronger coverage?
• 23:01
  Joe Ritter: Guess, you know, it's like HMO versus PPO, you know, are all HMOs bad? No, there's some really good ones. There's HMOs out there that are better than PPOs, but people remember twenty years ago, thirty years ago when HMOs were lousy. For example, my wife, she's a registered nurse. She's going to work for mainline, which is one of the, you know, hospital systems and they have incredible benefits.
• 23:29
  As long as you stay within their network of hospitals and doctors and stuff, like our costs are essentially zero, no deductible, no copay. But if I go outside of that network, my costs are much, much higher. Best believe I'm going to take advantage of that. Right. And I'm going to stay within mainline.
• 23:50
  You know, that works for me. That may not work for someone else. That's like, I don't want to use that hospital system. I want to use this one. So those are all things that we need to optimize.
• 24:01
  Bill Del-Sette: Got it. Excellent. Great. And so let's finish with a few quick questions. Okay.
• 24:06
  Some rapid fire stuff. I'm 64. When should I first contact someone like you about Medicare today? Right away. Got it.
• 24:15
  I'm 65 and still working. What's the first question I should ask before enrolling in Medicare?
• 24:21
  Joe Ritter: Well, if you're still working, are you covered by a group plan? Are you covered by your spouse's group plan? If you are call me six months before you retire.
• 24:32
  Bill Del-Sette: Six months. Got it. Here's another one. My prescriptions changed substantially this year. Should I review my Medicare coverage?
• 24:40
  Joe Ritter: It used to be yes, but now it's no.
• 24:43
  Bill Del-Sette: Interesting.
• 24:44
  Joe Ritter: I'll tell you why the IRA, the infamous IRA, Inflation Reduction Act, put a $2,100 cap on out of pocket prescription costs. So guess what folks, whether you take a thousand dollars worth of prescriptions or you take $300,000 worth of prescriptions, you're not asking the right question. Your time would be better served doing something else because the most you're ever going to pay for prescriptions is $2. That's used to be that you had to review your drug plan every year because of the donut hole and the catastrophic and more things. And I used to do a lot of that stuff, but now it doesn't matter.
• 25:25
  Bill Del-Sette: Very interesting. Good to know. And because this is the happiness and retirement podcast show, I have to finish with this. Joe, from working with retirees over the years. What have you learned about what actually makes people happy in retirement?
• 25:39
  Joe Ritter: Healthcare is one having a team of people that are organized, that you trust, smart, successful people delegate things to professionals.
• 25:50
  Bill Del-Sette: There you go. I love it. I love it. And I think the big takeaway from today's conversation is that Medicare shouldn't be treated as a decision you make when you turn 65 and forget about it. Healthcare taxes, income, Roth conversions, prescription coverage, long term care, all this stuff can interact.
• 26:07
  That's why we believe healthcare planning belongs alongside investment planning, tax planning, and estate planning when you're building and protecting your wealth. And, it's about using that money to create happiness and retirement. Hey, Joe, thank you so much for being here. Folks, if you need to reach out to Joe, Joe, could you please again, provide us with your contact info?
• 26:31
  Joe Ritter: Of course. Anyone watching this, you can Google Joe Ritter insurance. The best way to reach me is insuranceyoukeep.com valleyforgemedicare.com. Not .net, not .co, not.org. So you can go directly to the website.
• 26:48
  You can call the office.
• 26:50
  Bill Del-Sette: Hey Joe, this has been great. Just great information. And we thank you so much for taking time out of your busy schedule to talk with everyone. We appreciate it. Thanks so
• 27:00
  Joe Ritter: much. It's my pleasure.