Learn how to prepare for health care costs in retirement, including Medicare, retiring before 65, long-term care, HSAs, and supplemental insurance options.
Learn how hybrid life insurance combines a death benefit with long-term care coverage, so premiums generally aren't wasted if care is never needed.
Every fall, Medicare Advantage and Part D plans mail an Annual Notice of Change. Learn what it means for your costs, coverage, and doctors next year.
Do I need Medicare Part B? No Waiting! It is a question that I get all the time. I’m healthy and living offshore – why should I bother with Medicare Part B ? The answer is – it depends on if you ever plan to come back to the US to live. The reality is that paying for Medicare Part B is expensive for folks on a fixed income – a 15% increase to $170.10 per month this year. And if you plan to stay offshore for the rest of your life, then Paying for Part B probably does not make any sense at all. But if you plan to come home when you hit the slow-go or no-go years – say sometime after 75 or 80 – then it makes sense to examine the financially impact with and without participating the entire time from age 65. First, Medicare really wants people in Part B beginning at 65, and has a significant penalty: “If you didn’t get Part B when you’re first eligible, your monthly premium may go up 10% for each 12-month period you could’ve had Part B, but didn’t sign up. In most cases, you’ll have to pay this penalty each time you pay your premiums, for as long as you have Part B.” – Medicare.gov This penalty can really add up if you don’t participate for the first 10 years and then come home. I have spoken to many people who regret not participating in the early years of retirement, because the financial impact was so large later on. Part B Cost-Benefit Analysis I pulled the data for Part B annual increases for the last 48 years and examined the average annual price increase in Part B over that period. It is hard to imagine, but the monthly premium was $6.70 per month back in 1977, and has averaged 7.5% increase over that period – including a whopping 15% increase this year. The 21 year and 12 year average price increases are 5.7% and 4% respectively. I conservatively used estimated increases of 7% and 4% in my analysis for future projections.
In pulling together the information for this series of blogs, I was struck by the lack of consistent sub-categories of demographic groups of Seniors based on age. Based on my personal observations I believe in the three phases of retirement: Go-Go, Slow-Go, and No-Go years. But I had no way to objectively define them. The Search for Senior Age Categories I have seen definitions used by various Government Departments for what constitute various age brackets for older Americans – but none seems to be consistently used, other than the vague descriptor of “Senior”, shortened from the original “Senior Citizen” for reasons that I still do not understand. Government retirement benefits begin at 20 years of service for the military (as early as age 38) and extend to 67 years-old (for full Social Security), for long suffering Baby Boomers born after 1955. Clearly “Senior” can mean different things when monetary benefits are involved! Social Security started in 1935, with old age benefits beginning at age 65, when the life expectancy for an American was 60 for men and 64 for women. Seems a little unfair – you could reasonably expect to be dead before you got any money. Medicare began in 1965 with benefits starting at age 65, with corresponding life expectancies of 67 for men and 74 for women – about 2–9 years of coverage based on gender. By 2020, the respective life expectancies were 75 years and 81 years. But life expectancy and quality of life are very different questions, and I was still not satisfied with how to reasonably group Seniors in a way that captured relative health and vibrancy. In short – how to define the Go-Go, Slow-Go and No-Go years, and when did they begin and end? Defining 3 Phases of Retirement Enter Professor John B. Sloven of Stanford University and his great paper, New Age Thinking: Alternative Ways of Measuring Age, Their Relationship to Labor Force Participation, Government Policies and GDP. Sloven looked at defining age based on either remaining life expectancy (RLE) or 1-year mortality (MR) risk – the actuarially determined risk of dying in the next year. Of the two measures, I chose MR as most appropriate for my analysis – largely because it seemed to give a better feel of vibrancy of the individual in the year in question. Specifically, Sloven used breakdowns of 1%, 2%, and 4% MR to stratify people demographically as they moved into old age. This is an objective way of measuring the relative age of older Americans and seems much more realistic than using arbitrary chronological age of 65 used in the ’30s or ’60s for Social Security or Medicare respectively. Since Professor Sloven did not assign any categories to these MR classes, I have used: MR = 1% to 2% : Go-Go Years MR = 2% to 4% : Slow-Go Years MR = 4%+ : No-Go Years With these categories in mind, let’s look at the MR graph (Figure 1) for females, showing the age for attaining each of these categories.
Medicare is a great benefit for retirees and can work wonderfully for people who spend most of their time outside the US – particularly for folks spending most of their time in Mexico and other near-US locations. Medicare has residency requirements – in this article we look at what they are, how they work and how you can meet them and still spend extended time (ET) outside the US (OUS). I was recently on a trip to Israel and had an interesting discussion over breakfast with a friend – a former finance professor at a well-known business school. He had established residency in Israel, and participated in the local HMO (less than $100 per month for great quality, but not timely care). He had recently returned to the US for a medical procedure for which he was going to have to wait for months in Israel. He and his wife were planning to stay in Israel for 8-10 years, and then return to the US to be closer to family in their later years. He asked me, “Should I drop my Part B and save some money, or should I continue to pay – and if I do, can I get any potential benefit from Medicare today? The research in this piece is how I answered my friend – and I’m happy to share it with you. Point 1 – Medicare has residency requirements – 3 alternatives for People Spending extended time outside the US If you plan to leave the US when you retire and never return (expatriate), Medicare does not matter. Get health insurance where you are living and relax. You will always have your Part A (hospital) insurance should you decide to move back home, and can enter Part B, but with a monetary penalty of 10% per year for which you were eligible and did not participate. This is not what we recommend, but it works for some people. I talk to many people who planned to leave the US forever, who move back due to loss of a spouse or serious health problems – and the shock of the cost of Part B penalties is always a problem – avoid it if you possibly can. If you plan to leave the US but want to keep your options open to return for medical care, we strongly suggest you continue to pay your Part B premium and register your address as outside the US with Social Security. This eliminates the Part D penalties (no Part D late enrollment penalties if you are living outside the US), and it keeps your options open when you return. If you have a critical medical need to return to the US, you have a Special Election Period when you return to enter a Medicare Advantage Plan, beginning in the month following your return. If you are sick and need care at that point, you will be uncovered for Part B (doctors, labs, diagnostic tests etc.) and for Part D (oral drugs) for a period for which you will not have coverage from 1-30 days. If you maintain residency in the US and continue to pay for Part B, you are eligible for ongoing participation in Medicare Advantage. This route affords access worldwide to urgent and emergency care through many Advantage Plans. But you have committed to spending most of your time outside the US and may have sold your home and even gotten residency status in Mexico – how does this work? Point 2 – Residency starts with a mailing address, and time away does not terminate residency According to Social Security : “Generally a U.S. mailing address indicates U.S. residency. (a) Absence from the U.S. (less than 6 months) with no intention of abandoning U.S. residency does not terminate or interrupt an individual’s period of U.S. residency. (b) Absence from the U.S. (more than 6 months) is not considered temporary unless there is a strong indication the individual is maintaining U.S. residency. Maintaining a house or apartment in the U.S., paying U.S. income taxes as a U.S. resident for the period while abroad, or other similar acts are indications of maintaining U.S. residency.” The definition of residency is a straightforward concept from Medicare’s point of view. They require a physical address (not a mailbox), but they must respect the lifestyle decisions of beneficiaries. Less than 6 months away – no problem. If you are away for more than 6 months, you should be able to produce convincing evidence of your continued residence. Social Security suggests that beneficiaries should have two or more of the following which they list as convincing evidence of residency in the US (Source here ) for SSI benefits and in cases where residency may be in question as referenced in Point 1) b. above for ET in excess of 6 months: Property, income or other tax forms or receipts, Proof of U.S. home ownership or rental lease or rent payment record, Utility bills addressed to the claimant, U.S. driver’s license, Telephone directory listing, Regular and frequent participation in social programs such as vocational rehabilitation, Meals on Wheels or evidence showing that the claimant regularly receives services from a social agency, Proof of employment, such as pay stubs or a contract, Proof of active participation in a religious, fraternal, or social organization, A record of volunteer activity that shows regular and frequent performance, Clinic cards or doctor’s record showing dates of visits for regular medical treatment, Proof of a local U.S. bank account or check-cashing card at a local establishment; and Correspondence addressed to the claimant. It is important that folks spending a lot of time outside their US residence consider the criteria carefully. Bank accounts, mailing addresses, state tax payments, vehicle registrations (including tax payments and insurance on the same), property ownership and annual doctor visits all count for evidence of residency – and you only really need two. Remember, Medicare does not require that you demonstrate home, hearth, and gardens – residency means something else. It is entirely a legal construct and should not be conflated with personal concepts of home. Be very careful when you pick a residence – be consistent and thoughtful in what you say and do. I was recently working with a client in Mexico who had put in place all of criteria necessary for a residence in the US, and then he told Social Security that he had moved OUS. The instant that you select moving offshore as your residence with Social Security, the US residency requirements change, and you may be required to take extra steps to re-establish residence. Point 3 – Advantage Plans offer the greatest potential for Extended Time OUS Many Advantage Plans offer worldwide urgent and emergent care benefits, subject to compliance with their residency requirements. Advantage plans are where residency really matters. Advantage plans cover limited geographic area – defined by zip code. They are designed for managed care provision within that geographic area and offer limited coverage outside the local home market (Home Market). All Advantage plans can be used anywhere inside the US for emergent care, and for additional cost in certain PPOs and related out-of-network plan options. Advantage plans are only available to residents inside their Home Market, and have networks created to serve residents in that market. Residency venue is critical for normal managed care delivery. All Advantage plans allow for a minimum of 6 months of continuous travel outside the Home Market. Recently we have seen some plans allow up to 12 months outside the Home Market as a plan feature. These limits come from the concept of moving outside the Home Market. If an Advantage Plan member moves out of their Home Market they must report the move to the Plan, and then can enroll in a new plan in their new Home Market (see point four below for more on this concept). Point 4 – Medicare treats extended travel like moving – with limits of 6 or 12 months Because Advantage plans are designed around local care delivery networks, moving out of the home area makes accessing this care very difficult. As an example, if you move out of your Home Market, or travel for over 6 months, then your Plan Sponsor is required to disenroll you – if you tell them or they find out from another source – typically a change reported to Social Security. They are under no obligation to monitor the beneficiaries’ whereabouts, and the beneficiary has no obligation to tell them. The disenrollment procedure is the same for a move or extended travel – the Plan decides that you have moved, gives you notice, and the beneficiary is then given a special enrollment period (SEP) to enroll in a new plan. There is no concept of retroactive disenrollment – the Plan must give notice and claims must be honored up to the point of disenrollment. There is no prohibition of “moving” back to the original Home Market or selecting a new venue. There are no penalties – after all the beneficiary simply moved according to Medicare’s rules. The system is designed to ensure that beneficiaries are not left without adequate coverage for moving – and travel. You can find the detailed regulations in the Federal Code of Regulations . Point 5 – Residency is both a requirement and an opportunity – include Medicare when choosing your retirement Residence Retirees in their Go-Go years have a chance to travel that they may not have enjoyed since college. Choice of residency impacts access to care, taxes, availability of Medicare Supplements and Advantage plans. As I pointed out in Medigap Plans – The 4 Things You Need to Know and 4 Things You Need to Know About Medicare Part C , availability and costs of Medicare Plans varies greatly by location. Access to plans means access to healthcare at reasonable costs – so include Medicare considerations when picking your residence for Medicare. Medicare conflates moving with travel away from your Home Market – and clearly moving may involve travel away from your Home Market. But they are not the same thing – and Medicare recognizes this fact. Moving will not invalidate claims for services prior to disenrollment, and there is an automatic SEP for dis-enrolled people, to ensure no break in coverage. Medicare Advantage Plans may conflate moving with time out of the Home Market, but the objective of the system is to get the beneficiary enrolled in a plan in their Home Market – not to deny care. All Advantage plans are designed around managed care on a local or regional basis. We are starting to see plans that offer a nationwide definition of Home Market, which we applaud. The amount of time that a beneficiary spends in their Home Market should be a decision left entirely up to them. Nationwide carriers and electronic networks to support them have obviated the concept of local venue being a requirement for successful managed care and make demonstrating being in the home market much easier. Finally, Medicare is a great benefit, and coming back to the US every 6 or 12 months makes sense to see your physicians and family. For many folks spending time in Mexico, they come back to the US once or twice every year anyway. If your lifestyle doesn’t include returning to the US, it still makes sense to keep your Part B unless you are certain that you are not coming back to the US.