Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

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Tamarind
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Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by Tamarind » Mon Oct 01, 2018 12:28 pm

Hi folks, my mother is very excited to retire at the end of this year. However she is surprised by how complex and expensive health insurance looks to be. I've been helping them make plans for investments and timing social security, but Medicare math is completely new to me so I could use some help.

My mom will need to go on the ACA for 2019 & 2020. She got sticker shock learning that a bronze plan could cost $12k+ annually. Until a couple years ago her MegaCorp kept retirees on employer insurance until Medicare eligibility and unfortunately she didn't mention this had changed when we were talking budget. I think she assumed they would still reimburse a similar amount but actually it is much less generous.

Financial snapshot:

Mom (62) and Dad (66), married filing jointly.
Mom retiring from MegaCorp end of 2018, Dad was SAHD for many years and has been retired for ~10 years.
Dad as lower earner claimed SS at FRA, bringing in slightly less than ~$12k annually. Has signed up for Medicare A&B, currently covered by Mom's employer insurance. Has some maintenance medications that are uncommon.
Mom has not claimed SS. She is somewhat unsure whether to delay past FRA. Her benefit at FRA would be ~$32k annually. Currently covered by employer health insurance.
Combined SS will cover almost all non-health expenses.


Assets:
~$1.3M in cash balance pension account and 401k - will be rolled to Vanguard tIRA next year. Mom doesn't trust MegaCorp with pension and has decided to take lump sum.

~$100k Roth IRAs

~$50k cash in checking/savings, representing about 1 year normal expenses

~$200k expected net proceeds from selling primary residence. They have moved to a rental apartment already to reduce maintenance effort and cost.

No debt.


Questions:

1. My dad needs to be transitioned to Medicare as primary insurance by end of year. I think that means he needs a Part D plan and a Medigap plan. How does he compare these plans to figure out which is right for him? It may be relevant that he no longer likes to travel abroad so international coverage is not important.

2. Is there any difference between Medigap F&G other than covering the tiny part B deductible?

3. He is looking at Medigap F which seems to be a favorite here. This plan is being closed, he will qualify but Mom will not. Does the closure of a plan to new enrollment predict higher future premiums? Should he sign up for it while he can?

4. I don't understand how Part D and Medigap combine to cover prescriptions. Can anyone recommend a resource?

5. Mom's employer offers an HRA. She can only elect it once, then must stay in it or lose it. Looks like once they are both on Medicare in 2021 the $4k HRA money will cover most of their premiums so a no-brainer to take it then. Until Mom is eligible they will offer a $7.5k benefit annually but taking it makes her ineligible for an ACA subsidy. Should she take it now or wait and try to qualify for a subsidy?

6. How do we figure out if/how much Roth conversion she can do without losing her ACA subsidy? Any favorite resources for this?

7. If Mom is on a HDHP through ACA next year, can she contribute to an HSA?

8. What am I missing that you wish you'd known when you went through this (gap b/w retirement and Medicare)?

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celia
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Re: Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by celia » Mon Oct 01, 2018 3:06 pm

Tamarind wrote:
Mon Oct 01, 2018 12:28 pm
1. My dad needs to be transitioned to Medicare as primary insurance by end of year. I think that means he needs a Part D plan and a Medigap plan. How does he compare these plans to figure out which is right for him? It may be relevant that he no longer likes to travel abroad so international coverage is not important.
As his current insurance is ending at the end or the year (through his wife's employer), he is eligible for any Medicare Advantage or Medigap plan he wants without medical underwriting. He can choose whatever he wants. But if he chooses a Medicare Advantage plan (generally HMOs), he won't be able to get on a Medigap plan if he has a pre-existing condition at the time of the change. Medicare Advantage plans can save the patient money but limits the doctors who can be seen. All Medigap plans with the same letter are the same and will pay out the same, according to Medicare rules. It appears you've already see the chart that shows what is covered in each lettered plan so that is what they should make their choice from.
2. Is there any difference between Medigap F&G other than covering the tiny part B deductible?
No.
3. He is looking at Medigap F which seems to be a favorite here. This plan is being closed, he will qualify but Mom will not. Does the closure of a plan to new enrollment predict higher future premiums? Should he sign up for it while he can?
Plan G is now the most popular on the forum since the premium savings for a year is more than the deductible, which you would only pay if you need medical care in that year. Since plan F is closing to new enrollees in 2020 but existing participants can remain in the plan, many assume that the Plan F premiums will increase more over time as those participants get older and sicker and there are no younger participants to balance out their higher expenses.
4. I don't understand how Part D and Medigap combine to cover prescriptions. Can anyone recommend a resource?
They don't combine. You get almost all your meds through Part D unless the doctor or hospital gives them to the patient (while an in-patient or a doctor sample). Immunizations are covered by Part B or D, depending on the vaccine: https://medicare.summacare.com/member/m ... erage.aspx

You can use the Medicare plan finder tools to select plans available in your area. When you get to the drug plans, you can enter the exact meds that the patient takes with the dosage and frequency to see which drug plan will give you the lowest cost overall (co-pays and plan premiums). The pharmacy they use also determines the price, with Costco and WalMart usually giving you slightly lower premiums. You can change the drug plan online each year between October 15 and December 7 for the following year.


In addition, I suggest you (or they) list their expected income sources and income amounts for each year from 2019 through your mom being age 71. Then estimate the taxes for each year. They will need to have some income to qualify for an ACA plan but having too much will disqualify them from getting the federal government to pay for part of the ACA insurance premium. Withdrawals from a tax-deferred account will be considered as part of their taxable income (after the standard $24,000 deduction/exemption is taken for MFJ, more if >65).

They should also consider doing some Roth conversions before they both start Medicare, particularly if the RMDs might put them into a higher tax bracket after age 70. That is a whole separate topic to consider. If your mom can wait until age 70 to start Social Security, her benefit will grow 8% each year she waits after FRA and it will allow her to do more Roth conversions in the same tax bracket.
Last edited by celia on Mon Oct 01, 2018 3:19 pm, edited 1 time in total.

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FiveK
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Re: Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by FiveK » Mon Oct 01, 2018 3:15 pm

Tamarind wrote:
Mon Oct 01, 2018 12:28 pm
6. How do we figure out if/how much Roth conversion she can do without losing her ACA subsidy? Any favorite resources for this?
You might look through 2018 Tax Calculator With ACA/Obamacare Health Insurance Subsidy.
7. If Mom is on a HDHP through ACA next year, can she contribute to an HSA?
Yes, as long as she meets all the other requirements. See https://www.irs.gov/pub/irs-pdf/p969.pdf. For an IRS publication, it's reasonably understandable.

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Peter Foley
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Re: Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by Peter Foley » Mon Oct 01, 2018 3:30 pm

Picking up on Celia's comments:
In addition, I suggest you (or they) list their expected income sources and income amounts for each year from 2019 through your mom being age 71. Then estimate the taxes for each year. They will need to have some income to qualify for an ACA plan but having too much will disqualify them from getting the federal government to pay for part of the medical insurance premium.

They should also consider doing some Roth conversions before they both start Medicare, particularly if the RMDs might put them into a higher tax bracket after age 70. That is a whole separate topic to consider. If your mom can wait until age 70 to start Social Security, her benefit will grow 8% each year she waits after FRA and it will allow her to do more Roth conversions in the same tax bracket.
Good advice. I would add that I'm not really sure how much your parents need to live off of. You mention $50,000/ year as normal living expenses. Roth conversions are most beneficial when you can pay the taxes on the conversion from a taxable account. Am I estimating correctly that your taxable account is about $50k + $200K? If you need a lot of that for living expenses because you are delaying SS benefits, you may be a bit limited in what you would want to do in terms of Roth conversions. Also note that Modified Adjusted Gross income above $170,000 affect Medicare B premiums. The process looks back two years so if you are considering a single large Roth conversion keep that number in mind as well.

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dm200
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Re: Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by dm200 » Mon Oct 01, 2018 5:12 pm

As part of the medicare research and consideration, evaluate Medicare Advantage plans and choices in your area. There are many pros and cons - but for many - the costs can be lower and the care excellent.

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Tamarind
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Re: Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by Tamarind » Wed Oct 03, 2018 12:03 pm

Peter Foley wrote:
Mon Oct 01, 2018 3:30 pm
Picking up on Celia's comments:
In addition, I suggest you (or they) list their expected income sources and income amounts for each year from 2019 through your mom being age 71. Then estimate the taxes for each year. They will need to have some income to qualify for an ACA plan but having too much will disqualify them from getting the federal government to pay for part of the medical insurance premium.

They should also consider doing some Roth conversions before they both start Medicare, particularly if the RMDs might put them into a higher tax bracket after age 70. That is a whole separate topic to consider. If your mom can wait until age 70 to start Social Security, her benefit will grow 8% each year she waits after FRA and it will allow her to do more Roth conversions in the same tax bracket.
Good advice. I would add that I'm not really sure how much your parents need to live off of. You mention $50,000/ year as normal living expenses. Roth conversions are most beneficial when you can pay the taxes on the conversion from a taxable account. Am I estimating correctly that your taxable account is about $50k + $200K? If you need a lot of that for living expenses because you are delaying SS benefits, you may be a bit limited in what you would want to do in terms of Roth conversions. Also note that Modified Adjusted Gross income above $170,000 affect Medicare B premiums. The process looks back two years so if you are considering a single large Roth conversion keep that number in mind as well.
Thanks for this. We won't know the exact amount available in taxable until their primary residence sells (probably next spring). I did learn they have more cash socked away than I thought.... So it'll be more like $100k +net proceeds.

We had done the math for Roth conversions prior to learning about my mom's health insurance situation, and it only made sense for them to convert up to the top of the 12% bracket at most - the benefit of conversions won't really appear until/unless one of them passes and the survivor has to file as single. As long as they are MFJ it doesn't appear to matter much whether they Roth convert or not. So IRMAA is out of the equation - they won't be anywhere near the threshold.

After seeing the above here I've advised Mom to delay taking the HRA and plan to get an ACA plan, and that it means they'll need to limit MAGI income to below 400% of poverty (~$65k). So they can Roth convert up to that range and get a little more conversion space by also contributing $4500 to HSA for Mom.

I think this makes more sense than trying to hold taxable income down as close to 100% of poverty as possible to get the maximum in subsidy. They would pay later in taxes on RMDs if they weren't able to do any conversions, and moderation will let them delay SS at least some, convert at least some, and get the lion's share of the available premium subsidy.

clydewolf
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Re: Help me help my parents with Medicare/Medigap, ACA, and Roth conversion questions

Post by clydewolf » Wed Oct 03, 2018 6:20 pm

If they make charitable contributions, once they reach age 70-1/2 they can use the Qualified Charitable Distribution (QCD) as their RMD up to $100,000 per year. The QCD does not show up on your 1040 as taxable income.

Here is more: https://www.kiplinger.com/article/retir ... tions.html

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