Kiplinger's Retirement Report - March 2019

[Pages:24]RETIREMENT REPORT

Your Guide to a Richer Retirement

VOLUME 27 | NUMBER 10 | OCTOBER 2020 | $5.00

Medicare From Soup to Nuts

to the uninitiated, medicare is an alphabet soup

of parts and plans. Do you want your basic Medicare--parts A and B--with a dollop of Part D and a medigap side order of Plan G, or go for an all-in-one Medicare Advantage plan instead? As if those choices aren't cryptic and confusing enough, thanks to Medicare's byzantine rules and draconian penalties, the decisions that newcomers make

early on, including when they first enroll in the pro-

gram, can have lasting effects in the form of higher

premiums or coverage restrictions down the road.

"People have to make some of the most consequen-

tial decisions about

Medicare right when they know the

IN THIS ISSUE

least about Medi-

INVESTING

care," says David

8 | Warren Buffett's Q2 Moves

Lipschutz, associate

director at the Cen- 1O | Information to Act On

ter for Medicare Ad- 12 | Your Questions Answered

vocacy.

Throw in a pan-

MANAGING YOUR FINANCES

demic, a struggling

14 | Long-Term Care at Home

economy and some big changes to the program in 2020,

CHARITABLE GIVING 16 | Vetting Effective Charities

and even seasoned Medicare beneficiaries have plenty to

TAXES 18 | Estate Exemption Limit

chew on. Rates for

RETIREMENT LIVING

2021 have yet to be

20 | Time Management Tips

announced, but over the summer, Republicans called for

YOUR HEALTH 22 | Benefits of Owning a Pet

freezing 2021 premi-

ums at 2020 levels in their economic stimulus bill. The

freeze is no freebie; beneficiaries must repay any short-

fall from the premium freeze with monthly surcharges

averaging $3.

Social Security's annual cost of living adjustments

(or the lack of them) are another piece of the premium

puzzle. Some beneficiaries, but not all, are protected

JOHN W. TOMAC

from rising Medicare premiums in years when COLAs, which Kiplinger's forecasts at 1.2% for 2021, are too meager to keep up with rising premiums.

The Main Course The premiums in question are for Medicare Part B, which pays for physician services, diagnostic tests, physical therapy and other outpatient care. The standard Part B monthly premium is projected to rise to $148.50 in 2021, up from $144.60 this year. That base premium gradually increases depending on income because of Medicare surcharges, also known as income-related monthly adjustment amounts. Rates and income thresholds for Part B are set by the federal government and typically announced toward the end of the year for the following year.

Part B, along with Part A, which covers inpatient care at a hospital or skilled nursing facility, are the meat and potatoes of Medicare coverage. Most people don't pay a Part A premium because they've been funding it through payroll taxes during their working years.

The two parts together sound comprehensive but, in fact, leave gaping holes in coverage, with prescription drugs, hearing aids and routine dental, vision and foot care not included. What's more, when Part B kicks in, it only pays for 80% of medical costs, leaving you to shoulder the remaining 20%, and that's after any copayments and deductibles. Part A pays for all hospital costs only for the first 60 days and that's after a $1,408 deductible. "If you have catastrophic needs, it can get very expensive," says Jim Blankenship, author of A Medicare Owner's Manual: Your Guide to Medicare Benefits (independently published, $12.88) and a certified financial planner in New Berlin, Ill.

Medigap on the Side or an Advantage Entree? Beneficiaries can plug coverage holes and limit out-ofpocket costs with a medigap plan or abandon tradi-

tional Medicare for an all-in-one Medicare Advantage plan. Medigap plans fall under the traditional Medicare umbrella, letting you go to any doctor or hospital that accepts Medicare. Administered by private insurers rather than the federal government, Advantage plans work like managed care, with fixed networks of providers and hospitals. Patients pay more for out-ofnetwork care and may need referrals to see a specialist.

As a result, Advantage plans, also known as Medicare Part C, generally have lower premiums and higher out-of-pocket expenses than medigap policies while offering one-stop shopping. Advantage insurers not only administer parts A and B, covering the same benefits as traditional Medicare, including any preexisting conditions, but may also offer extras that medigap plans don't--like routine dental and vision care or prescription drug coverage. The range of offerings, premiums, copayments and deductibles can make Advantage plans hard to compare so use total out-of-pocket expenses as a baseline and confirm that your doctors participate in the plan's network.

But the tradeoff for one-stop shopping may be quality of care or even access to it. "People with chronic conditions tend to disproportionally disenroll from Medicare Advantage" because of limited choices within a network and the high cost of going outside it, says Lipschutz. The research, he says, shows that "people typically do better in traditional Medicare."

For that, you need medigap, which is a Medicare supplement plan. There are currently about 10 types of medigap plans, each beginning with a letter. The lettered plan you choose determines the extent of coverage for out-of-pocket costs in parts A and B. Although offered through private insurers, medigap policies are standardized so that coverage is identical for all plans with the same letter, making an apple-to-apple comparison of prices easy. Medigap is also portable and a better choice for snowbirds than an Advantage plan

EDITOR EMERITUS Knight A. Kiplinger

MANAGING EDITOR Catherine Siskos

Email: retire@

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| OCTOBER 2020 KIPLINGER'S RETIREMENT REPORT 3

FROM THE EDITOR

It's that time of year again, when senior citizens all over America take stock of their Medicare health coverage, and a whole new crop of 65-year-olds navigate the maze of plans and rules. Our cover story walks newcomers and old-timers through the process, including some big changes that took effect this year, like better coverage for prescription drugs.

Medicare, of course, is of little help for people looking to age in place and be cared for at home, a growing trend that the pandemic has only accelerated. But long-term care insurers have noticed. Many are offering policies with more flexible payouts to help pay for home care and, in some cases, even a family caregiver. Check out the story on page 14, and discover which policy provisions to look for when buying the insurance.

With the election weeks away, taxes are on many people's minds. The federal estate tax exemption is at a record high. On page 18, our tax writer suggests what you may want to do now in case the Democrats win and the exemption returns to its historic norm.

Catherine Siskos

with a physician network restricted to one locale. The most comprehensive and popular medigap cov-

erage is Plan F. It pays all out-of-pocket costs, including Part B deductibles, but as of this year, Plan F and any other deductible-paying plan, like Plan C, are off limts to new Medicare enrollees.

Existing enrolles and "people who had those plans can continue to get them, but I expect they will be priced out as the number of participants declines and premiums rise," says Blankenship.

A close substitute to Plan F, Plan G covers everything except the Medicare Part B deductible, which in 2020 was $198. Monthly premiums for Plan G in 2020 range between $90 and $170, depending on your age and state, according to MedicareFAQ, an insurance agency that sells Medicare supplement plans.

Preexisting conditions are covered, and no underwriting is needed for a medigap plan when beneficia-

ries sign up within six months of enrolling in Medicare Part B. But choosing a different medigap plan or switching from an Advantage to a medigap plan later on can require medical underwriting, particularly if you're selecting more generous coverage. At that point, the medigap insurer can charge more for the policy and impose a waiting period before covering health care costs. There is no underwriting for Medicare Advantage plans.

If you're going with medigap, Blankenship advises, "choose the plan that has the most coverage for your needs earlier in the process because it's easier to move down in coverage than to move up."

A Filled Doughnut Hole Tastes Sweeter Medicare's prescription drug coverage is known as Part D. If you choose a medigap plan or an Advantage plan that has no drug coverage, you will also need to purchase a standalone Part D plan to cover medications. The average basic premium in 2021 will be $30.50. As with Part B, the premium rises with income.

Whether you get prescription drug coverage through an Advantage or standalone plan, Part D has two phases: initial and catastrophic, each with different thresholds to meet before medications are covered. "The rules and requirements are the same whether you're looking at Medicare Advantage or standalone plans," says Juliette Cubanski, deputy director of the Program on Medicare Policy for the Kaiser Family Foundation.

Between these two phases is a gap in the middle-- the famous doughnut hole. Falling into the doughnut hole used to be a form of prescription drug purgatory, where beneficiaries footed the entire bill for medications until the catastrophic phase of Part D offered a measure of salvation. That hole, however, has been filled in steadily over the past several years so that, as of 2020, the cost burden for beneficiaries is lighter.

Using 2021 numbers, here's how Part D works. Formularies and initial deductibles, which Medicare caps at $445, vary with each insurer's plan. When shopping for plans, make sure "their formulary incudes your medications," says Blankenship. "Then look at costs."

Deductibles may be less than the cap or nonexistent. Some plans will also cover low-cost medications immediately while leaving the deductible in place for brandname drugs. Once the initial deductible is met, you pay either a copayment or a percentage of the cost. Many insurers also tie costs to tiered coverage that is more generous for generic drugs and brand-name pharma-

|4 KIPLINGER'S RETIREMENT REPORT OCTOBER 2020

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85218

ceuticals with set prices that the insurer negotiated. The first phase ends when a plan's total payouts hit

the initial coverage limit--$4,130 in 2021. At that point, you're in the doughnut hole, but it's a sweeter place than before, with beneficiaries paying only 25% of the plan's negotiated prices for generic and brand-name drugs, instead of 100%. Pharmaceutical companies eat 70% of the cost with insurers paying the remaining 5%.

You emerge from the doughnut hole and into the catastrophic phase when your total out-of-pocket costs hit $6,550, the maximum spending limit for beneficiaries in 2021, which is $200 higher than 2020's cap. Any deductible paid in the initial phase counts toward that annual maximum as does the 25% you contributed while in the doughnut hole and the 70% that pharmaceutical companies paid on your behalf.

Under catastrophic coverage, you pick up the tab for whichever is greater: 5% of the retail price of your medications, or $9.20 for brand-name drugs and $3.70 for generics.

Maalox Moments One of the costliest Medicare traps to fall into is missing your initial enrollment deadline, and it's easy to do. Having been told that it's better to postpone claiming Social Security, most Americans don't realize that the reverse is true for Medicare, where you are penalized if you don't have qualifying health coverage and don't enroll at age 65.

If you're already claiming Social Security benefits by that age, you're enrolled in Medicare parts A and B automatically. The trap mainly ensnares those who aren't taking Social Security, which is increasingly more common as the full retirement age for claiming benefits has been rising steadily from 65 to 67, depending on the beneficiary's birth year.

Your initial enrollment period begins three months before the month you turn 65 and lasts for seven months. Use the first three months of that enrollment period so that the timing of your effective coverage isn't delayed, says Casey Schwarz, senior counsel for education and federal policy for the Medicare Rights Center. During initial enrollment, you can sign up for parts A, B or both online through Social Security (ssa. gov/benefits/medicare). This is also the window when you can choose a medigap plan without underwriting.

If you are still working and getting insurance through your employer or a spouse's employer, you may be able to delay Medicare enrollment without penalty, but COBRA doesn't count. If you have COBRA,

you "may be paying for coverage that doesn't pay for care," says Schwarz. "COBRA or retiree coverage operates as a secondary payer so the insurer could decline to pay."

Also, if you delay enrolling because you continue to work, a policy from an employer with fewer than 20 employees may not pay for expenses that could be covered by Medicare, leaving you underinsured. Most people with qualifying coverage through an employer should enroll in Part A, which is free. Keep in mind that once you enroll in Medicare, you can't contribute to a flexible spending account or a health savings account, though you can tap them to pay for medical costs. If you are over age 65, you must stop contributing to an HSA six months before enrolling in Medicare because the coverage is retroactive by six months.

If you don't have eligible employer coverage and don't enroll in Medicare during the initial seven-month window, parts B and D each impose separate penalties. Part B's penalty is a 10% increase in the monthly premium for each 12-month period that you were eligible to enroll but didn't. The penalty, Medicare says, lasts "for as long as you have Part B"--in other words, for life. Although Part D is optional, the premium increases 1% for each month you delay enrolling; it too lasts for life. Anyone 65 or older who lost a job and qualifying insurance through an employer has eight months to enroll in Medicare to avoid penalties.

During the pandemic, most people were forced to enroll online, but earlier this year, that wasn't an option for anyone needing only Part B, a problem that has been corrected, Schwarz says. But getting in-person assistance is still mostly limited to the telephone. Social Security offices are open for "dire-need" appointments only; no walk-ins are allowed.

Medicare's open enrollment occurs each year from Oct. 15 to Dec. 7. That's when existing beneficiaries can change plans with coverage beginning Jan. 1. This includes switching between traditional Medicare and Medicare Advantage plans or choosing new Advantage or Part D plans. You can switch medigap plans any time if the new insurer accepts you.

Medicare also has a general enrollment period from Jan. 1 to March 31 each year. During this period, those who missed signing up for Medicare at age 65 and don't qualify for a special enrollment period can enroll in parts A and B, and Medicare Advantage beneficiaries can switch to traditional Medicare or choose a different Advantage plan. Your new plan takes effect the month after you sign up for it. K CATHERINE SISKOS

|6 KIPLINGER'S RETIREMENT REPORT OCTOBER 2020

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INVESTING

What Warren Buffett Has Been Trading

after mostly laying low the first three months

of the year, Warren Buffett, chairman and CEO of Berkshire Hathaway, made sweeping changes to its stock portfolio during the second quarter. The Oracle of Omaha fully exited seven positions and sold off portions of another 11 stakes. He was a little more active on the buying side, too, adding to four positions and initiating a stake in a company that's well outside of his traditional wheelhouse. When Buffett starts a new stake in a company, or adds to an existing one, investors interpret that as a vote of confidence. But if he pares his holdings in a stock, investors sometimes rethink their own investments. That Berkshire Hathaway continued to shed weight even as the market began to rebound in the second quarter underscores how challenging it is to make investing decisions these days. Here are five stocks that Buffett sold and two that he bought during the second quarter this year (visit krr/q2buffett for the full list of 23 traded stocks). Not all "Warren Buffett stocks" are his picks. Some smaller positions are believed to be handled by lieutenants Ted Weschler and Todd Combs. Sirius XM (SIRI, $5.87) reaches more than 100 million listeners via its core satellite radio business and Pandora, which it acquired in 2018. It's one of several Buffett stock picks related to John Malone, the chairman of Liberty Media, which owns a massive stake in Sirius XM. Berkshire's investments in companies tied to Malone's truly byzantine corporate structure could very well be the responsibility of one of Buffett's portfolio managers. Liberty Media was a large position held by Ted Weschler's Peninsula Capital in his pre-Berkshire days. But Berkshire's affinity for this particular Malone-related position has been waning of late. Buffett first bought shares in SIRI during the final quarter of 2016. Berkshire unloaded a small portion (1%) of its Sirius XM position during the third quarter of 2019. The Oracle of Omaha then trimmed his position by another 3.9 million shares, or about 2% of Berkshire's stake, in the first quarter of 2020. Then Berkshire Hathaway really went to town in the second quarter, unloading more than 82 million

shares, bringing its ownership down from 3% to a little more than 1%. As the fourth-largest owner of SIRI stock, Buffett is well behind Liberty Global's 72% stake.

Charter Communications (CHTR, $615.61) markets cable TV, internet, telephone and other services under the Spectrum brand, which is America's second-largest cable operator behind Comcast. Charter acquired Time Warner Cable and sister company Bright House Networks in 2016.

Buffett entered CHTR in the second quarter of 2014, but he has seemingly lost his love for the telecom company in recent years. His position has been trimmed down from 9.4 million shares in early 2017 to just 5.2 million shares, including a 210,000-share reduction in the second quarter.

The move away from Charter meshed with an awful 2018 for the stock, which lost 15% that year. But he had lousy timing in 2019. He continued to sell his position during the first and second quarters. Then CHTR shares finished the year with a 70% return. Berkshire Hathaway's current stake still represents a respectable 2.5% ownership in Charter and 1.3% of Berkshire's equity assets.

Visa (V, $211.99) is one of Buffett's holdings in America's two largest payments providers that he took a little bite out of last quarter. (The other is MasterCard.) With the world's largest payments network, Visa is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Visa was the brainchild of one or both of Buffett's lieutenants, and Buffett has said that he wished Berkshire had bought more.

Berkshire Hathaway initiated its position in Visa during the third quarter of 2011, and the stock has been a mammoth winner. Including dividends, Visa has delivered a whopping annualized return of 30.7% since Sept. 30, 2011. It's also a dividend growth machine, ramping up its payout 150% over the past five years alone.

"If I had been as smart as Ted or Todd, I would have (bought Visa)," Buffett told shareholders at the 2018 annual meeting.

Berkshire's half-percent stake in Visa doesn't even put it among the top 25 investors, though it's a not-insignificant 1% or so of Buffett's portfolio.

M&T Bank (MTB, $103.26), like many of Buffett's other financial holdings, seems to have lost some of his affection. The regional bank operates more than 690 branches in nine states, and it has been profitable for decades as well as a reliable dividend payer.

|8 KIPLINGER'S RETIREMENT REPORT OCTOBER 2020

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