Medicare Supplement Insurance -- Part 1

Medicare supplement insurance -- What is it? Who needs it? When are you eligible for it? Where is it available? Why would you choose it? How much is it? I will answer these and many other questions about Medicare supplement insurance; but, first, we need a basic understanding of Medicare.

Understanding the basics of Medicare requires answering four questions:

1. What does Medicare alone cover?
2. More importantly, what does it not cover?
3. What solutions are available?
4. How can Medicare supplement insurance fill your insurance needs?

Original Medicare is divided into two parts. Part A is hospital insurance and covers some of the costs associated with stays in a hospital or a skilled nursing facility. When you are hospitalized between 1 and 60 days you pay a deductible and then Medicare covers most other costs. Currently, the deductible is $1,068.00; but it usually increases every year. Additionally, this is not an annual deductible like most private health plans. Thanks to Medicare's rather unusual "flexible benefit period" you could very well find yourself paying your deductible up to five times a year.

When you are hospitalized between 61 and 90 days you pay a daily copayment and then Medicare covers most other costs. Currently, this copayment is $267.00 per day or as much as $8,010.00 for the period; but it usually increases every year. When you are hospitalized between 91 and 150 days you pay an even higher daily copayment and then Medicare covers most other costs. Currently, this higher copayment is $534.00 per day or as much as $32,040.00 for the period; but it, too, usually increases every year. When you are hospitalized for 151 or more days you pay all costs for each and every day and Medicare covers nothing.

Medicare will cover some of the costs for skilled nursing care if you meet the following requirements:

1. You are hospitalized for at least 3 days.
2. You enter a Medicare-approved facility within 30 days after your discharge from the hospital.
3. You are receiving skilled nursing care, which requires that you are measurably recovering.

Assuming you meet the above three requirements, when you enter a skilled nursing facility for between 1 and 20 days Medicare covers all eligible expenses. When you enter a skilled nursing facility for between 21 and 100 days you pay a daily copayment and then Medicare covers most other costs. Currently, the copayment is $133.50 per day or as much as $10,800.00 for the period; but it usually increases every year. When you enter a skilled nursing facility for 101 or more days you pay all costs for each and every day and Medicare covers nothing.

The second part of original Medicare is Part B. Part B is medical insurance and covers some of the costs associated with physician services, outpatient care, and tests and supplies. When you incur medical expenses you pay an annual deductible, which is currently $135.00, and usually 20% of the approved charges although there are some exceptions to this arrangement. For instance, when you incur expenses for blood transfusions you pay entirely for the first 3 pints and then 20% of the approved amount for any additional pints. Finally, you pay all excess charges if your healthcare provider does not accept assignment. Approved charges, excess charges, assignment? Perhaps an example would best clarify these terms and reveal how they could affect you.

Let's say your healthcare provider billed you $10,000.00 for medical services. Medicare has its own schedule of approved charges for the medical services that it covers. After reviewing the services that you received, let's say that Medicare approves $6,000.00. For simplicity's sake, let's say you previously payed your $135.00 annual deductible; so it is not a factor here. Also, let's assume that your medical services did not include blood or other exceptions to the usual 80% / 20% arrangement.

In this example $6,000.00 is the Medicare approved amount. Medicare will pay 80% of the $6,000.00 or $4,800.00. You will pay 20% of the $6,000.00 or $1,200.00. If your healthcare provider accepts assignment, then it agrees to ignore the remaining $4,000.00 originally billed. If your healthcare provider does not accept assignment, then according to Medicare it may bill you up to 15% of the total approved charges or $6,000.00 in this example. The 15% of the $6,000.00 or $900.00 is the excess charge in this example. Naturally, Medicare does not cover excess charges; so you pay the entire amount. This would almost double your bill from $1,200.00 to $2,100.00, which makes sense when you consider that you would be paying 35% of the approved charges instead of 20% of them.

Hopefully, you now have a basic understanding of original Medicare and are more aware of what it does and does not cover. Next time we will review Medicare supplement insurance to see how it fills the gaps in original Medicare and protects you from the many costs that original Medicare does not cover. As always, feel free to post or e-mail any comments or questions that you may have.

Is Your Emergency Fund Adequate?

Is your emergency fund adequate? Do you even have an emergency fund? Perhaps your emergency fund is adequate to pay your living expenses for a few months or replace a faulty water heater, but what if you had a major medical emergency?

If you think the most expensive thing that could happen to you is your funeral, then you need to think again. A critical illness such as cancer, stroke, or heart attack can make funeral expenses seem like chump-change. But wait! You have your health insurance, so you'll be fine -- right?

Of course, your health insurance will (hopefully) cover most of your medical expenses. However, those who have gone through a critical illness will testify that many of their costs were not covered because they were not strictly medical. Aside from deductibles and co-insurance, there is loss of income while you are not able to work, travel expenses to get to specialty treatment centers, and even hotel bills. In fact, one study revealed that 65% of cancer patients' expenses were not medical and therefore not covered by their health insurance.

The good news is that supplemental health plans that protect against such costs are readily available and inexpensive. For example, you would likely be able to give yourself or a loved one $10,000 worth of protection for approximately $3 to $30 per month depending on your or their age and the plan. Often you can select higher amounts of coverage such as $30,000 or $50,000.

Another great feature of these plans is that the underwriting is extremely simple. Generally speaking, if you have not already been diagnosed with cancer or a critical illness, then you are eligible for the coverage.

These plans generally pay the benefit amount directly to you upon first diagnosis of a critical illness so that you can use the funds as you see fit. This means you can use the money to pay deductibles, co-insurance, rent or mortgage, grocery bills, or for that exotic vacation you always wanted.

Finally, if you purchase such a plan on your own, then your coverage will be portable. If you change jobs or move, then you can keep your plans to supplement your new health insurance. Even if you are without conventional health insurance, these plans are an inexpensive way to protect yourself against the most expensive illnesses you are likely to experience.

Affordable Health Plans?

Affordable health plans? Is this an oxymoron? The answer to that question may surprise you. For years larger companies have been cutting back on employee benefits such as health care by seeking out plans with less coverage and by shifting more of the premium costs onto the employees. Small businesses have always struggled with this issue and frequently provide no health plan for either the employees or even the owners.

Whether you are employed in a small business, receiving (and paying for) COBRA, or are struggling to pay your ever-increasing part of the health plan provided by your employer, you are no doubt painfully aware of the high costs of maintaining your major medical insurance. For those paying the premiums the cost usually begins around $500 per month and can swell to $1,200 or more per month depending on the specifics of your coverage.

However, you have options other than major medical insurance. For instance, an individual could apply for a hospitalization plan for a monthly premium of about $70 to $300 depending on the specifics of his or her coverage. Usually, the deductible is around $500, which is far less than most major medical plans. Also, most hospitalization plans follow the 80% coverage and 20% coinsurance model that is common in major medical insurance.

Another advantage of many hospitalization plans is their portability. This is coverage you can take with you no matter what changes occur in your employment or residence. Generally, you can visit any hospital or doctor without worrying about referrals or networks. For most plans, the only limitation is regarding coverage outside the United States.

So what's the catch? There are basically two trade-offs between major medical insurance and individual hospitalization plans. The first is medical underwriting. If you are in a group health plan through your employer, then you should realize that you were not required to answer any medical questions to apply for coverage. Individual plans, whether major medical or hospitalization, require medical underwriting.

Of course, this means that not everyone can qualify for coverage. However, the absolutely salient point is that many people do. Unfortunately, it is beyond the scope of this post to review the medical questions for all the hospitalization plans available. But if you would like to find out if you qualify, then contact your health insurance agent and ask. If you live in the Carolinas, then feel free to e-mail me and we'll get together to review your situation.

The second trade-off is limits in coverage. For instance, many major medical plans will pay out life-time benefits up to $1 million or more. Most hospitalization plans limit coverage to a yearly amount such as $50,000 or $100,000. Others place a limit such as $50,000 or $100,000 for each injury or illness, which is obviously better coverage than a yearly limit.

For your information, studies have revealed that most people spend less than $5,000 per year for medical services (which is less than most major medical premiums) and only about 1% spend more than $50,000. For those spending more than $50,000, a large percentage are due to strokes, heart attacks, and cancer. The good news is that these and similar illnesses can be covered through extremely affordable (i.e. $3 -- $30 / mo.) health plan supplements -- more on those later.

In closing, here are a few tips. First, never cancel your existing insurance until your new plan is issued. This will usually occur between 2 to 4 weeks after you applied. Second, save yourself some money on the premiums by finding a flexible plan. This will allow you to get the coverage where you want it without a bunch of extra bells and whistles that you don't need to buy.

Third, make sure that your plan is guaranteed renewable. This means that your plan can never be cancelled (no matter how much you use it, your health conditions, or your age) as long as you pay the premiums. Fourth, try to find a policy that is age-issued. This means that you pay the rate for the your age when you first buy the plan. On these type of plans your rate will not increase because you get older.

Fifth, if at first you don't succeed; try, try again. All companies do not use the same underwriting. Even though you may not qualify with one insurer, you may with another. Finally, choose a company and an agent you are comfortable with. Ratings companies such as A.M. Best will tell you which companies are financially sound. As you meet with an agent, you will get a good idea of the agent's and the company's philosophy of customer service.

Choosing Long Term Care Insurance -- Part 2

In the last post we reviewed the basics of how most Long Term Care policies work and discovered how to select your level of coverage. In this post we will briefly visit some of the riders that are typically available and how they enhance the basic Long Term Care plan.

The first and most important rider you should consider is one for inflation protection. Generally, inflation protection comes in one of three forms -- future purchase options (FPOs), simple interest, or compound interest.

FPOs essentially guarantee you the right to purchase more Long Term Care coverage (usually by increasing the daily or monthly benefit a specified amount) down the road at specified intervals such as 5 or 10 years after the original plan was purchased. FPOs are attractive because they add little or no cost when the original plan is issued. However, they do have some disadvantages.

For one thing, FPOs are all or nothing. If you have the option to buy more coverage in 10 years, but you end up using the plan in 9 1/2 years; then you will most likely not be eligible to get more protection even though you will likely need it due to inflation. Also, if you decide not to purchase additional coverage at the FPO date (i.e. 10 years); then you will not usually still have that option at a later date (i.e. 12 years).

Secondly, FPOs tend not to keep up with inflation over the long run even for those who buy more coverage at every opportunity. This is because FPOs offer limited buying opportunities such as an additional $10,000 per year perhaps once in 5 or 10 years.

Lastly, in the long run FPOs often end up being more expensive than other forms of inflation protection because although you are guaranteed the right to purchase more coverage, the rates for that coverage will usually be based on your age at the FPO date and not the original plan's date.

The other common strategy to deal with inflation of Long Term Care costs is to add a rider that enables your benefit amount to accrue interest. Basically, there are two factors two consider: first, what is the rider's interest rate (typically 2% to 5%); and second, is the interest simple or compound.

Obviously, the higher the interest rate, the more coverage you will have available as time passes. Based on Long Term Care costs' past inflation rates, I would recommend that an interest rider's rate be approximately 5%. Although you might want to select a lower interest rate or no inflation protection at all depending individual factors such as your age or types of costs you are insuring against, you should be well informed about the risks you are assuming before doing this.

Simple or compound interest? Simple interest accrues only on the principle amount of the plan. For instance, if your plan gives you $100,000 of protection and you select a 5% simple interest rider, then you will accrue $5,000 more protection (5% of $100,000) each and every year no matter what your accumulated total is.

On the positive side, simple interest riders are usually less expensive than compound ones and the amount of protection they give generally keeps up with inflation for the first few years. However, over time simple interest riders tend to lag behind the inflation in costs because this inflation is compound in nature.

True inflation is compound, and for this reason a compound interest rider is the only true form of protection against inflation in the long run. A 5% compound interest rider on $100,000 would give 5% more protection on the accumulated total each year. This means that there is no difference in the protection afforded between simple and compound plans after the first year, but for each successive year the compound plan will grow increasingly greater than the simple plan.

Many people believe that inflation protection is unnecessary. However, you should keep in mind that today's Long Term Care costs of about $160 per day are likely to amount to approximately $650 per day in 30 years. If you do not want to pay for the relatively inexpensive inflation rider now, you may find yourself paying a whole lot more later to make up the difference between what your plan pays and what your actual expenses are.

Another feature or rider on many Long Term Care plans is waiver of premium. This means that your premium may stop during a claim. Although there may be a fairly brief waiting period such as 90 days, the general benefit is that while your plan is paying for your Long Term Care costs you are not having to pay your premiums. This feature or rider will free up more money for you while you receive Long Term Care.

Another feature or rider of most plans is the types of care the insurance covers. You want a plan that covers as much as possible. For instance, you should make sure that your policy pays for care not only at nursing homes but also at assisted living facilities, adult day care, home health care, and respite care. This feature permits you and your loved-ones the most choices for your care and will maintain your coverage if your needs change.

Additionally, you should try to secure a plan that includes an alternate plan of care provision so that it will cover innovations in Long Term Care that may not be specifically listed in your policy. Also, you may want to consider a plan that includes a bed reservation feature so that you will not loose your nursing home bed if you leave the home to visit family or for a hospital stay. Finally, you should select a plan that is guaranteed renewable. This means that your plan can never be cancelled no matter your age or your use of the insurance as long as you pay the premiums.

Choosing Long Term Care Insurance -- Part 1

During the course of our myth-busting we have seen that Long Term Care is very expensive, is very likely to be needed, is not covered by other types of insurance, and strains family relationships. So, if you are choosing a Long Term Care policy, then which one is right for you?

Selecting Long Term Care Insurance may affect your and your family's future more than any other single decision you will make. Also, the process can be complicated at times; so don't go it alone. Just as you would seek an attorney's assistance to draft a will, you should seek out a licensed insurance agent who is trained in Long Term Care when you are considering such insurance. Finally, you should ask loved-ones or family members to be present with you while you consider your options.

The key to selecting the best Long Term Care Insurance for you is the policy's benefits. Your health insurance likely has a deductible. Usually the higher the deductible the lower your premiums. Most Long Term Care Insurance has a deductible in the form of time called a waiting period. A waiting period is the number of days you will pay (or wait) before the plan begins paying.

For instance, if your doctor certifies that you will need Long Term Care on April 1st and your policy has a 30-day waiting period, then your plan would not start paying towards your Long Term Care costs until on or about May 1st. Although longer waiting periods will reduce your premiums, you should do your best to ensure that you can afford to pay for your Long Term Care out of your pocket before your insurance begins coverage.

Although your personal situation and expectations should be taken into consideration, I would recommend the following waiting periods as a general guideline based on your total assets not including your primary residence and primary automobile:

• If your assets are less than $100,000, then select a waiting period of 30 days or less.
• If your assets are between $100,000 & $500,000, then select a waiting period between 60 & 90 days.
• If your assets are more than $500,000, then select a waiting period of 100 days or more.

Another decision to make regarding Long Term Care Insurance is the daily or monthly benefit, which is the amount of money the policy will pay each day or month that you need Long Term Care. For instance, if you were drafting a plan in the Carolinas to pay for either round-the-clock care in a nursing home or approximately 10 hours per day of home health care, then you would want a daily benefit of about $160 or a monthly benefit of about $5,000. Your daily or monthly benefit may need to be adjusted higher or lower depending on where you live, your preferences regarding your care, or if you have other means to pay for care.

Closely related factors are your benefit period and benefit maximum. Benefit period refers to the length of time you can receive benefits, and benefit maximum refers to the amount of money you have for benefits. The majority of people receiving Long Term Care will need it between 6 months and 5 years. Most of these will receive care from 1 to 3 years.

For example, if your policy's benefit period is 60 months or 1,825 days and your benefit amount is $5,000 per month or $160 per day, then your benefit maximum would be approximately $300,000. Depending on the specific details of your plan, your coverage may end either when your benefit period ends or when your benefit maximum is spent.

Personally, I would prefer a policy that pays until the benefit maximum is reached. Let's say that you have the above policy but your care only costs $80 per day instead of the anticipated $160 per day. If your policy ends with your benefit period, then after 60 months your coverage ends even though it only paid out half of what it was worth. On the other hand if your plan doesn't end until your benefit maximum is spent, then it essentially creates a bucket of money ($300,000) to draw from. Although at $160 per day it would be exhausted in 60 months, if your care only costs $80 per day, then it would last 120 months.

Got Long Term Care Insurance?

Got Long Term Care Insurance? The fourth myth of Long Term Care Insurance is that you already have it. Now don't get me wrong, if you have an actual Long Term Care policy in force, then you have at least some coverage. However, many people mistakenly believe that they have coverage through some other means.

Part of the confusion arises from the distinction (or lack thereof) between skilled care and Long Term Care. Both skilled care and Long Term Care can occur either in a nursing home or at home. However, skilled care such as short-term IVs, physical therapy, speech therapy, and dressing a pressure ulcer are usually covered to some degree by health insurance. On the other hand, Long Term Care such as oxygen therapy for an emphysema patient, catheter maintenance, colostomy drain, and help with the activities of daily living (bathing, dressing, etc.) are usually not covered by health insurance.

The key difference between skilled care and Long Term Care is whether or not the patient is making progress in his or her recovery. Generally speaking, once a treatment becomes necessary to maintain care for a chronic condition, then the patient is receiving Long Term Care and the patient's health insurance will usually stop paying.

Even if the treatment is considered skilled care, there is usually a limit to how long a health plan will pay. For instance, Medicare will currently pay the approved charges for skilled care for 20 days. After that Medicare will continue to pay a portion of the approved charges for skilled care, but the patient will be responsible for a co-pay (currently $133.50 per day) for days 21 -- 100. After 100 days Medicare ceases to provide any coverage for skilled care.

Unfortunately, Medicare is not alone in lacking coverage for Long Term Care. Some of the other plans that provide no coverage for Long Term Care include group and individual health plans, retiree health plans, Medicare Advantage and Medicare Supplement plans, and disability insurance.

What about Medicaid? Medicaid is the usual name for a program jointly administered by the federal and state governments to help the indigent. As far as Long Term Care is concerned, Medicaid has several limitations that may reveal it is not a good option (or not an option at all) for you.

First, you must qualify for Medicaid by having a limited income and below approximately $2,000 in assets. Second, Medicaid will conduct a look back audit (currently 5 years) to ensure that you have not transferred assets to others in order to qualify for Medicaid. Third, if Medicaid finds that you have transferred assets, then it will assess a penalty of time during which it will not pay your Long Term Care costs. There is no cap on these penalty periods. Fourth, assuming you qualify for help from Medicaid your choices for Long Term Care will be limited. For instance, under Medicaid you may not have the option to receive Long Term Care at home, or reside in the nursing home of your choice, or reside in the same facility as your spouse. Fifth, if you receive help from Medicaid for your Long Term Care costs, then upon your decease there is a mandated estate recovery. This means that Medicaid will draw on your estate to reimburse their expenses for your Long Term Care.

Fortunately, you can avoid all of the above limitations and the costs of Long Term Care by insuring against it. If you have already secured a Long Term Care policy, then congratulations! My only advice to you is to make sure you have enough coverage especially if your plan does not include an inflation rider. Keep in mind that a month of Long Term Care that costs $4,500 today will likely run about $12,000 per month in 20 years.

Long Term Care Insurance Is Too Expensive

Long Term Care Insurance is too expensive. The third myth of Long Term Care is that the insurance is not affordable. The truth is that Long Term Care is not affordable.

According to Genworth Financial's Cost of Care Survey published in March of 2006 the following were the national averages for Long Term Care costs:

• $18 per hour (or $180 per 10-hour shift) for home health aide


• $62 per day (or $22,500 per year) for adult day care


• $2,900 per month (or $34,000 per year) for assisted living


• $170 per day (or $62,000 per year) for a semi-private room in a nursing home


• $194 per day (or $70,000 per year) for a private room in a nursing home

A similar picture is painted in Genworth Financial's Cost of Care Survey published in April of 2008. The following are the average Long Term Care costs in South Carolina:

• $17 per hour (or $170 per 10-hour shift) for home health aide


• $2,669 per month (or $32,028 per year) for assisted living


• $149 per day (or $54,385 per year) for a semi-private room in a nursing home


• $158 per day (or $57,670 per year) for a private room in a nursing home

So who is paying these costs? According to Centers for Medicare and Medicaid Services 2004 Statistics published in January of 2006, only 9% is paid by private insurance and 22% is paid out of pocket. Why would someone pay for Long Term Care out of pocket when they could insure against its costs? Some people do not realize that there is Long Term Care Insurance. Others wait until they need the coverage but no longer qualify medically. Some folks mistakenly believe that they already have coverage through Medicare, their health plan, or their disability insurance.

Of course, a few acknowledge the risk and expense and are trying to save or invest to meet their anticipated Long Term Care costs. However, consider that according to American Council of Life Insurance projections published in June of 2003 although the average nursing home cost was $54,998.20 per year in 2003, it will rise to more than $200,000 per year by 2030. Some experts predict that baby boomers should expect to spend between $750,000 & $1,250,000 for 3 to 5 years of Long Term Care 30 years down the road.

The question is even if you could save the money to pay for Long Term Care costs, is that really want you want to do with the assets you have accumulated over a lifetime when you could instead insure against the same risk for pennies on the dollar? This is the reason why many who have the wealth to pay for their own Long Term Care costs purchase Long Term Care Insurance. The wealthy understand that one increases wealth by spending as little of their own money as possible while still avoiding likely or costly risks.

In the end you have to ask yourself, "Can I afford not to invest in Long Term Care Insurance?" Some companies have made it easier, too, by offering discounted rates for those who are married or those willing to pay annually. Additionally, many companies are now offering plans that allow you to select the level of coverage you desire or can afford. Let's face it, even if you can only afford to protect half your assets, then you are still protecting half your assets!