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US Social Security – Medicare Explained For British Expats

If you are a British expat looking to retire, you probably need medicare explained to you. Medicare can get overly complicated, even for natural-born US citizens.

You’re probably anxious about the ever-present threat of an unexpected and crippling medical bill. I think it’s a pretty tragic indictment of the American system – that many of its hard working and successful residents live out their retirement in perpetual fear – but that’s a thread for us to pull at over a beer and/or glass of wine.

Anyway, back to the topic at hand, Medicare: how does it work, what does it cover you for and what are the gaps?

Before we get started, Medicare is not to be confused with Medicaid. Medicaid is a state-run medical assistance program for people on low income. Medicaid is not going to be relevant for you (hopefully).

Here’s a 24-page guide from the SSA themselves: https://www.ssa.gov/pubs/EN-05-10043.pdf. It’s good, but here’s the relevant summary:

  • Medicare is America’s Health Insurance program for over 65s
  • It helps with the costs, but does not cover all costs
  • It is funded in two ways:
    1. Monthly premiums that are usually deducted from your Social Security checks.
    2. Payroll taxes (i.e. the 6.2% you pay and the 6.2% your employer pays while you are working, which also funds your retirement benefits)

The four parts to Medicare:

Part A – HOSPITAL INSURANCE:

Helps pay for inpatient care in a hospital or skilled nursing facility

Available at no cost for those who are over 65 and eligible for Social Security benefits (i.e. you or your spouse has at least 10 years/40 quarters worth of contributions)

Part B – MEDICAL INSURANCE:

Helps pay for doctors and other outpatient care, home health care and durable medical equipment 

Anyone who is eligible for Medicare Part A at no cost can enroll in Medicare part B by paying a monthly premium that is based on your income (i.e. higher income = higher premium)

Part C – MEDICARE ADVANTAGE PLANS:

Private policies that incorporate Medicare and more

If you receive your Part A and Part B benefits directly from the government, you have “original Medicare”. If you receive your benefits from a Medicare Advantage organization or other private company, you have a Medicare Advantage plan. Many of these plans provide extra coverage and may lower your out-of-pocket costs. You might have to pay a monthly premium for your Advantage plan because of the extra benefits it offers.

Part D – PRESCRIPTION DRUG COVERAGE:

Helps cover the cost of prescription drugs

Anyone who has Medicare Part A or Part B is eligible for Part D (Prescription drug coverage). Part D benefits are available as a stand-alone plan or built into Medicare Advantage. The drug benefits work the same in either plan. Joining a Medicare prescription drug plan is voluntary, and you pay an extra monthly premium for the coverage. Like Part B, the monthly premium is based on your income (i.e. higher income = higher premium).

It is important to stress that, in addition to any premiums you pay for your coverage or your Advantage Plan, you are still subject to co-pays and deductions (including for treatment that falls under part A). For example, Part A has no premium (assuming you qualify) but it has a $1,484 deductible  (2021) and annual benefit cap; Part B has a deductible of $203 (2021) and a 20% co-pay for every doctors visit, in addition to the monthly income-assessed premium.

Medicap and Medicare Advantage

To help you plan for/limit/cover these variable costs, you can take out a Medigap Plan, which is extra insurance you can buy from a private company to cover some of these “out of pocket” expenses. There are a variety of Medigap policies available, depending on how many of these costs you want covering (labeled “A” through “N”). Premiums vary among insurance companies but the benefits of each standard plan are always the same (e.g. Medigap Plan A is the same, regardless of who you purchase it through).

Medigap policies are only available to those covered by “original Medicare”. If you are covered by a Advantage Plan (i.e. from a private insurance company) then you cannot take out a supplemental Medigap policy, but then you shouldn’t need to because you will have settled on a Medicare Advantage Plan that offers the level of coverage you desire.

Medicare Advantage Plans come in a variety of options – basically the same dizzying, confusing array of any private health insurance in this country – HMOs/PPOs/PFFSs/HMOPOSs etc. The Medicare elements of the plans are paid for by Medicare, reducing your premiums and/or additional out of pocket expenses.

If you want some more information on Advantage Plans and Medigap policies, here is a useful resource:  https://www.medicare.gov/sites/default/files/2018-07/11474.pdf

Cost

You would be forgiven for thinking that, seeing as you have contributed a lifetime of not insignificant payroll taxes to “America’s Health Insurance program for the over 65s” you can plan on your retirement healthcare costs being insignificant, right? No, unfortunately not. To give you some perspective, when we are doing retirement planning for our clients we assume total Medicare costs of $7,500 per person, per annum (i.e. $15,000 per couple).

Here’s some useful information from Vanguard, if you want to investigate this further.

Some things to note

  • Not all doctors accept Medicare. Thanks to the federal program’s low reimbursement rates, stringent rules and grueling paperwork process, many doctors are refusing to accept Medicare’s payment for services. Be sure to check before any visits, because if you see a doctor who doesn’t then you’ll potentially be on the hook for the full amount.
  • An Advantage Plan may give you flexibility to see specific doctors, even if they don’t accept Medicare directly.
  • Medicare does not include dental, vision or hearing.
  • Medicare (original and Advantage) does not include Long Term Care (LTC). There is separate, private insurance for LTC
  • Admission Vs Observation – if you end up in hospital, make sure you know if you’ve been admitted or are there for observation as it can make a big difference in after care provision. If you have been admitted for at least 3 days, then Medicare will cover any subsequent rehab (e.g. physio). If you were only there for observation (and thus considered an outpatient), then Medicare will not cover the cost. Ask – sometimes they wont even admit you if you ask!
  • Medicare doesn’t cover treatment outside the USA (I would have thought this was obvious, but apparently this seems to take a lot of Americans by surprise). There are Medigap policies that will cover emergency cover abroad and of course there is always travel insurance (that will also usually cover emergency medical evacuation).
  • Enrollment – as with all things health insurance there is a complicated and intimidating web of enrollment windows when you can apply. There’s too many for me to go into, but here’s a good summary/guide: https://medicare.com/enrollment/medicare-enrollment-periods/. Essentially, to ensure you don’t suffer any period without coverage, you can enroll in Medicare in the three months running up to your 65th birthday and then for the three months that follow.

So, I don’t have to worry about a surprise, crippling medical bill?

Hopefully! Whilst Medicare is pretty good in this regard – most physicians are “participating” which means they accept Medicare in full (i.e. they cannot request any further payment from you). Even the non-participating ones who can “balance bill” you are capped at 15% of the Medicare-approved payment amount. There is one glaring hole that I can see:

Part A will only fully cover the cost of 60 days spent in hospital as an in-patient – over your lifetime! You’ll have to contribute $335 per day for days 61-90 and $670 per day for days 91-150. Then you are totally on your own.

Honestly, the medical/health insurance situation here makes me really uncomfortable and researching for this blog did not help alleviate that feeling. Having said that, Medicare seems infinitely preferable to the pre-Medicare position which, even when covered by the most comprehensive private health insurance policy, leaves us at risk of receiving a devastating surprise bill for using an out of network provider or being balance billed tens or even hundreds of thousands of dollars.

To be honest with you, I wish Medicare wasn’t just an over 65 thing, as it seems like a sensible “best of both worlds” solution. Ultimately, we have all made the decision to live here and there are times when we benefit from this health care system (during some back issues I was able to get an MRI within days, something that would have taken months in the UK and was an enormous boost to my overall recovery, mentally as well as physically). The best thing you can do is be aware of the facts and be prepared, mentally as much as financially, for any issues before they arise.

Plan First Wealth is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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