Medicare becoming a bigger piece of retirement planning for advisers

With regulatory and marketplace changes, more clients need help navigating Medicare maze.

May 5, 2015 by Darla Mercado

Expect to make Medicare a bigger part of the work you do for retiring clients.

That's because Medicare is becoming a bigger part of retirement planning at a time when health care costs are rising and employers are turning their retirees toward marketplaces as a way to obtain coverage in lieu of providing retiree health care benefits, health care consultant Katy Votava, president of, said Tuesday at InvestmentNews' Retirement Income Summit in Chicago.

Now it's up to the adviser to guide the client through the Medicare maze.

“Health care isn't optional, and it's not planned for properly,” Ms. Votava said. “Your clients will be thrilled that you helped them with it.


Ms. Votava estimated that 90% to 95% of people overspend on Medicare, but advisers can help clients curb those expenses. For one thing, advisers can budget routine healthcare into the retirement plan, using an inflation rate of 6% to 7%.

They also need to manage clients' income in retirement to ensure they don't inflate their modified adjusted gross income — the key figure used to determine how much clients will pay for Medicare Part B medical insurance and Part D prescription coverage.

(More: Stop guesstimating, or worse, ignoring, your clients' health care costs in retirement)

Advisers must familiarize themselves with the brackets used to determine modified adjusted gross income (MAGI) for Medicare purposes. It's based on a client's Form 1040 from two years before he or she starts paying premiums. In order to calculate the MAGI for Medicare, you have to add the adjusted gross income (line 37 on the 1040) and tax-exempt interest (line 8b on the 1040).

Below are the MAGI brackets for Medicare premiums paid in 2017 and based on 2015's income tax returns.

To make things even more interesting, a new “Doc-Fix” law will change the MAGI cliff brackets in 2018, reducing the income threshold for higher-income individuals so that they pay more for Medicare.

That same law will eliminate the most comprehensive Medigap program, known as Medigap F, in 2020.
Below are Ms. Votava's updated Medicare MAGI brackets after the “Doc-Fix.”


Aside from managing clients' MAGI, advisers can also help them avoid Medicare penalties by ensuring they enroll on time. The best way to do that is to sign up for Medicare three months before turning 65. If one enrolls a month after turning 65, coverage begins two months after enrollment. Once that window closes, clients miss their opportunity and they'll have to apply the following year.

Be aware that Medicare penalties for failure to apply in a timely manner are forever: Medicare Part B carries a penalty of 10% per year, and Medicare Part D has a 12% penalty each year.

Advisers can also help clients put their coverage together to help them save. Consider all of the options that are on the table, said Ms. Votava. For instance, clients can save on health care if they're veterans. Federal retirees can also save on health care benefits.

It'll help to broaden your networks, too.

“Find people who are Medicare brokers,” Ms. Votava said, “they can be very helpful.”

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