Navigating Medicare: Key Insights for Financial Planning Success
About the Guest(s):
Amy Irvine is the founder and CEO of Rooted Planning Group, a firm dedicated to grounding financial advice in real-life events. With extensive experience in financial planning, Amy and her team focus on providing individuals with advice tailored to their unique circumstances. Known for her engaging and informative approach, Amy hosts the Money Roots podcast, where she delves into financial topics that matter most to everyday listeners.
Episode Summary:
In this enlightening episode of Money Roots, Amy Irvine, the insightful CEO and founder of Rooted Planning Group, tackles the intricate world of Medicare. As healthcare costs continue to rise, understanding Medicare becomes crucial for those planning their retirement years. Medicare, a government health insurance program, is often riddled with confusion due to its complex rules and options. Amy provides a deep dive into these rules, helping listeners navigate the choices available to them, emphasizing the importance of integrating Medicare decisions into overall financial planning.
Medicare comprises several parts, each serving distinct purposes: Part A covers hospital stays, while Part B covers medical services, both under "Original Medicare." Parts C and D offer additional advantages through private insurers, adding complexity and choice to the benefit structure. Amy elucidates on the surprising costs associated with Medicare, particularly addressing IRMAA (Income Related Monthly Adjustment Amount), a surcharge affecting Part B and D premiums. Essential strategies are shared, helping retirees plan effectively, from the significance of annual reviews to adjusting for IRMAA expectations. Amy’s insights highlight the complex decision-making required for comprehensive retirement planning.
Key Takeaways:
- Medicare is a key consideration in financial planning for retirees due to its complexities and costs.
- Annual reviews of Medicare plans are essential, as healthcare needs, and associated costs can change.
- IRMAA adjustments can greatly impact Medicare premiums and require careful income planning.
- Choosing between Medigap and Medicare Advantage plans depends on individual healthcare needs and financial situations.
- Some techniques, like Roth IRA conversions and Qualified Charitable Distributions, can help manage healthcare costs.
Notable Quotes:
- "Once you elect Medicare coverage and supplements, don’t set it and forget it. This is something that you should review every single year during open enrollment."
- "Medicare's importance has only grown as healthcare costs have steadily risen."
- "IRMAA operates as a cliff... this can catch even savvy retirees by surprise if their income rises above certain levels."
- "Choosing between Medigap and Medicare Advantage plans is not just affected by healthcare requirements, but also by the financial risk profile."
- "Medicare planning is not a one-time decision; it requires annual review because... health status and income levels can all change."
Resources:
- For more on Rooted Planning Group and the Money Roots podcast: Rooted Planning Group
- Additional resources and transcript of the episode can be found in the episode's show notes at www.rootedpg.com/podcasts/2026/4/14/navigating-medicare-key-insights-for-financial-planning-success
Listeners are encouraged to dive into the full episode to uncover detailed insights and practical strategies on effectively planning for healthcare costs in retirement. Stay tuned to Money Roots for more engaging discussions about money matters that support your life's events.
Transcript
Foreign.
Speaker B:Hi, I'm Amy Irvine, founder of Rooted Planning Group and this is Money Roots, a podcast where my team and I explore the real conversations behind financial planning.
Speaker B:Because life is about events supported by your dollars and cents.
Speaker B:Let's get started.
Speaker A:Hello podcast listeners.
Speaker A:Amy Irvine, CEO and founder of Rooted Planning Group here and today we are talk about a topic that seems to be coming up Both for my 50 year old clients as well as my 60 year old clients and even into those upper ages and sometimes even younger because of parents being eligible for this particular type of health insurance called Medicare.
Speaker A:And so I know I've done some podcasts on this in the past, but I thought today that I would give some additional information and I'll have some resources in the show notes for folks that are interested in this a little bit more.
Speaker A:In fact, the transcript will be attached so if you want to print it, you would actually have access to it.
Speaker A:Most retirees know that health care is often the largest and most unpredictable expense in retirement, which can add up to hundreds of thousands of dollars on average.
Speaker A:And we tend to plan quite heftily for that within our financial plans.
Speaker A:It can come from many sources, with Medicare being a major consideration in the financial planning process.
Speaker A:Yet despite its importance, Medicare rules can create confusion and have created much confusion.
Speaker A:I just did, well, not just this fall.
Speaker A:I did a session with women, invited a few women to a roundtable type event, and Medicare was one of the top topics that came up and there was a lot of confusion around it.
Speaker A:Understanding how Medicare works, the choices it presents, and the choices, how it affects a broader financial plan is essential for all of our clients and retirees and approaching retirement and then getting these decisions right can help prevent, you know, massive expenses being hit into your financial plan.
Speaker A:And one thing that I always say is don't set it and forget it.
Speaker A:Once you elect Medicare coverage and the supplements or the plan that you want to have on the end, excuse me, don't set it and forget it.
Speaker A:This is something that you should review every single year during open enrollment.
Speaker A:Now let me give you a little bit of history.
Speaker A: ,: Speaker A:It originally consisted of part A, which is the hospital insurance, and part B, which is the medical insurance.
Speaker A:Together they're known as original Medicare.
Speaker A:So when you hear people talk about original Medicare, that's what they're talking about.
Speaker A:Over the decades, Congress has expanded the program to cover more Americans and offer additional benefits, including prescription drug coverage.
Speaker A:Today, Medicare provides health insurance coverage for over 68 million Americans, including approximately 61 million people age 65 and older and 7 million people that are younger than that with disabilities.
Speaker A:Medicare's importance has only grown as healthcare costs have steadily risen.
Speaker A: are and Medicaid Services, in: Speaker A:That accounts for 18% of GDP over the next decade.
Speaker A:Health and healthcare spending is also projected to outpace GDP growth for retirees, many of whom live on a fixed income.
Speaker A:The program provides essential financial relief against these rising costs, but it's not it also means that they're paying more for premiums.
Speaker A:So here's the program.
Speaker A:It's currently structured into four parts.
Speaker A:Part A covers inpatient hospital stay, skilled nursing and hospice care, which is typically premium free for those who have worked at least 10 years.
Speaker A:Part B covers physician services, outpatient care and preventative services.
Speaker A:Reoccurring monthly premiums are charged for that and are subject to income based surcharges, which I'll get into in just a minute.
Speaker A:Something we call irmaa.
Speaker A:Part C, known as Medicare Advantage, is offered by private insurers as an alternative to original Medicare, and it often includes additional benefits such as dental, vision and hearing coverage.
Speaker A:Part D provides optional prescription drug coverage through private insurers and is also subject to the income based surcharges.
Speaker A:A common misconception is that Medicare is free because individuals have contributed through payroll deductions for years.
Speaker A:Well, Part A is indeed covered for most people.
Speaker A:Part B, premium, supplemental coverage and out of Pocket plus can add up pretty significantly.
Speaker A:This is why integrating Medicare decisions into financial planning is so important.
Speaker A:So I mentioned that IRMAA word, so that is that income adjustment.
Speaker A:One of the biggest Medicare surprises that catches retirees off guard is irmaa.
Speaker A:This is an extra charge added to Medicare premium that kicks in if you earn more than 109,000 for an individual or 218 for a married couple filing jointly.
Speaker A: amounts are for coverage year: Speaker A:IRMAA stands for Income Related Monthly Adjustment Amount and it affects Medicare B and D premiums.
Speaker A:Unlike the marginal tax brackets that many taxpayers are used to, where only the income above each threshold is taxed at a higher rate, IRMAA operates as a cliff.
Speaker A:That means if your income exceeds a threshold by even $1, you pay the full surcharge for the entire bracket.
Speaker A:This can catch even savvy retirees by surprise if their income rises above certain levels.
Speaker A:What makes this even Trickier is that IRMAA is applied each year based on the modified adjusted gross income from two years prior.
Speaker A: So in: Speaker A:That would be the latest filing tax available.
Speaker A:So for instance, the surcharge you face at age 65 is determined on your income calendar year when you turn 63.
Speaker A:The two year look back means financial decisions made years before Medicare enrollment, such as conversions, capital gain realizations or even the timing of Social Security benefits can have consequences that way.
Speaker A:It's also important to understand that the income threshold for IRMAA and the IRS marginal tax brackets are completely different.
Speaker A:A common strategy when tax planning is to fill up the tax bracket by recognizing additional income such as Roth conversions.
Speaker A:However, doing so without considering IRMAA thresholds can inadvertently push you over the cliff, resulting in hundreds of, even thousands of dollars.
Speaker A:Now, I'm not saying that you shouldn't do these things.
Speaker A:I think you should just know that this could be a possibility for a year.
Speaker A:There are several strategies that can help manage IRMAA exposure.
Speaker A:Qualified charitable distributions over age 70 and a half are a great example for this.
Speaker A:They allow retirees to direct and notice I said over 70 and a half because that is the way the rule is written.
Speaker A:But also if you're required to take distribution, what are called required minimum distributions or RMDs, directing those to charity without increase directly will get rid of the RMD out of your account but not increase your adjusted gross income.
Speaker A:So unlike charitable deductions, which reduces taxes but does not lower the modified adjusted gross income, timing Roth conversions at least two years before Medicare enrollment can also help since the income will be reflected in the before the look back period and before surcharges apply.
Speaker A:Again, I'm not saying you should not do these Roth conversions.
Speaker A:I'm saying that you should just be aware that when you do them because sometimes that's the only option.
Speaker A:Like that's the best time it makes still makes sense to do those conversions even though you're going to have IRMAA for a year.
Speaker A:I don't want you to say I shouldn't do it because I'm going to have irmaa.
Speaker A:It could still be beneficial and impact your plan in a positive way.
Speaker A:Sometimes delaying Social Security is another consideration that cuts both ways.
Speaker A:While it reduces current income, it can help avoid IRMAA thresholds in the near term.
Speaker A:And higher payments that results from delaying could coincide with required minimum distributions later, which could push you potentially into that surcharge level in future years.
Speaker A:So that's why we have to do some planning around it.
Speaker A:Medigap is on top of Medicare and here's where some people will ask if they should do Medigap versus Medicaid.
Speaker A:Medicare Advantage.
Speaker A:So remember what I said about Medicare Advantage plans.
Speaker A:Medicare Advantage plans, also known as Part C, is an individual private insurer that's giving you an alternative to Medicare.
Speaker A:Medigap is on top of your original Medicare plan.
Speaker A:So beyond income planning, another consequential, I think consequential decision is to be looking at, you know, what kind of plan you want to have.
Speaker A:Do you want a Medigap plan or do you want a Medicare Advantage plan?
Speaker A:The choice is not just affected by an individual's healthcare coverage requirement, but also by the financial risk profile, you know, so.
Speaker A:And also do you track travel?
Speaker A:What's the network, you know, can you get on back on original Medicare with a Medigap?
Speaker A:If you elect a Medicare Advantage plan, there's a lot of choices that go in, a lot of decisions that have to be made going into this.
Speaker A:But do you want to get pre, have to get pre approval?
Speaker A:You know, just a lot of things.
Speaker A:Medigap complements original Medicare parts A and B to help cover out of pocket costs as deductibles, coinsurance and co payments.
Speaker A:Premiums are higher, ranging, you know, up to $550 per month depending on the plan and location.
Speaker A:But out of pocket costs are lower and definitely more predictable because it's basically your premium.
Speaker A:Medicare Advantage on the other hand, can act as a comprehensive alternative to original Medicare.
Speaker A:These plans are offered by private health insurance.
Speaker A:I know this is the third time I say it, said it, but I just want to drive that home.
Speaker A:So offered by private insurers and often include dental, vision and hearing benefits.
Speaker A:But you'll have to check with your provider to see if they even accept that.
Speaker A:Premiums are frequently low, making them attractive at first glance.
Speaker A:However, they typically come with higher out of pocket costs and annual expense caps.
Speaker A:Network restrictions and certain referral requirements that may result in denied care.
Speaker A:Trade offs need to be considered, including the potential inability to switch back, as I mentioned, to Medicare supplemental plan later due to medical underwriting, and it depends on the state that you're in.
Speaker A:Medigap offers higher fixed costs with more predictable total expenses, similar to paying a higher insurance premium for more comprehensive coverage.
Speaker A:It also offers national coverage as an important consideration for retirees who expect to travel often.
Speaker A:Medicare Advantage offers lower upfront costs but introduces more variable in the annual health care spending.
Speaker A:There's Usually a max out of pocket.
Speaker A:But especially for those with chronic conditions or unexpected medical needs, Medicare Advantage can be a shocker to some people.
Speaker A:For retirees with substantial health savings account balances or for dedicated health care funds, the variable costs of Medicare Advantage may be manageable.
Speaker A:But for those who prioritize budget certainty or have health conditions requiring frequent care, Medigap's predictability may be worth the higher premium.
Speaker A: In: Speaker A:So I know this is a lot of information.
Speaker A:One other thing that I think is is important to monitor personal circumstances and policy updates and speak to your local representatives when they're talking about making changes is that Medicare planning is not a one time decision.
Speaker A:As I mentioned, it requires annual review because available plans, premiums, health status and income levels can all change from year to year.
Speaker A:And it's important to monitor any policy changes such as IRMAA thresholds or definitions.
Speaker A:Unlike more predictable financial goals such as saving for education, healthcare expenses are variable and tend to increase with age.
Speaker A:Making ongoing adjustments are essential part of a retirement plan.
Speaker A:An ongoing adjustment timing is very critical.
Speaker A:Missing that initial enrollment period with a seven month window centered around the 65th birthday can result in a permanent 10% penalty of part B premiums for every year delayed unless individuals qualify for special enrollment period through active employment and then limited long term care coverage is something that I think it's important for people to understand about Medicare is that Medicare doesn't cover significant long, long term care coverage.
Speaker A:One fact that surprises some of the Medicare folks, you know, people that I have spoken to about Medicare is that it's really only if somebody is going to be improving will they cover any skilled nursing home coverage.
Speaker A:So if you're admitted for a long term care, admitted into a long term care facility for a long term because you want to say disability, then it's not likely to cover.
Speaker A:It's a very short term that it will cover and you have to be showing improvement.
Speaker A:And then of course major life changes can cause impact to costs and you know, we've seen a lot of gray divorce that can cause things to change within your premiums within IRMAA could potentially lower premiums, could increase premiums.
Speaker A:I think it's important to, you know, keep on top of that.
Speaker A:I'm going to attach some a nice little flyer that sort of summarizes all of this information because one thing that people don't understand is if you stick with original Medicare and you do not get a Medigap plan.
Speaker A:You do not have a maximum out of pocket.
Speaker A:So there is no the sky is the limit.
Speaker A: ere is a part a deductible of: Speaker A: in: Speaker A:If you're in the hospital for the first 60 days you don't have any kind of deductible.
Speaker A:But then after that it starts to go up to.
Speaker A:So you have to.
Speaker A:I'm sorry, you don't have any per day cost.
Speaker A:You still have the $1,736 deductible.
Speaker A:And then on top of that you would have 60 days where the insurance would cover it.
Speaker A:But then if you're in the hospital more than 61 days, it's $434 per month or per day.
Speaker A:Excuse me.
Speaker A:And then between 91 and 150 days, it's $886 per day.
Speaker A:And then after 150 days you pay all costs.
Speaker A: Part B, base premium in: Speaker A:That's the base without any IRMAA.
Speaker A:The deductible is 257 and you pay 20% of the approved Medicare charge.
Speaker A:IRMAA is based on different income brackets.
Speaker A:I've gotten some.
Speaker A:I put some information in the show notes so that you can take a look at those.
Speaker A:I also put in the show notes a document that has the Medigap plans.
Speaker A:It has some information about Medicare Advantage, and like I said, it has some IRMAA information.
Speaker A:I hope you found this podcast helpful.
Speaker A:Please share it with any of your friends that you think it might be helpful too.
Speaker A:And I hope that you are able to make some good decisions or that you feel that we are able to help you with this big decision as a total financial plan.
Speaker A:Thank you for listening and we hope again that you found this information helpful.
Speaker B:That's it for today's episode of Money Roots.
Speaker B:I'm Amy Irvine from Rooted Planning Group.
Speaker B:If you found this conversation helpful, we'd love for you to share the podcast with a friend, family member or colleague who might enjoy it too.
Speaker B:And if there's a financial question on your mind, send it in.
Speaker B:Your question could be the topic of a future episode because at the end of the day, life is about events supported by your dollars and cents.
Speaker B:Thanks for listening and we'll see you next time on Money Rol.
