Affordability of Employer Coverage for Family Members of Employees

Earlier this week, the Internal Revenue Service released a final rule changing the way health insurance affordability is determined for members of an employee’s family under Affordable Care Act (ACA) regulations.

As discussed in the prior post, need-based calculations to determine eligibility for the federal ACA program and its subsidies consider only the employee, ignoring the spouse and children.  In many cases, an employer pays all or a portion of the employee's premium but nothing towards other members of the household.  In this case, ACA calculations determine that subsidized insurance is not available since the employer's health insurance is deemed "affordable" for the employee; but in fact, the family premium is prohibitively expensive and would be deemed unaffordable if the ACA need-based calculations included family members.

Under the new rules that begin in 2023, if a consumer has an offer of employer-sponsored coverage that extends to the employee’s family, the affordability of that offer of coverage for the family members will be based on the family premium amount, not the amount the employee must pay for self-only coverage.

This is a long-awaited solution to the "family glitch", which has been an issue since the ACA program's inception.  The change will be reflected in the online application through the HealthCare.gov enrollment platform and Enhanced Direct Enrollment certified partner applications during this year’s Open enrollment period that starts on November 1, 2022.  State-based Marketplaces not using the HealthCare.gov enrollment platform are also working to implement this change, but may have different implementation timelines. 

To view the final rule, please visit:

"https://www.federalregister.gov/documents/2022/10/13/2022-22184/affordability-of-employer-coverage-for-family-members-of-employees"

A Proposed Solution for the Affordable Care Act (ACA) Family Glitch

In April, the Biden administration proposed a solution to the ACA's "family glitch", a technical issue that has impacted family health premium subsidies since the program's inception.

Currently, people who are without access to "affordable" health insurance through a job may qualify for a premium tax credit to be applied towards a plan on the ACA’s health insurance marketplaces.  However, regulations that determine if employer-based insurance is affordable give consideration only to the employee, without any need-based calculations allowed for spouse or children.  

In the current situation, family members of the employee may have access to coverage through the employer, but the cost is often prohibitively expensive and out of reach for the household budget.  The so-called "family glitch" affects about five million people and has made it impossible for many families to use the premium tax credit to purchase an affordable ACA marketplace plan.

Should the proposed rule be finalized, family members of workers with affordable self-only coverage but unaffordable family coverage may qualify for premium tax credits to buy an ACA plan, according to a statement from the White House.  The proposed rule would extend marketplace tax credits to only the family members of workers who are not offered affordable job-based family coverage.

"Most people thought it would be up to Congress to remedy the family glitch.  But since getting modifications through Congress has proved nearly impossible, advocates have pushed for executive action,” said Julie Rovner of Kaiser Health News. “That is not as foolproof as passing a law and is subject to a challenge through lawsuits."

It is not uncommon where employee-only coverage is affordable but family coverage is not.  Most employers offer family coverage, but many do not subsidize the cost for family members of the employee.  The Kaiser Family Foundation’s 2021 Employer Health Benefits Survey shows premiums and employee contributions have increased significantly.  In 2021, average premiums for employee-only coverage were $7,739, compared to $22,221 for family coverage.  That's nearly $2,000/month!

The IRS will hold a hearing on the proposed rule on June 27.  Assuming the rule is finalized as proposed, the family glitch would no longer exist, and dependents offered unaffordable job-based family coverage could be eligible for more affordable marketplace coverage beginning in 2023.

Click here for the Fact Sheet distributed by the Biden Administration.

Until next time,

Andrew Herman

CMS Announces 2022 Medicare Parts A & B Premiums and Deductibles

On November 12, the Centers for Medicare & Medicaid Services (CMS) released the 2022 premiums, deductibles, and coinsurance amounts for the Medicare Part A and Part B programs, as well as the 2022 Medicare Part D income-related monthly adjustment amounts.

Medicare Part B Deductible Increase

The annual Medicare Part B deductible increases to $233 in 2022, an increase of $30 from the $203 deductible level applicable in 2021.  Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A.

Medicare Part B Premium Increase

Each year the Medicare Part B premium is set according to the Social Security Act.  The standard monthly premium for most Medicare Part B enrollees will be $170.10 for 2022, an increase of $21.60 from the $148.50 monthly premium applicable in 2021.

According to CMS the nearly 15% increase to the Medicare Part B premium and deductible levels are due to the following factors:

• Rising prices and utilization across the health care system that drive higher premiums year-over-year alongside anticipated increases in the intensity of care provided.

• Congressional action to significantly lower the increase in the 2021 Medicare Part B premium, which resulted in the $3.00 per beneficiary per month increase in the Medicare Part B premium (that would have ended in 2021) being continued through 2025.

• Additional contingency reserves due to the uncertainty regarding the potential use of the Alzheimer’s drug, Aduhelm™, by people with Medicare.  In July 2021, CMS began a National Coverage Determination analysis process to determine whether and how Medicare will cover Aduhelm™ and similar drugs used to treat Alzheimer’s disease.  As that process is still underway, there is uncertainty regarding the coverage and use of such drugs by Medicare beneficiaries in 2022.  While the outcome of the coverage determination is unknown, our projection in no way implies what the coverage determination will be, however, we must plan for the possibility of coverage for this high cost Alzheimer’s drug which could, if covered, result in significantly higher expenditures for the Medicare program.

CMS said the rise in Social Security benefits, which most of the 62 million people on Medicare, who are mostly 65 and older, collect will cover the expenses, as there is expected to be a 5.9% bump in 2022 monthly payments due to cost-of-living adjustment the agency said, the largest in 30 years.

"This significant COLA increase will more than cover the increase in the Medicare Part B monthly premium," CMS said.  "Most people with Medicare will see a significant net increase in Social Security benefits.  For example, a retired worker who currently receives $1,565 per month from Social Security can expect to receive a net increase of $70.40 more per month after the Medicare Part B premium is deducted."

The cost-of-living adjustment goes into effect in January and is estimated to average $71.40 per recipient.

Click here for the November 12th Fact Sheet published by CMS.

Until next time,

Andrew Herman

2021 Guide to choosing a Medigap policy has been published by CMS

The official 2021 Guide to choosing a Medigap Policy has been published by the Centers for Medicare and Medicaid Services (CMS).  This important guide covers topics such as:

• What is a Medicare Supplement Insurance (Medigap) policy
• What Medigap policies cover
• Your rights to buy a Medigap policy
• How to buy a Medigap policy

A Medigap policy is private health insurance that wraps around the Original Medicare Program (Parts A and B) by filling in gaps that otherwise would result in out-of-pocket costs.  This means Medigap will pay some of the costs that Original Medicare doesn't cover, such as copayments, coinsurance and deductibles.  During the six months that follows a Medicare Beneficiary's enrollment in Medicare Part B, Medigap can be purchased on a guaranteed issue basis regardless of health status.  After the six months pass, insurance companies are allowed by law to decline or rate applicants due to health status.

Medigap plans, or Medicare Supplements, are known by their "plan letter name" such as Plan G or Plan N.  Consumers who purchase Medigap typically also buy a Stand-alone Medicare Part D Prescription Drug Plan (PDP), since Medigap policies do not include any drug coverage.

Medigap is entirely different from Medicare Advantage (also known as Medicare Part C), which is a program that delivers both Medicare health and drug benefits through a private insurance company on a year-to-year basis.  Medicare Advantage plans, such as HMOs and PPOs, utilize insurance company networks and often require additional authorization for care access that is not required under Medigap policies.  There is an Annual Election Period (AEP) for Medicare Advantage that runs from October 15th to December 7th; during this period a plan change can be made for the next January 1st.  Medicare Beneficiaries also can disenroll from their Medicare Advantage plan during the AEP, and purchase a Medigap policy (as long as they meet the health eligibility requirements to buy a policy).

Click Here To Download the 2021 Choosing a Medigap Policy Guide

Until next time,

Andrew Herman
AH Insurance Services, Inc.

Federal Long-Term Care WISH Act Introduced in U.S. House of Representatives

Earlier this week, U.S. Representative Thomas Suozzi introduced the WISH Act (H.R. 4289) to create a public catastrophic Long-Term Care Insurance program funded by a new payroll tax.  The acronym stands for "Well-Being Insurance for Seniors to be at Home Act" (click here to read H.R. 4289).

The program is to be financed by a payroll tax of 0.3 percent for workers and 0.3 percent for employers; and it would pay out a monthly cash benefit of about $3,600 (indexed to inflation).  This amount is estimated to pay for about six hours of in-home care daily.  Family members would not be eligible to receive payment; and the individual entitled to the benefit must comply with State and Federal laws relating to minimum wage and withholding of payroll taxes and other employment-related taxes.

The following chart shows how 2021 payroll taxes would be increased by this new program:

Including the proposed Long-Term Care (LTC) Tax, W-2 employees would pay total payroll taxes of 7.95% with self-employed workers paying 15.9% (employee plus employer portion).

The WISH Act conditions benefit eligibility on reaching full Social Security retirement age, and having a severe cognitive impairment or needing assistance in at least two activities of daily living (ADLs).  Full benefits would be paid to those who contributed to the program for at least 10 years (people would be eligible for partial benefits once they paid into the system for six quarters).

The program proposes to pay benefits after an enrollee required a high level of care for a varying amount of time based on a beneficiary’s average indexed earnings.  Those with the lowest incomes could receive benefits after one year; a median income worker would be eligible after twenty months; and the highest income workers would begin to receive benefits after five years.

Funding for the WISH Act is not limited to the LTC Tax noted above.  In addition, there is appropriated to the Federal Long-Term Care Trust Fund out of moneys in the Treasury:  $12,000,000 for program establishment in each of Fiscal Years 2022-2024; and another $50,000,000 for educating the public.

An immediate question that comes to mind is whether it would be allowed to opt out of the federal program, for instance if a taxpayer already owns private Long-Term Care Insurance.  It should be noted that an opt out provision was included in a Washington State program passed into law earlier this year.

The new Washington State Long-Term Care program mandates public Long-Term Care benefits for Washington residents.  The Long-Term Care Act was created to reduce pressure on the Medicaid system and is paid for by 0.58% tax on employee wages.  Under current law, residents have one opportunity to opt out of this tax by having private Long-Term Care Insurance in place by November 1st, 2021.

The WISH Act's sponsor said he is hopeful the program also will have an effect on the private Long-Term Care Insurance market, increasing opportunities for insurance companies and their agents to offer Long-Term Care Insurance to supplement the federal program.  That just may be WISH-ful thinking.

Until next time,

Andrew Herman, President

U.S. Supreme Court Upholds Affordable Care Act in 7-2 Ruling

Once again, the nation's highest court has upheld the Affordable Care Act (ACA) in a 7-2 ruling dismissing a challenge made to the ACA in the suit Texas v. United States.  That suit, which had the potential to invalidate the entire law, was turned away by today's majority ruling in California v. Texas.  This marks the third time the U.S. Supreme Court has ruled in favor of the ACA.

Today's ruling found that the plaintiffs did not have a legal right to bring the case before the Court.  The opinion held that plaintiffs in the challenge “failed to show a concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing the specific statutory provision they attack as unconstitutional.”  The opinion did not speak to the underlying issue of the mandate’s constitutionality.

Justice Stephen Breyer delivered the court’s opinion, with Justices Samuel Alito and Neil Gorsuch dissenting.  Writing for the court, Justice Stephen Breyer said the states and people who filed the latest suit lacked legal standing to go to court.  Breyer said they could not show they were injured by the now-toothless mandate, as required under the Constitution.

The prior mandate, arguably the most controversial aspect of the ACA law, was a federally imposed tax penalty for not being enrolled in health insurance.  It was eliminated in 2019 by actions taken under the Trump Administration.  The penalty amount for not having health insurance in 2018 was $695 for adults and $347.50 for children, or 2% of yearly income, whichever amount is more.

Breyer noted, “To find standing here to attack an unenforceable statutory provision would allow a federal court to issue what would amount to an advisory opinion without the possibility of any judicial relief."

Justices Samuel Alito and Neil Gorsuch dissented, indicating they would have let the suit go forward and continue to support dismantling most of the ACA.

In his dissent, Alito wrote “No one can fail to be impressed by the lengths to which this court has been willing to go to defend the ACA against all threats."  Alito was in dissent in both previous ACA cases.

In a concurring opinion, Justice Clarence Thomas said he agreed with Alito’s analysis of the previous cases, but agreed with the majority that the latest challengers lacked the right to sue. “Although this court has erred twice before in cases involving the Affordable Care Act, it does not err today,” Thomas wrote.

Today’s ruling leaves the entire ACA intact.  The case is California v. Texas, 19-840.

Until next time,

Andrew Herman

Investing in Fixed Annuities for Safety, Accumulation, and Tax Advantages

While they are best known for providing guaranteed income during retirement, Fixed Annuities can be purposed for tax deferred accumulation.  They are designed to protect your principal from downside loss and can be funded from after-tax money or pre-tax accounts such as IRAs and 401Ks.  Additionally, distributions made for Qualified Long-Term Care expenses are entirely tax-free.

Are Annuity products a safe investment?

Not all Annuities are equal when it comes to protecting your principal from investment loss.

Variable Annuities are the least safe, as contract funds typically are invested directly into equities and other assets that can fluctuate widely in value.  Variable Annuities offer a potentially rewarding upside, but their suitability is limited to investors who can tolerate the risk of losing their invested principal.

Investors seeking growth and safety of principal have better options with Fixed Deferred Annuities.  Two popular products are Multi-Year Guaranteed Annuities (MYGAs) and Fixed Indexed Annuities (FIAs).

MYGAs offer a contractually guaranteed interest rate for a fixed period, such as three years or five years.  Interest earnings grow fully tax-deferred when no distributions are made (when money is withdrawn, gains are taxed first prior to return of principal).  “Surrender Charges”, or fees, generally apply for early termination; however, most MYGAs allow penalty-free withdrawals during the guarantee period.  Such withdrawals may be limited to certain thresholds such as: 10% of account value each year, accumulated interest earned, Required Minimum Distributions (RMDs on Qualified Annuities), or other terms as specified in the Annuity contract.

When choosing a MYGA product, it is important to review all contract guarantees and terms including how funds are disbursed if the Annuitant (person insured by the Annuity) dies before the end of the accumulation period.  Some MYGAs pay a death benefit equal to the full account value without any surrender penalty.

When the guarantee period ends, consumer-friendly tax laws allow accumulated funds to be rolled over without tax consequence into a new Annuity contract (this is known as a 1035 exchange).  The customer has other options as well, such as annuitizing the payout over a specified number of years (or for lifetime) or receiving a lump sum payment.  As noted above, distributions are taxed first on gains. In the case of a Qualified Annuity, or IRA-type account, the entire distribution is taxable since none of the contract funds had been taxed previously.

FIAs, like MYGAs, are Fixed Annuity contracts that accumulate interest on a tax-deferred basis; and they often are designed for a longer time horizon compared to MYGAs.  The main difference, though, is that FIA contracts base investment returns on the performance of a selected Index such as S&P 500.  Unlike direct investment in equity or bond markets, FIAs generally are protected against investment losses. In exchange, only a portion of Index growth is credited to the Annuity contract when the Index increases in value.  Index measurement for interest crediting purposes often is on a one-year point-to-point basis with an annual reset for the next year.

 

When purchasing an FIA, it is important to review all terms including contractual surrender charges, availability of penalty-free withdrawals, the portion of Index gain credited to the contract, guarantees regarding annuitization (payout) of funds in the future, and how the death benefit is calculated.

 

FIAs are especially attractive in times of a mature bull market, since history shows market corrections occur and the downward trend usually is short-lived.  For example, consider an investor with $100,000 who purchases an FIA contract participating in a stock Index, and with downside protection, rather than investing directly in the Index itself.  If the underlying Index were to drop 20% in the following year, the FIA contract value is still $100,000 and has not suffered any of the 20% market loss which could take years to recoup.

 

Investing in a MYGA vs. FIA Contract

 

Purchasing a MYGA contract makes the most sense when there is a shorter timeline for needing access to funds and/or the investor wants to know exactly how the investment will grow.  MYGAs can be compared to Bank Certificates of Deposit (CDs), which operate similarly in that an interest rate is guaranteed for a specified period.  Currently, MYGAs are available with much higher credited rates compared to Bank CDs; and, as noted earlier, Annuity contracts grow on a tax deferred basis unlike most investments including Bank CDs.

 

Purchasing an FIA contract is most suitable when the investor has a longer time horizon and would like some exposure to market upside but without risk of losing principal.  The long-run return on FIAs tends to be higher than investments in MYGAs; and there is no need to worry about a steep market loss during the contract period.

Annuity Tax Advantages

Annuities can be purchased with non-qualified or tax-qualified funds.  With Non-Qualified Annuities, the amount invested comes from after-tax money; and only investment gains are taxed when money is withdrawn.  With Qualified Annuities -- like traditional IRAs -- the entire amount of money withdrawn is subject to taxation as the investment was funded initially with pre-tax dollars.

Tax deferral inherent in both Non-Qualified and Qualified Annuity products helps to accelerate asset accumulation through “Triple-Compounding”, which includes earning interest on the principal, interest on the interest, and interest on what would have been paid to taxes.

Distributions from an Annuity during the accumulation phase are taxed on what is known as a last in, first out (LIFO) basis.  This means withdrawals from an Annuity are made on earnings (gains) first, and the owner is taxed at regular income rates on the payments until all earnings have been distributed.

It should be noted that for people under the age 59 ½, withdrawals from an Annuity may be assessed a 10% penalty applicable to the taxable portion of the withdrawal.

Annuity Tax Advantages for Qualified Long Term Care Expenses

Fixed Annuities also can be purposed to protect against the high cost of Long-Term Care services.  One well-known product is a “Hybrid” Annuity/Long-Term Care Insurance policy, which can be funded with a single premium that buys a base policy plus a continuation of benefits rider to pay Long-Term Care expenses for additional time if the base funds are exhausted.  Limited health underwriting applies, so applicants who are not in good health may not be eligible to purchase a Hybrid product.

With Hybrid Annuities, distributions for Long-Term Care services are not subjected to a surrender penalty and are income tax free.  This would not be the case if paying for these costs from IRA or 401(K) assets.

Non-Underwritten Fixed Indexed Annuities with a “Boost” benefit for Long-Term Care

Insurance carriers also have begun offering non-underwritten Fixed Indexed Annuities featuring a “Boost” to income payout amounts when the annuitant cannot perform Activities of Daily Living (ADLs) or has cognitive impairment.  Here is an example of one company’s product design:

• Wellness Withdrawals can be triggered if you or your spouse cannot perform at least two of six Activities of Daily Living.  These withdrawals serve to double your guaranteed monthly payout and are available for up to five 5 consecutive policy years.
• Investment performance with the Annuity can be tied to the Barclays Atlas global diversified index, as well as S&P 500 (funds can be allocated in any proportion between the two).
• Penalty-free withdrawals can be taken for any reason up to 5% of the account value each year beginning on the first policy anniversary.

Summary

All Fixed Annuities offer safety of principal, tax-deferred growth, and innovative product designs not available with most other investments.  With Fixed Indexed Annuities, investors can participate in the upside of equity markets while avoiding the risk of losing invested principal.

SECURE Act Impact on U.S. Retirement System

The Setting Every Community Up for Retirement Enhancement (SECURE) Act went into effect on January 1, 2020 and makes a notable impact on our nation's retirement system.  Three important changes are outlined below:

1) The new age for RMDs is now 72

Under the SECURE Act, the "begin date" to start taking RMDs from your pretax retirement plan accounts and IRAs is the year you turn 72 (the previous age was 70½).

2) Age limits for contributing to traditional IRAs are eliminated

For tax year 2020 and beyond, the law removes the age limit at which you can contribute to a traditional IRA.  Prior to this change, you could not make a traditional IRA contribution after age 70½ (although you can contribute to a Roth IRA if you meet the income limitations).  The new law allows anyone who is working and has earned income to contribute to a traditional IRA regardless of age.

3) Non-Spouse beneficiaries who inherit a retirement account must withdraw the entire balance within 10 years

Under prior rules, beneficiaries could elect a "stretch IRA" planning strategy which allowed non-spouse heirs inheriting a pretax retirement plan or IRA to stretch withdrawals over their life expectancy.  That meant younger heirs could potentially leave much of that money growing tax-deferred for decades.

Now, non-spouse heirs must empty inherited accounts within 10 years following the year of the owner's death.  Heirs who remain under the old rules include spouses; the disabled or chronically ill; minor children (not grandchildren) generally until the age of 18, and beneficiaries who are not more than 10 years younger than the deceased.  The prior rules apply if you inherited an account before 2020.

Until next time,

Andrew Herman

Shedding Light on Medicare Part D – Why pharmacy copays may not match to published plan copays; and why actual out-of-pocket differs from the Medicare TrOOP (True Out-Of-Pocket)

Medicare’s prescription drug benefit is known as Part D and is provided by private insurers.  Medicare Part D was signed into law as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003; and it can be purchased stand-alone or integrated with a Medicare Advantage plan (also known as Medicare Part C).  Medicare Part D has distinct coverage phases, including a Coverage Gap (or “Donut Hole”) that has been vastly improved for consumers under more recent legislation.

As of 2020, enrollees with Standard Part D coverage and in the Donut Hole pay 25% of the cost of their drugs until they reach the Catastrophic Coverage phase (as opposed to paying the full cost while in the Donut Hole, which had been the case before the Affordable Care Act started closing the gap).

For background, Medicare Part D plans may impose an Initial Deductible up to $445 in 2021 (an increase of $10 from 2020).  The deductible is the amount you must pay before the plan begins to share in costs.  Some plans (generally with higher monthly premiums) do not impose any deductible; and it is common for Part D plans to feature a plan deductible, but only apply it to medicines classified in the plan’s higher Drug Tiers (Part D plan sponsors typically assign medicines into five Tier levels).

Once the Initial Deductible is met, consumers are charged copays or coinsurance as published in each Part D plan’s Summary of Benefits.  Copay amounts may vary based on the plan’s pharmacy network (preferred vs. standard, or mail order service), as well as Drug Tier level.  Consumers sometimes inquire, why doesn’t my copay at the pharmacy match to the amount shown in my plan’s Summary of Benefits document?  Answer:  If the pharmacy drug cost is lower, you pay the lower amount.

The standard Medicare Part D plan structure also includes an element called the Initial Coverage Limit, or ICL, which is $4,130 in 2021 (an increase of $110 from the 2020 ICL of $4,020).  The ICL marks the point where you enter the Donut Hole.  More specifically, you enter the Donut Hole when the total negotiated retail value of your covered annual prescription drugs exceeds your plan’s ICL.  At the inception of the Medicare Part D program, consumers generally bore all costs in the Donut Hole.

So, will you enter the 2021 Donut Hole?

If your prescribed medications for 2021 have a retail value exceeding $350/month, you are likely to enter the Donut Hole during 2021.  Generally, less than one-quarter of Medicare beneficiaries with Part D coverage enter the Donut Hole each year.  Consumers sometimes avoid entering it by seeking out lower cost options (such as pharmacy coupons) instead of using their plan for certain drugs.

If you reach the Donut Hole phase of your 2021 Part D coverage, the drug discount is 75%.

While in the Donut Hole, generic formulary drug costs are 25% of your plan's negotiated retail prices.  For example, if you are in the 2021 Donut Hole and your generic medication has a retail cost of $100, the Standard Part D plan benefit requires you to pay $25 for a refill.  And the $25 that you spend for a covered formulary drug counts toward your 2021 out-of-pocket limit (or TrOOP, explained below).

While in the Donut Hole, the 2021 brand-name drug discount also is 75%, meaning that you pay 25% of your plan’s negotiated brand drug retail costs.  The pharmaceutical industry pays for 70% of the cost of these medications in the Donut Hole; and you receive credit for 95% of the retail drug cost toward meeting your 2021 TrOOP (the 25% of retail costs you pay plus the 70% drug manufacturer discount).

For example, if you reach the 2021 Donut Hole and purchase a brand name medication with a retail cost of $100, you will pay $25 for the formulary medication, and receive $95 credit toward meeting your 2021 TrOOP (which is the Donut Hole exit point).

So, what exactly is “TrOOP” and is it the same as my actual out-of-pocket drug costs?

There is not a short answer to this question, so please read on!

TrOOP is the Medicare Part D program’s annual "Total out-of-pocket costs" and is known as "True out-of-pocket costs".

In general, TrOOP includes all payments for medications listed on your Part D plan's formulary and purchased through a preferred or standard network pharmacy.  Both the payments you make, and payments that Pharma companies make on your behalf, count towards TrOOP.  If you switch Medicare Part D plans during a plan year, your TrOOP will be transferred to your new plan (it travels with you).

TrOOP is important because after it reaches $6,550 in 2021 (an increase of $200 from the 2020 level), you move to the final state of your Medicare Part D coverage, known as Catastrophic Coverage.  In the Catastrophic Coverage stage, your medication costs are reduced to $3.70 for generics or $9.20 for brand-name drugs (or 5% of the drug cost - whichever is greater).

The components of TrOOP are as follows:  it includes the amount of your Initial Deductible (if any) and your co-payments or co-insurance during the ICL phase; and as noted above it includes what you pay and a portion of what the Pharma companies pay while you are in the Donut Hole (of the 75% Donut Hole discount on brand-name drugs, 70% of that counts towards TrOOP as that portion is paid by the drug manufacturer). The additional 5% Donut Hole discount on brand-name drugs and the 75% Donut Hole discount on generics do not count toward TrOOP, as they are paid by your Medicare Part D plan.

TrOOP also includes payments made for your drugs by any of the following programs or organizations: "Extra Help" from Medicare; Indian Health Service; AIDS drug assistance programs; most charities; and most State Pharmaceutical Assistance Programs (SPAPs).

TrOOP does not include monthly premiums or non-formulary drug purchases.

Because TrOOP includes the lion’s share of what drug manufacturer’s pay on your behalf for brand-name drugs while in the Donut Hole, your actual out-of-pocket costs at time of Donut Hole exit likely will be much lower.

Will you exit the Donut Hole and enter the 2021 Catastrophic Coverage phase?

Based on CMS drug cost estimates, if your monthly retail formulary drug costs approach $850, you are likely to exit the 2021 Donut Hole and enter Catastrophic Coverage.

Medicare Part D plan sponsors can offer the Standard Part D plan design, or a design under which the measured actuarial value equals or exceeds the actuarial value of Standard Part D coverage.  Actuarial equivalence is a required test to confirm that expected paid claims under the plan sponsor's prescription drug coverage are at least as much as expected paid claims under the standard design.  Plans sponsors with multiple benefit options must apply the actuarial value test for each option.

Until next time,

Andrew Herman

2021 Medicare Part B Premiums Increase by $3.90/Month

On November 6th, The Centers for Medicare & Medicaid Services (CMS) announced the 2021 monthly Medicare Parts A and B premiums, deductibles, and coinsurance amounts.

Medicare Part B Premiums/Deductibles

Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A.  

The standard monthly premium for Medicare Part B enrollees will increase from $144.60 in 2020 to $148.50 in 2021, an increase of $3.90 per month.  Recent legislation signed by President Donald Trump significantly dampens the 2021 Medicare Part B premium increase that would have occurred given the estimated growth in Medicare spending next year. According to CMS, Medicare spending is estimated to grow due to people seeking care they may have delayed during the COVID-19 public health emergency, availability of more COVID-19 treatments, and availability of COVID-19 vaccines.

CMS also announced that the annual deductible for Medicare Part B enrollees will increase from $198 in 2020 to $203 in 2021, an increase of $5.  The additional $5 in 2021 will be borne by enrollees as an out-of-pocket expense under all Medicare Supplement Insurance plans (also known as 'Medigap') available to newly eligible Medicare beneficiaries.

Medicare Part A Premiums/Deductibles

Medicare Part A covers inpatient hospital, skilled nursing facility, and some home health care services. About 99 percent of Medicare beneficiaries do not pay a Part A premium since they have at least 40 quarters of Medicare-covered employment.

The Medicare Part A inpatient deductible that beneficiaries will pay when admitted to the hospital is $1,484 in 2021, an increase of $76 from $1,408 in 2020. Medigap plans automatically adjust benefits in 2021 so that the higher inpatient deductible is covered.

Medicare Annual Election Period (10/15 - 12/7)

Medicare beneficiaries can choose to enroll in fee-for-service Original Medicare (Parts A and B) or can select a private Medicare Advantage plan to receive their Medicare benefits. Premiums and deductibles for Medicare Advantage and Medicare Prescription Drug plans (Medicare Part D) are already finalized and are unaffected by this announcement.

During the ongoing Medicare Annual Election Period, which began on October 15th and ends on December 7th, Medicare beneficiaries can compare coverage options like Original Medicare (Part A and Part B) and Medicare Advantage, and choose health and prescription drug plans for 2021. Medicare health and drug plan costs and covered benefits can change from year-to-year. Over the past three years, CMS has redesigned its useful Medicare Plan Finder so that Medicare beneficiaries may:

• Compare pricing between Original Medicare, Medicare Advantage plans, Medicare prescription drug plans (Medicare Part D), and Medigap policies;
• Compare coverage options on their smartphones and tablets;
• Compare up to three Medicare Part D drug plans or three Medicare Advantage plans side-by-side;
• Get plan costs and benefits, including which Medicare Advantage plans offer extra benefits;
• Build a personal drug list and find Medicare Part D prescription drug coverage that best meets their needs.

Highlights for 2021 Open Enrollment include:

• A 34 percent decrease in average monthly premiums for Medicare Advantage plans since 2017.
• More than 4,800 Medicare Advantage plans are offered for 2021, nearly double the offerings in 2017. Similarly, more Medicare Part D plans are available, and the average basic Part D premium has dropped 12 percent since 2017. 
• Medicare beneficiaries can join a prescription drug plan that will offer many types of insulin at a maximum copayment of $35 for a 30-day supply. More than 1,600 Medicare Advantage and Part D prescription drug plans are participating in the Part D Senior Savings Model for 2021. People who enroll in a participating plan could save up to an estimated $446 a year in out-of-pocket costs on insulin. CMS has added a new “Insulin Savings” filter on Medicare Plan Finder to display plans that will offer the capped out-of-pocket costs for insulin. Beneficiaries can use the Medicare Plan Finder to view plan options and look for a participating plan in their area that covers their insulin at no more than a $35 monthly copay.

At AH Insurance Services Inc., we are available to make it easy for Medicare Beneficiaries to learn more about 2021 plan options.  We can help you determine whether a Medicare Advantage plan -- or a Medigap policy plus a Part D plan -- will be most suitable to meet your medical needs.  Additionally, we can assist in projecting your 2021 out-of-pocket drug costs based on your current medicine list and preferred pharmacy.  There is no obligation to buy.

Contact us at (850) 450-3622 or info@ahinsuranceservices.com.

Until next time,

Andrew Herman

President, AH Insurance Services, Inc.