2014 Third Quarter Economic Update and Medicare

The end of the third quarter of 2014 saw a divergence in growth in world economies. Growth in Europe has stalled and some countries are on the brink of a recession, implementing or expanding their own quantitative easing (QE) policies. The United Stated has a more stable outlook, QE3 is winding down and we seem to be finally inching towards the long and much anticipated first rate hike by the Fed. Earnings have strengthened but a more watchful approach to equities may be in order. After a prolonged bull market, equities have experienced great gains and may be fully or near fully valued. The current market can still deliver strong returns  but now may be the time to rebalance portfolios to ensure that accounts are on the more conservative side of their recommended asset allocation, which we are in the process of doing.

A number of clients have had questions about Medicare recently and I thought this quarter’s letter would be a great way to address this social insurance program. A national health insurance system was first presented in 1912 when Teddy Roosevelt ran for President. Many other presidents, including Harry Truman and JFK advocated for it. However, it wasn’t until 1965, under the leadership of Lyndon Johnson, that it became a reality. Prior to this, only 65% of Americans over age 65 could afford health insurance. Today, Medicare insures approximately 47 million Americans. It guarantees access to health insurance for all Americans age 65 and older who have worked and paid into the system, as well as younger Americans with disabilities.

The major parts of Medicare are:

  • Part A- covers hospital care and minimal nursing home care and home health care
  • Part B – covers medically necessary services, like lab work and preventive services
  • Part D – prescription coverage 

Medicare Part A is funded by a 2.9% payroll tax and the other components of Medicare, Parts B and D, are mainly funded by enrollees.

There are a few important enrollment periods for the various parts of Medicare and missing one may result in a lost opportunity to be insured, resulting in large and unexpected out-of-pocket expenses, not to mention lifelong penalties.

The Initial Enrollment Period (IEP) is the first opportunity that one can enroll in Medicare Parts A and B. For most people, this period begins 3 months prior to their 65th birthday and ends at the end of the third month after their 65th birthday. The sooner that you enroll, the sooner your benefits will begin. If you enroll 3 months prior to your birthday, coverage will begin on the first day of your birth month. If you wait until your birth month to enroll, coverage will begin on the first day of the month following your birth month. If you enroll during the month after your birth month, coverage begins 2 months after your birth month.

Jan        0

Feb        0

Mar        0

Apr         1

May         2

June        3

July Birthday

Aug         5

Sept         6

Oct        7

Nov          8

Dec         9

If you join during:

Three Months           BEFORE

Month      of

Three Months             AFTER

Missed      Enrollment Period

Most people who are eligible for Medicare should enroll during the IEP unless they qualify for a Special Enrollment Period (SEP). This would include workers covered under a group health plan who can enroll at any time for Medicare but within 8 months of employment ending.

For everyone else who is Medicare eligible but did not enroll in the IEP or SEP,  there is an opportunity to enroll in Parts A and B  during the General Enrollment Period (GEP) from January 1 through March 31 of each year. Coverage for Medicare would become effective on July 1 of the that year. There is a late enrollment penalty for those who wait for the GEP to enroll for coverage and that is a10% fee for each full year not covered by Medicare Part B. There is an additional penalty on Part D late coverage, which is 1% per month for every month without this coverage. Coverage also begins on July 1 of the year of enrollment.

Another penalty resulting from late enrollment concerns Medigap policies, which can be purchased WITHOUT underwriting, starting the month a person turns age 65 and enrolls in Medicare Part B. If this window is missed, one may be subject to underwriting.

Lastly, there is an Open Enrollment Period (OEP), which is an annual window from October 15 through December 7 when Medicare enrollees can make changes to their prescription or Medicare Advantage plans.

As always, if you have any questions or wish to discuss your portfolio, please contact our office.

Sincerely,

Olivia A. Mussett, CFP®