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Frequently asked questions about planning for medical needs in retirement

What kind of health insurance should I get?
Like so many things when it comes to insurance, that depends. If your employer (or spouse’s employer) offers a group plan that insures all of its employees, you can probably save a lot of money by taking part in it. If you don’t have access to a group plan-or if the choices available through the group plan don’t fit your needs-you will have to buy an individual policy that will probably cost a lot more. Group plans are not only cheaper, but many also let you choose from a range of services. You don’t have to pay for coverage you don’t want. Under a group plan, you’re automatically eligible for coverage and cannot be dropped or charged more if you get sick. However, depending on the plan, the coverage may only reimburse you for a fraction of your actual medical bills. You may be limited as to which doctors you are allowed to visit, and your employer can raise your share of the premiums or even drop the plan anytime it wants. If you buy an individual plan, regulators in some states monitor price increases and might even have to approve them before they are passed to you. Many individual policies also allow you to visit any doctor or other specialist you like. However, the plans are generally much more expensive than group plans, the insurer itself has greater latitude to cancel your coverage, and some have relatively low maximum payout levels that could mean you’ll run out of coverage if you’re involved in a major accident or suffer a prolonged illness.

What types of health-related insurance should I avoid buying?
When buying health insurance, it’s important to remember that you want to purchase the broadest coverage possible. A good, broad policy will cover just about every medical problem you encounter, regardless of how you get it or where. As a result, you can usually avoid "narrow" insurance policies that will pay only under unusual circumstances. Here are some health-related policies you can probably live without: 1. One-disease insurance. Once you have broad coverage for every major health risk, any other coverage for a specific disease is redundant and a waste of money. 2. Accident insurance. These policies pay specific medical expenses resulting from an accident, rather than expenses resulting from illness. Again, this is redundant coverage because a standard health policy should cover health expenses resulting from either accidents or illnesses. 3. Health policies pitched by celebrities on TV, with premiums that appear to be unusually low. These policies usually have extremely long waiting periods before they cover any pre-existing conditions -- far longer than the waiting periods required by underwriters who don’t have to pay for expensive advertisements and celebrity endorsements. 4. Policies sold through unsolicited mail that offer spectacularly low rates. Many of these policies also have unusually long waiting periods for pre-existing conditions. 5. Student health insurance. Chances are, your student is already covered under your family health policy until he or she is 18, or for as long as the student stays in school. Check your policy and call your agent. 6. Most indemnity policies. They pay you a flat rate, sometimes a mere $50, for every day you spend in the hospital. That’s not very helpful, considering that the average daily rate at many hospitals now tops $500.

What is a major medical plan?
A major medical plan is a health insurance policy that provides comprehensive benefits for both hospital, physician and private nursing services. There is typically a deductible, ranging from $100 to $2,000 or more, and a co-insurance percentage, ranging from 10% to 50%. These two elements of the plan make up the insured’s potential out-of-pocket expense, which is the portion of the cost of services that must be paid by the insured. For many policies, there is a cap on the annual out-of-pocket cost to the insured of $1,000 to $5,000. Employees may also be required to pay part of the premium on an employer-provided plan.

What is an HMO?
A growing number of insurance plans now contract with a health maintenance organization (HMO) to provide medical services to policyholders. The typical HMO provides a broad range of services. You (or your employer) pay a monthly premium for its coverage, as well as a small charge for each office visit. You’re also usually covered for general physical exams and other types of services that many other insurance plans don’t cover. There are no complicated claim forms to fill out. Many HMOs are big medical clinics, with doctors, nurses and therapists on staff. You typically have to choose a doctor from the organization’s own roster, and the doctor will coordinate your medical treatment. HMOs tend to provide the least expensive medical coverage and a minimum of paper work. However, your choice of doctors may be limited. Getting an appointment to visit an HMO doctor can also take longer than getting an appointment with a doctor outside the plan, because each HMO physician is responsible for the care of literally hundreds or even thousands of patient-clients.

What are PPOs?
In a preferred provider organization (PPO), you get medical coverage that combines some of the cost-control advantages of an HMO with more of the choice associated with fee-for-service plans. You or your employer pay a monthly or quarterly premium to the health plan and, in exchange, you are covered for a broad range of medical services. Like an HMO, a PPO charges only a small fee for each office visit. There is no complicated paperwork to fill out. But in an HMO, your choices are usually restricted to a list of doctors that the organization has approved. In a PPO, the network of doctors is often much larger, and you’re free to use a doctor outside the approved list as well. For this freedom, a PPO usually charges a bit more than an HMO. The cost of each office visit under a PPO may also be a higher than the cost of a visit to an HMO.

Should I get an HMO or a PPO?
Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are more similar than they are different. Both types of plans offer broad health care coverage, and their insurance premiums are relatively low. The cost of each office visit is nominal, and little or no paperwork is involved. The biggest difference between the two involves your choice of doctors. If you choose an HMO, you will have to select your doctor from a list of professionals the organization has chosen. If you select a PPO, you’re free to continue using your family doctor or any other physician you choose. However, if the doctor or hospital you choose is not on the list of preferred providers, the plans generally cover only half of the total costs. If freedom of choice is especially important to you, you’ll probably want to choose a PPO even though its premiums will be higher. But if you’re looking for the least expensive coverage and don’t insist on seeing a particular physician, an HMO would be your best bet.

What does long-term care cover?
A typical long-term care policy covers extended care regardless of whether the care is medically related to a specific illness or injury. A typical policy will pay for care "provided either in a nursing care facility or at home. In some cases, long-term care also extends to adult day-care centers and other community-based care facilities. It is very important that you know which medical and ancillary expenses will be covered, because you’ll want to choose a policy that reimburses you for expenses rather than one that pays you a flat daily rate (an indemnity policy). The following expenses should be explicitly listed in your policy contract as covered: respite care, home modification, hospice care, caregiver training, professional health-care services, therapeutic devices, and personal care adviser and bed-registration fees if you are moving to a nursing home.

Is there any rule of thumb to determine if I should buy long-term care insurance?
Long-term care insurance can easily cost more than $1,000 a year, which is one reason some experts say you shouldn’t buy the coverage unless you already have other types of insurance and cash to spare. Consumer and financial experts generally agree that long-term care insurance is a bad investment . . . unless you will be able to pay the monthly premium with no more than 5% of your income. If you can, and in addition to your home, you expect to have over $10,000 in assets and over $30,000 per year in income when you reach your 80s, then a long-term care policy with high benefits and compounded inflation protection might be a reasonable investment if you can find and qualify for a good one.

From whom should I buy long-term care coverage?
If you decide to buy long-term care insurance, choose an insurance company that will be financially strong enough to pay any claim you might make. Stick to plans offered by insurers who get the top financial ratings from independent rating firms. You can find ratings from both Standard & Poor’s and Fitch on the Insurance News Network Web site. You also want to be sure that you’re comfortable with the person who actually sells you the plan. You should develop a reasonably high trust level with the person who presents a coverage plan to you. You should feel that you have the ability to openly communicate your concerns and receive accurate answers to your questions. It would be beneficial for you to buy from a representative of an organization that can provide current and future service to you as questions or needs arise. Another reason to build a lasting relationship with the person who sold you the plan is that you should review your coverage with the agent at least once a year. If you’re comfortable with the person, the review process will go more smoothly.

What is the typical premium for long-term care insurance?
A typical policy begins paying benefits 60 days after the onset of an illness or injury that requires long-term care. Benefits may last for up to 50 months and are increased 5% annually to keep pace with inflation. While there are a lot of additional variables that can affect premium rates, the biggest is one’s age when the insurance is purchased. Typical current preferred rates are:
Age Annual Premium
40 $240
50 $460
60 $1,000
65 $1,550
75 $3,300
79 $6,150

A preferred rate is typically a 25% discount from a standard rate. If a couple applies jointly, many companies will automatically grant them a preferred rate. Single applicants can typically qualify for a preferred rate if they haven’t smoked in the five years preceding the application, drive at least 1,500 miles per year and work or volunteer outside the home for at least 8 hours per week. The above characteristics represent common provisions, benefits and rating procedures in the industry. However, keep in mind that each company will have its own unique policy and rates. Just make sure you understand what you’re buying and how much your are paying. Talk to more than one agent or, for a small fee, a financial planner will assist you.

How will my insurer determine whether I’m eligible for benefits under my long-term health-care insurance?
If you have long-term health care insurance and make a claim, your insurer will likely look at six "benefit triggers" to determine if you can collect. The measurement devices, or ’benefit triggers,’ are known as ’activities of daily living.’ These activities are used to determine whether a person is capable of living independently or is dependent in some areas. There are six commonly recognized activities: Eating, using the toilet, continence, bathing, dressing [and] moving about. Typically, a patient must be unable to perform two or three of those six functions in order to qualify for benefits under the policy.

If I’m in my 30s or 40s, why should I be concerned about long-term care?
If you’re under 55, you can’t be blamed if you consider purchasing a long-term care policy a waste of money. After all, it may be a long time before you need long-term hospitalization or nursing care. But just as with life insurance, it’s never too early to think about buying long-term care coverage. Such insurance is much cheaper when you’re young because the insurer knows it’s unlikely you’ll need to be hospitalized any time soon. For example, if you sign up when you’re 50, your annual premiums will be about 30% as much as those for a 75-year old, and you will be covered for 25 years more. In addition, it’s much easier to qualify for long-term care insurance when you are young. All the application forms ask you about a host of medical conditions you may have experienced: If you answer "yes" to any one of them, your application may be rejected. But since most of those conditions develop only as you grow older, you probably haven’t had them. Long-term care policies are good investments for some people and poor investments for others. Being young doesn’t automatically exempt you from deciding whether to buy such a policy.

What is daily hospitalization insurance?
Some insurance companies sell daily hospitalization insurance that pays a certain amount per day, usually $75 to $100. These policies usually are a bad idea and are certainly no substitute for a comprehensive health or major medical insurance policy. One day in the hospital can rack up a bill of several thousand dollars, so $100 can be gone in an hour or less! These policies don’t offer coverage for the big ticket expenses. If you don’t have a comprehensive health insurance policy, get it! If you already have a major medical policy, it might seem useful to buy an in-hospital plan for those expenses not covered by your plan. However, a better approach might be to save an amount equal to the premium in a special account or mutual fund. Such funds could be used for any unforeseen expense.

What are conditionally renewable policies?
A conditionally renewable insurance policy is a policy that the insurer can unilaterally cancel if it feels that you have made too many claims. Thus, an insurer can drop you when you need the coverage most. For example, if you have held a conditionally renewable health insurance policy for the last 20 years and have dutifully made your payments without filing many claims, the insurer will have the power to drop you when you turn 60 or 70 -- the time when most people start visiting a doctor more frequently.

What are guaranteed renewable policies?
A guaranteed renewable insurance policy is a policy that prevents the insurer from unilaterally dropping you as long as you keep paying your premiums on time. Virtually all health insurance policies written today are guaranteed renewable. So are policies that provide many other types of coverage.

What is HIPAA and what are its benefits?
The Health Insurance Portability and Accountability Act (HIPAA) went into effect on July 1, 1997. It protects an insured person’s insurability. Before this law, if an insured person lost insurance coverage for some reason, losing a job for example, he or she could be required to prove insurability before obtaining new coverage. For most people this wasn’t a problem; however, for people with chronic health problems or whose health deteriorated while they were covered, it was a serious problem. Such people lived in constant fear of losing their jobs and thereby losing their health insurance. Now, if a person has been insured for the past 12 months, a new insurance company cannot refuse to cover the person and cannot impose preexisting conditions or a waiting period before providing coverage.

How does COBRA affect my group insurance coverage when I leave a job?
If you leave your job, you can keep the insurance offered by the company’s group plan from 18 to 36 months, depending on your situation. Your right to obtain this extended coverage is guaranteed by a federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985, whose acronym is COBRA. Details vary from state to state, but COBRA generally allows you to purchase insurance through your employer’s group plan for the same price the employer pays (plus 2% extra to cover administrative costs). If you’re disabled, your COBRA rights last for 29 months. Buying COBRA insurance isn’t always a great idea. If the company you work for offers a medical plan, it’s probably paying at least part of your premiums for you. If you left the company, your employer would no longer subsidize your payments. So, under COBRA, you’d pay the full tab yourself, which can be hefty. You might want to exercise your COBRA rights and stay with the plan if you can’t get coverage elsewhere, or if the coverage is the cheapest and best that you can obtain. You will need to shop the market to determine the best alternative.

Are Medicare premiums tax-deductible if I’m a senior citizen?
Premiums paid for medical insurance are deductible if they provide for reimbursement for hospitalization, surgical fees, other medical or dental expenses, drugs, or lost or damaged contact lenses. If you are over age 65 and not entitled to Social Security benefits, you may also deduct the premiums voluntarily paid for Medicare A coverage. Medicare B premiums (the premiums paid or withheld from Social Security benefits for supplementary Medicare coverage) are also deductible. However, since medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income, many senior citizens find that they are better off taking the standard deduction.

How does the death of a spouse affect the surviving spouse’s insurance coverage?
If you’re married but your spouse dies, you need to review your own insurance coverage to make sure that you have adequate protection and to determine whether any changes are needed. If your spouse handled your insurance, you may be unfamiliar with policy features, etc. In this case, you will need to educate yourself on your insurance needs. Besides revising and changing the beneficiary designations on existing policies, you have to assess your own insurance needs as a result of the changed circumstances. If you were formerly covered as a spouse under a health insurance plan, continuing coverage will have to be acquired. Appropriate coverage in your name for auto, homeowner’s or renter’s, and umbrella liability insurance is also necessary. Depending on your individual circumstances, you may also need to buy or increase your own disability and life insurance coverage.

Can I make penalty-free withdrawals from an IRA to buy medical insurance?
Losing your job is bad enough, but those problems can be compounded if your medical insurance disappears along with your paycheck. Since 1997, some workers who lose their jobs have been able to make penalty-free withdrawals from their Individual Retirement Account (IRA) to defray the cost of buying medical coverage. After 1996, unemployed individuals who have received unemployment benefits under federal or state law for at least 12 weeks may make penalty-free IRA withdrawals to the extent of medical insurance premiums paid during the year. The withdrawals may be made in the year the 12-week unemployment test is met, or in the following year. However, the penalty exception does not apply to distributions made more than 60 days after the individual returns to the work force. Self-employed persons -- who are ineligible for unemployment benefits -- now can also make penalty-free withdrawals from an IRA to pay their insurance premiums.

What is the difference between Medicare Part A and Medicare Part B?
Medicare, the federal government’s health care program for older people, is split into two parts. Everyone is eligible for Medicare’s Part A, which covers 150 days of your annual hospital bills and pays for skilled nursing care (but not for custodial care, such as help with daily dressing, eating or bathing). You have already paid for this coverage in your Social Security taxes, so you’re automatically entitled to it at age 65. Medicare’s Part B is optional, so you have to pay extra for it. Part B covers some or all of a doctor’s bill, out-patient surgery, emergency room treatment, X-rays, laboratory tests and some medical supplies. You can only sign up for Part B coverage during specific enrollment periods. You should sign up for Medicare during the three months before you reach 65 to avoid any waiting period for Part B coverage.

When am I eligible for Medicare?
Medicare is the federal program designed to provide medical coverage for older Americans. When you reach the age of 65, you’re eligible. You automatically qualify for Medicare coverage if you have met the work requirements to receive Social Security benefits. You can also qualify if you can claim benefits on the account of someone else, such as a spouse or deceased spouse who worked long enough to qualify for Social Security. Although most people must wait until they turn 65 to become eligible for Medicare, exceptions are made for those who have been receiving Social Security disability payments for at least two years and for those who have lost the use of their kidneys.

What is the prospective payment system (PPS) for Medicare?
Hospitals that treat Medicare patients do so on a prospective payment system (PPS). Under this system, Medicare sets a limit on the price it will pay for a patient’s stay in the hospital and the hospital agrees to accept that amount, even if the treatment it provides costs more.

Will Medicare pay the bills for a patient who must stay in a nursing home?
Medicare is the federally funded insurance program that’s automatically available to most people when they turn 65. The program will pay for a participant’s stay in a nursing home, but only for a limited amount of time. If you are discharged from a hospital but continue to need skilled nursing care at an approved nursing home, Medicare will pay for the first 20 days’ stay in the home. It will pay a portion of the cost if up to 80 more days are needed. After that, neither Medicare nor a Medigap policy will pay for any services. However, Medicare will pay nothing if your need is only for custodial care. If you go directly into a nursing home without first staying in the hospital, neither Medicare nor Medigap will cover any of the cost. You might be eligible for assistance from Medicaid, the program for low-income elderly people who have few assets. But failing that, the cost of your stay will likely have to be paid out of your own pocket.

What are peer review organizations and how can they help in Medicare disputes?
Peer review organizations are groups of doctors and other health care workers who review the quality and type of care that is provided to Medicare patients in hospitals, outpatient clinics and some health maintenance organizations. All 50 states have peer review organization, and members are paid by the federal government. If you have a dispute with Medicare, a peer review organization can assess your complaint and approve or deny payment for various services.

Can I lose my Medicare coverage if I get divorced?
If you qualify for Medicare coverage based on your own work record, the coverage can never be canceled. But if the insurance is based on your spouse’s work history, you might lose it if you get divorced. The key factor Medicare will consider is the length of the marriage. If you qualified for coverage based on your spouse’s work and remained married for at least 10 years, the coverage will stay with you even after you are divorced. But if you were married for less than 10 years and didn’t work long enough to qualify for you own insurance, Medicare can drop you from its program.

How do reverse mortgages affect income tax, Social Security and Medicare benefits?
If you take out a reverse mortgage, you don’t have to worry about the loan affecting your ability to collect Social Security or Medicare benefits. (However, if you are receiving Supplemental Security Income payments, you must spend the proceeds from the reverse mortgage and not accumulate the payments.) Nor will the mortgage have much effect on your income taxes. According to "Wealth Enhancement & Preservation" (The Institute Inc., Denver, Colo.), "Reverse mortgage advances do not affect eligibility for Social Security and Medicare benefits and will not affect SSI benefits as long as the recipient spends the advances within the month they are received. The loan advances from a reverse mortgage are not taxable, and the interest which is credited on a reverse mortgage is not deductible for income tax purposes until it is paid. This does not occur until all the reverse mortgage debt is paid."

Will Medicaid pay for care in an adult day-care center?
Adult day care centers are one of the fastest growing types of facilities that provide help for older people. They work much like a day care center for children. Someone (usually a son or daughter) drops the parent off in the morning and the day care staff provides meals and basic assistance until the end of the day, when the parent is picked up and taken home. If a person is impoverished, Medicaid will pay for adult day care services. Or, it can cover the cost involved in having a home-care provider visit the patient at home to provide assistance with bathing, cooking and medication.

What is Medigap insurance?
Medigap policies pay for some or all of the medical expenses that Medicare doesn’t. You can tailor your policy to cover deductibles, outpatient prescriptions or the cost of extremely long hospital or skilled nursing home stays. Although most people qualify for federal Medicare benefits at age 65, Medicare won’t cover all the medical expenses you’re sure to encounter as you get older, so it’s wise to consider a Medigap policy. When shopping for one, make sure the insurer you’re considering is highly rated. You can find ratings from both Standard & Poor’s and Duff & Phelps on the Insurance News Network Web site. Companies with lower ratings might be able to charge less, but there’s no guarantee they’ll have the cash needed to pay your future claims.

What are some alternatives to Medigap plans?
Medigap insurance supplements Medicare benefits. Although more than half of all Medicare recipients also buy Medigap coverage, there are other alternatives to fill the gap left by shortfalls in the Medicare program. Another type of Medigap policy is called Medicare SELECT. Retirees who purchase a SELECT plan rather than traditional Medigap coverage are restricted to visiting certain doctors and hospital facilities. In exchange, premiums for a SELECT policy are usually lower than those for Medigap plans. A handful of states-including Massachusetts, Minnesota and Wisconsin-have their own laws governing Medigap plans, and these policies are regulated by each state’s insurance department.