The Basics of Medicare

Medicare’s Annual Enrollment Period (AEP)

October 15 – December 7th  2011 is Medicare’s AEP.  If you feel like you’re seeing a lot of Medicare commercials on TV right now…well you are…and AEP is the reason.  During AEP all individuals already on Medicare should review their current plan to make sure it still fits their needs and they have the opportunity to make certain changes during this time.

The following is a brief primer on Medicare that should help you better understand its parts so that you can make an informed decision.  There is an outstanding publication put out by CMS called Medicare and You 2012 (used as a reference for this article), please refer to this publication for more information.  There are many “moving” parts to Medicare and it can get complicated with exceptions, special time frames, etc. – the brief primer below is not all encompassing but meant as a starting point.

Let’s starts with the different parts of Medicare.

Part A (Hospital Insurance)

Helps cover inpatient care in hospitals as well as skilled nursing facilities, hospice and some home health care.  Medicare Part A covers approx. 80% of costs – unless you purchase a supplement or choose a Medicare Advantage program you will be responsible for the remainder of the costs with no maximum out of pocket in any given year.  Most people receive Part A at no charge if they are over 65 years of age (or disabled), are a legal resident or citizen and either you or your spouse have worked in Medicare-covered employment for at least 10 years.  If you aren’t eligible for free Part A, it can be purchased.

Part B (Medical Insurance)

Helps cover doctors’ and other health care providers’ services, outpatient care, durable medical equipment and some home health care.  Includes some preventative services to help maintain your health and to keep certain illnesses from getting worse.  Part B also covers approx. 80% of costs – and here again you have the option to purchase a supplement or choose a Medicare Advantage program to help limit your out of pocket costs.  You must pay a monthly premium for Part B.

An advantage of Original Medicare (Parts A & B) is that you can choose any provider in the US who accepts Medicare and you are not limited to a specific doctor (like HMO) or geographic region.  A disadvantage could be the co-insurance amounts that are associated with Original Medicare.  If you have a major illness, 20% could be a large amount.

Part C (also known as Medicare Advantage)

Offers health plan options run by Medicare-approved private insurance companies. Medicare Advantage Plans are a way to get the benefits and services covered under Part A and Part B.  Most Medicare Advantage Plans also cover Medicare prescription drug coverage (Part D).  It is important to note with these plans that many are HMO and you must select a preferred provider and get referrals to see a specialist.  There are a few PPO Medicare Advantage plans, but again it is important to stay within the plans network of providers. There are plans with $0 premiums and others with modest premiums.  These plans will help you limit your out-of-pocket costs in any given year with predictable co-pays. 

You must continue to pay your Part B premium, even if you sign up for a Medicare Advantage plan.

Part D (Medicare Prescription Drug Coverage)

Helps cover the cost of prescription drugs (generally not covered under Original Medicare) and may help lower your prescription drug costs with known, negotiated drug costs.  Part D plans are run by Medicare-approved private insurance companies. Part D plans are usually purchased by those with Original Medicare (Parts A & B), often in conjunction with a Medicare Supplement.

Medicare Supplements

Helps pay for health care costs not covered by Original Medicare (Parts A & B).  This is a good option for those who want the freedom to see any Medicare approved health care professional and want protection against the unknown coinsurance amounts that can be associated with Original Medicare.  There are several plan options that are offered by all carriers that do supplements.  While the plan structures are the same from carrier to carrier, the costs may differ.  There is a known monthly premium for supplement plans. 

The best time to sign-up for a Medicare Supplement plans is when you are first eligible (within 6 months of turning 65 and enrolled in Part B).  During the initial eligibility period there is guaranteed issue – meaning you cannot be turned down regardless of your medical history.  After the initial eligibility period, your health history will be reviewed to see if you’re eligible for the plan you selected.

When to sign-up

There are many rules with regards to eligibility periods.  Initially is important to review your options when you are approaching your 65th birthday.  Your initial enrollment period is for three months before your birthday month, your birthday month and the three months after your 65th birthday.  There are penalties for signing up for Part B and D late (if you don’t have other coverage such as employer sponsored health coverage).

In addition to your initial enrollment period there are several special timeframes – but the Annual Enrollment Period is always a good time to make changes from Original Medicare to a Medicare Advantage Plan (or vice versa).

It can get complicated!  There are many rules and exceptions…this is just a brief primer here.  If you’d like to learn more please don’t hesitate to call us.   We are authorized to represent a full line of Medicare products from Medicare Supplements, Drug Plans and Medicare Advantage products.

Sansevieri Insurance Services

949-722-6078

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Medical Cost Trends and Health Insurance

 The following material is pulled from an Anthem information piece “2010 medical cost trends”…we’re publishing here in our blog as our health insurance clients are concerned about rising health care costs.  While this information will not change the fact that insurance rates are rising, we hope that it will at least help you understand why.  This will be a two part blog with part one being examining why costs are increasing and part two discussing where the money goes, profit margins in the industry and specific programs that Anthem offers to help reduce medical costs.  From here on out is the Anthem material.

“Why are rates rising?

The cost of health care is a significant issue for businesses, employees and health insurers.  In 2008, national spending on health care reached $2.3 trillion.  Many factors contributed to this growth.ⁱ 

Factors that drive higher treatment costs:

  • Medical price inflation is driving 51% of the growth in health care spending.²
  • Doctors in the U.S. earn two to three times as much as other industrialized countries.
  • More physicians are becoming specialists, and specialist charge up to twice as much.
  • Between 1997 and 2006, compensation increased 97% for dermatologists, 78% for gastroenterologists and 65% for radiologists.³
  • The latest in medical technology may lead to improved care, but its contribution to health care spending growth ranges from 38% to 65%.⁴

Prescription drug costs and utilization:⁵

  • Between 1997 and 2007, prices for prescription drugs grew at an average rate of two-and-a-half time’s inflation.
  • Specialty drugs can save and extend lives, but can be expensive.  A new cancer drug can cost $100,000 or more per treatment regimen.
  • Half of all adults in the U.S. take at least one drug a day.
  • 7% of all adults in the U.S. take at least five drugs a day.
  • 2/3 of people who go into a doctor’s office walk out with a prescription. 

Cost shifting

  • Government programs – such as Medicaid, SCHIP, and Medicare – pay physicians and hospitals lower rates than private insurers.
  • Providers adjust prices charged to insurers to offset losses from partial or non-payers.
  • A Milliman study found cost shifting represents 15% of the amount spent by commercial payers to hospitals and physicians

Health care fraud and abuse:

  • According to the National Health Care Anti-Fraud Association, health care fraud is a growing problem that is estimated to cost $69 billion.  This translates to $100 million per day, making health care more expensive for all.
  • Health care fraud accounted for 5% of the $1.9 trillion spent on health care in 2004. 

Other factors:

  • Variation in medical treatment – According to a RAND Corporation study, up to 30% of health care spending goes toward redundant or inappropriate care.⁶
  • Adverse selection – Healthier individuals and groups dropping coverage or reducing the level of coverage, particularly in a challenging economy, result in higher premiums for those who remain.
  • Government taxes and mandates – This may also increase the overall cost of coverage.

Lifestyle factors⁷

Multiple chronic health conditions:

  • Chronic disease accounts for about 75% of the more than $2 trillion spent on health care yearly in the U.S.
  • 80% of seniors have at least one chronic condition.
  • 50% of seniors have at least two chronic conditions.
  • In 1996, 7% of Americans had more than three chronic conditions.  In 2005, the percentage rose to 13%.
    • For ages 45-64, it went from 13% to 22%
    • For ages 65-79, it went up to 45%
    • For ages 80 and older, it went from 38% to 54%.

Preventable risk factors:⁸

  • Obesity – 10% of total claims are directly attributable to obesity.
  • Tobacco use – 25% of American smoke and 10% of total claims costs are directly attributable to smoking
  • Sedentary lifestyle – 60% of Americans don’t exercise and only 3% follow basic wellness goals.
  • Poor nutrition – 60% of Americans exceed their ideal body mass index (BMI).” 

I hope you found this as interesting as I did….I found some aspects that I could really relate to, other aspects that left me wondering.  Next week we’ll continue the article with where does the money go and the average profit margins on health care insurance.  In addition, Anthem has a number of programs that we’ll quickly look at that help to control costs while providing superior care.

1   CMS National Health Expenditure Data, “National Health Expenditures 2008 Highlights.”

2   California Healthcare Foundation

3   BlueCross Blue Shield Association, “Physician Compensation by Selected Specialty, 2007”.  2008 Medical Cost Reference Guide: Facts and Trends Driving Healthcare Costs, Quality and Access.

4    Newhouse, JP “Medical Care Costs” and The Robert Wood Johnson Foundation.

5    Kaiser Family Foundation & Sonderegger Research Center: “Prescription Drug Trends”  A Chartbook Update, November 2006; Blue Cross Blue Shield Association.

6     Fisher, E., Wennberg, D., et al., The Implications of Regional Variations in Medicare Spending: Part 2, Helth Outcomes and Satisfaction with Care”, Annals of Internal Medicine 2003; 138:288-98

7    Reuters: “More Americans Getting Multiple Chronic Illinesses,” 2009.

8     Thorpe, et al, Health Affairs, June 2005.

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Life Insurance – Common Mistakes People Make

Welcome to the third and final installment on this article regarding Life Insurance.  Here we will discuss several of the common mistakes people make when dealing with Life Insurance. 

Coming up with a life insurance amount “out of the blue” and therefore underestimating life insurance needs. 

  • See how to determine your life insurance needs above
  • Don’t forget to include the value of a non-working spouse – most people don’t understand the impact of what a stay-at-home spouse saves a family.  It has been estimated that it takes about $117,000 a year to replace that person if there are children in the home.
  • If you can’t afford the amount you believe you need right now, that is okay…you can purchase a lesser amount and if your financial situation changes you can re-evaluate and determine if you would like to increase at a later date.

 

Forgetting to update a policy – you should check your policy every three years.

  • Major life events, such as the girth of a child, marriage or divorce, usually mean it’s time to update your insurance policy. 
  • An astounding number of policies are payable to ex-spouses or others whom the insured would not have wanted to receive the proceeds.  Children born after a policy was purchased are often inadvertently omitted.  Sometimes, the person named is long deceased.

 

Allowing Cash Value policies (e.g. Whole Life and Universal Life) – to lapse and/or not understanding their terms and payout conditions.

  • A 2009 report from LIMRA shows that close to 29% of Whole Life policies lapse in the first three years.  With early lapse dates you will NOT receive the cash accumulation benefits that Whole Life and Universal Life offers – and will be paying significantly more for these policies (vs. Term Insurance).
  • Some cash-value life products can be complicated….while they may be the best product for your needs it is always dangerous to purchase a policy that you don’t understand.

 

Not naming at least 2 “backup” beneficiaries or naming your estate as your beneficiary.

  • Naming an estate as beneficiary of life insurance typically dooms the proceeds to needless state inheritance taxes or to a higher rate than if the proceeds were payable to a named beneficiary.
  • Creating a trust as the owner, payor and beneficiary will also cause delay and potential estate tax issues, again it is best to have a named beneficiary.
  • If your beneficiary dies before you do, even if only by minutes, and no change is made to your policy’s beneficiary designation, the proceeds will be paid to your estate.  This would subject the proceeds to issues noted in the bullet above.

 Thanks for joining us on this Life Insurance journey.  At Sansevieri Insurance Services we will help you through the process and shop your Life Insurance needs with multiple carriers.  We work with only carriers rated Secure by A.M. Best and usually those with financial strength ratings of A, A-, A+ and A++.  You will have the choice to go with a nationally recognized carrier, or a less well known carrier that still has a strong financial rating.

Life insurance is a long-term proposition so you should pay particular attention at the time of purchase and throughout the life of the policy.  While you may be afraid of making a bad decision, know that failing to buy life insurance at all can be one of the most costly mistakes you can make for your family.  Work with your agent, don’t be afraid to ask plenty of questions, and then purchase an appropriate type of policy that you can afford.  We’re here to help!

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Life Insurance – The Process of Buying

Welcome to part 2 of our 3 part series on Life Insurance.

If you didn’t have the chance to read Part 1, you may want to scroll down in the blog and start from the beginning.  Okay…here we go.

How to determine your life insurance needs.

Many people pick a number out of the air… and while some insurance is better than no insurance, the best way to proceed is to determine a target amount that correlates to your individual situation.  If you cannot afford that amount, then adjust it accordingly…still you will have a better understanding of your needs and as your situation changes may be able to adjust your coverage at a later date.  You will want to do a quick calculation taking into consideration the following:

  • Annual income (and don’t forget if buying for a couple to add an amount for a stay at home spouse)
  • Debt

Mortgage payoff amount

Cars

Credit Cards

Outstanding loans and general debt

  • College tuition – do you have kids that you want to pay their college tuition?

Public or private university

Estimated annual tuition

Number of children and the number of years till they enter college

  • Liquid assets – how much cash is currently available (without having to sell the home)
  • Current insurance – do you have any life insurance through work or other existing policies

 

The process of purchasing life insurance

The process can be paper intensive, time consuming and seem invasive – know that it may take up to 30-45 days.  A face-to-face paramedical exam is generally required for policies in excess of $100,000, which means at a minimum, giving both blood and urine samples to a paramedical professional.

Expect questions in detail regarding your lifestyle, intended foreign travel destinations, family health history and personal health.  See below, Questions you can expect to be asked.   Often times, multiple interviews are required and insurance companies will conduct telephone interviews in order to verify your information.

Questions you can expect to be asked

It is important to be honest when dealing with your insurance agent…they want to help you get the best coverage available and to be rated correctly.  These questions will play an important part in how your insurance rate is determined.  Being sure that your policy is issued correctly will mean that you have the best rate possible and avoid potential hassles in the future.

  • Do you smoke cigarettes or use any form of tobacco products?  (yes even the occasional cigar counts)
  • If you quit smoking how long has it been? Be honest
  • Are you now taking any prescription medications?
    • If yes, what are they, the dosage and the reason you are taking them?
    • Have you had a major change in your health in the past 7 years?
    • Have you been in the hospital in the past 7 years?
    • Have you had a DUI in the past 5 years?
    • Did your mother or father die from cancer or heart disease prior to age 60?
    • Are you a private pilot or scuba diver?
    • Do you believe your lab work (blood & specimen) are normal? E.g. high cholesterol, hypertension, etc
    • What is your height and weight? Be really honest here

 

It is important to answer these questions correctly. Polices that were sold based on applications that contained misleading information can be voided at claim time – something nobody wants to happen!

You will receive initial rates based on your answers…rates may change based on your lab results and medical records.  It’s better to know upfront than to have a surprise when you are ready to purchase.

Next week we will conclude our series with Common Mistakes People Make with Life Insurance.  We hope you will visit us again soon!

 

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Life Insurance – It’s Really Not That Scary

Part 1 of 3

Life Insurance is a topic that many people don’t really want to think about…but it’s extremely important and really not that scary and quite frankly a necessity if you have family counting on you.  We are going to do an in-depth look at it on this blog and take you through the things you’ll want to think about.  This blog will be published in segments over a couple of weeks, bite size pieces that will be easy to understand and give you the information you need to take action should you decide that you need life insurance. 

We will be covering:

  • Why people buy life insurance
  • The basic types of life insurance available and how they differ
  • How to determine your life insurance needs – how much to buy
  • The process of purchasing Life Insurance
  • Questions you can expect to be asked when purchasing life insurance
  • Common mistakes people make when purchasing life insurance

The good news is that life insurance is generally less expensive today than it’s ever been in past history.  Let’s get started!

Why people buy life insurance

The reasons differ for everyone, but it all comes down to looking out for our loved ones (or in some cases for a business partner).  Most people buy life insurance to ensure that their spouse/kids are able to maintain their life style in the event of their death.  Here are some of the most common reasons we hear people buying life insurance.

  • Peace of mind and security
  • Income replacement
  • Mortgage pay-off
  • College tuition needs
  • Business specific protection
  • Estate transfer goals
  • Inheritance tax
  • Money for medical and funeral expenses

While we don’t like to think about death, what you want for your family is security and peace of mind.

The basic types of life insurance

There are two main categories of life insurance, each with their own set of variations.  Let’s start with the main categories: term and permanent.

Term insurance, it lasts for a specific period of time, stated by a designated number of years and is lower in cost than permanent insurance.  A death benefit is paid only if the insured dies while the policy is in force.  With Term insurance there is no investment component…that is you will not be earning interest and be able to take cash out during the life of the policy.  Variations to consider are:

  • Length of time – 10 year, 20 year or 30 year time frames
  • Return of premium (ROP) – this policy is more expensive than straight term but offers your entire premium back should you outlive the policy duration, usually available on 30 year term policies (sometimes on 20 year policies).
  • Guaranteed renewal (also known as conversion) – this feature found in most Term policies today, is important should you become sick and uninsurable toward the end of your rate-guarantee period.  Ask you agent about the conversion provisions and make sure you understand them. 

Permanent insurance is where the premium is guaranteed not to change for the life of the policy and the policy accrues cash value.  Permanent insurance is more expensive (than Term) as there is a guaranteed payout and a forced saving component.  There are many variations of Permanent Insurance. 

  • Whole Life – While not currently the most popular version of permanent life, it is still probably the most widely held type of permanent life.  It is the most basic type of cash-value life insurance, providing an opportunity to build up tax-deferred equity as you pay your monthly premiums.  Whole Life can be borrowed against in the event of a financial pinch, or even forfeited for its cash value.  With Whole Life you have a level death benefit and level premiums throughout your life and for as long as you continue to pay the premiums.
  • Universal Life – Flexibility is the main advantage to Universal Life.  You have flexibility in terms of both premiums and coverage.  Coverage/death benefit can be increased (subject to insurability) or decreased at the policy owner’s request.  In addition, the premiums are flexible from a minimum amount specified in the policy, to the maximum amount allowed by the contract.   Universal Life also offers the opportunity to build a cash reserve.
  • Variable Life – Offers a death benefit with a side fund that operates like an investment account.  The insurance company invests your premiums and offers you a choice of funds in which your money will be invested.  Returns are not guaranteed.  The amount of money your beneficiaries will receive and the cash value of your policy will depend on how well the underlying accounts perform.

Next week we will continue our series and help you understand how much life insurance you may want, review the process….and most fun of all review some of the personal questions you can expect to be asked.

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Anthem Insurance – Health Behaviors are Contagious

We are proud to represent Anthem Blue Cross to both our individual and group clients.  Anthem has a variety of resources such as anthem.com/connects.  This site provides members with information that helps them understand their “health footprint” and with information on programs they offer such as 24/7 nurseline, healthy moms and condition care (for those with specific conditions such as diabetes).    The following article ties in with the “health footprint” and we thought it was interesting.

Research shows health behaviors are contagious

Did you know that the health choices people make can have a direct influence on the health and well-being of those around them?  Research suggests that a person’s chance of becoming obese or quitting smoking increases if that person has family members or friends who are also obese and smoke. ˡ²

The Facts:

A study done in Framingham, Massachusetts looked at the spread of obesity amount spouses, brothers and sisters and close friends.³  The study showed the following:

  • A person’s chance of becoming obese went up by 57% if that person’s close friend became obese.
  • A person’s chance of becoming obese rose by 71% if a close friend of the same sex became obese, 40% if an adult sibling became obese and 37% if a spouse became obese.

In a similar study, researchers found that a person’s likelihood to quit smoking increased by:

  • 67% if a spouse quit smoking
  • 36% if a friend quit smoking
  • 24% if a co-worker quit smoking
  • 25% if a brother or sister quit smoking⁴

These studies tell us that people can influence each other when it comes to health.  And more importantly, when they choose to help themselves, they can help others.

1 Nicholas A. Christakis, M.D. PhD., M.P.H. and James H Fowler, PhD; “The Spread of Obesity in a Large Social Network Over 32 Years” New England Journal of Medicine, 2007;357;370-9

2 Nicholas A. Christakis, M.D. PhD., M.P.H. and James H Fowler, PhD; “The Collective Dynamics of Smoking in a Large Social Network” New England Journal of Medicine, 2008;358;2249-58

3 ibid

4 Nicholas A. Christakis, M.D. PhD., M.P.H. and James H Fowler, PhD; “The Collective Dynamics of Smoking in a Large Social Network” New England Journal of Medicine, 2008;358;2249-58

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Health Care Reform

Welcome to our new blog!  We will be touching on a variety of insurance topics…especially concentrating on Health Care Reform as it unfolds.  If you’re on our e-mail blast, this information is repetitive…but we wanted to make sure guests who are new to the site start on the same page.

The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010.  Certain aspects of the bill have been challenged in court and there is long term uncertainty surrounding the bill.  Still aspects have already gone into effect and that is what we will start with.  As court challenges proceed and other aspects are rolled out…we will keep you informed…please check back often!

Immediate Changes for all new plans (or upon renewal anniversary)

We want to highlight changes implemented on the next plan year for all plans (grandfathered or not) on or after September 23, 2010

  • No lifetime benefit maximum limits
  • Dependent coverage for adult children up to age 26
  • No annual limits on certain types of benefits
  • No pre-existing conditions exclusions for children under age 19

‡     100% coverage for preventive care in network

‡   This is not required for grandfathered plans, but Anthem will include in all of their small group plans on the next plan year on or after September 23, 2010.

Grandfathering – March 23, 2010

One aspect you will hear a lot of in the upcoming year is whether your plan is grandfathered or not…and you should keep your grandfathered status.  Most group plans will inevitably lose their grandfathered status as small groups constantly change plan formats – moving to higher deductible, higher co-pay or higher employee contribution plans  — all in an effort to avoid higher healthcare costs.  The benefits of being “grandfathered” are murky…as where healthcare legislation will eventually end up.  

Your plan is considered grandfathered if you maintained a health care plan on March 23, 2010.  Grandfathered plans are exempted from certain health care reform requirements, such as no cost-sharing for preventive care and other patient protections (though some insurance companies – e.g. Anthem – are including no cost-sharing for preventive care although not required by law to do so. 

Basically, groups will lose their grandfathered status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers.  You will lose grandfathered status if:

  • Change insurance carriers
  • Cut or reduce benefits
  • Raise co-insurance from 20-25%
  • Raise deductibles more than $500-$1000 over 2 years
  • Lower the employer contribution by more than 5%

Those most likely to want to maintain their status include groups with

  • Carve outs
  • High deductible HSA plans
  • Executive Health Plans

 Healthcare Tax Credits – Small Businesses

Available for small businesses beginning with the 2010 tax year, with a retro tax credit to January 2010.    Current consensus seems to be that 10-15% of small employers will qualify for a tax credit — small businesses must meet the following criteria:

  • Less than 25 Full Time Employees (FTE’s)
  • Income ‘average’ less than $50K per FTE (owners & family excluded from this calculation); and for companies with 10 or fewer employees an income average less than $25K
  • Employer must pay a minimum of 50% of EE premium

 Of those who meet the criteria above, it is estimated that few will qualify for the maximum credit of 35%; with the average tax credit in the range 10-15%.

  • Only premium paid by the Employer is eligible for the credit
  • Premium counted toward Credit may not exceed an ‘average premium’ as set by HHS. 

EE: $385, Family $913

 Please check with your CPA to see if you qualify for this tax credit.

 2011 Changes

  • Reimbursement Changes for Over-the-Counter Drugs – Prohibits ‘OTC’ drug reimbursments from FSA’s, HAS’s and HRA’s (with the exception being if you have a doctor’s prescription for an OTC).
  • Increased penalties for HAS non-qualified withdrawals from 10% to 20%
  • New Long Term Care (LTC) Program – Employers will need to automatically enroll employees in the new LTC program, unless employees choose to opt-out.  (Details are scarce on this…when we learn more we will post the details.)

2012 Changes

  • Reporting Requirements – Originally scheduled for 2011, the IRS has decided it will be OPTIONAL to report in 2011.  Starting in 2012 employers must report the value of employer-sponsored coverage on W-2’s.  You will need to report on the W-2 for the 2012 plan year…it is not taxable, just reportable.  Get ready to start tracking this information.
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