Financial Opportunities Uncovered: A Keeler & Nadler Family Wealth Podcast
Come take a journey with us as we explore topics and concepts from the obscure to those hiding in plain sight, so obvious that you wonder how you missed the low lying fruit. Financial planner and host Andy Keeler and his team, thought leaders, and guests discuss everything from maximizing your money and lowering taxes to how to gain the upper hand in an auction and the math behind online gambling. We discuss wealth building strategies and wander into deeper aspects of the human mind that can improve or inhibit our ability to build wealth with confidence.
Financial Opportunities Uncovered: A Keeler & Nadler Family Wealth Podcast
The $16,000 Medicare Mistake You Can't Afford to Make
Medicare remains a frustrating enigma for millions of Americans despite being in existence for over 60 years. Even highly educated professionals find themselves bewildered when approaching their Medicare enrollment, often making costly mistakes that compound over time. But what if understanding Medicare could become a financial opportunity rather than a bureaucratic headache?
In this illuminating episode, we dive deep into the Medicare maze with expert guidance from Kerry Quick of Seniority Benefits Group and our own Director of Tax, Abby Rose, CPA and CFP®. Together, they demystify the fundamental components of this critical healthcare program and reveal how seemingly unrelated financial decisions can dramatically impact what you pay for Medicare coverage.
The conversation breaks down Medicare's structure—from the hospital coverage of Part A to the outpatient services of Part B, and the prescription coverage of Part D. You'll discover critical differences between Medicare Supplements and Medicare Advantage plans and learn why the timing of your enrollment matters more than you might think. Most importantly, we explore the often-overlooked connection between your tax planning and Medicare premiums through IRMAA (Income-Related Monthly Adjustment Amount)—a Medicare premium surcharge that can add up to $628 per month per person for higher-income beneficiaries.
Whether you're approaching Medicare eligibility, helping parents navigate their healthcare options, or planning for your own retirement decades from now, this episode provides the clear, actionable guidance you need to make Medicare work for your financial plan rather than against it. Subscribe now and join Andy, Abby and Kerry for this essential conversation about one of retirement's most misunderstood challenges.
The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations.
It is only intended to provide education about finance, tax, retirement and related planning topics. To determine which investments or strategies may be appropriate for you, consult your financial, tax or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results.
Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Keeler & Nadler Family Wealth is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Keeler & Nadler Family Wealth and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Keeler & Nadler Family Wealth unless a client service agreement is in place.
If you hear the word Medicare do you get a brain fog. How is it that Medicare, a national health insurance program for those age 65 and over, remains such a mystery after 60 years? Today, on Financial Opportunities Uncovered, we seek to unravel what remains a very complex health insurance program and help listeners understand how it works and how Medicare premium amounts can be intertwined with other financial decisions. Helping us understand Medicare is our go-to expert on the topic, Carrie Quick of Seniority Benefits Group, and help us understand how some of the financial decisions we make can affect what we pay for. Medicare is our own Abby Rose. Abby is an advisor here at Keillor Nadler and our Director of Tax. She's a CPA and also a Certified Financial Planner. Welcome, Carrie and Abby.
Speaker 2:Thank you Hello.
Speaker 1:So let me start by saying that when I hear the word Medicare, I get more of a headache than a fog, my eyes glaze over and I'm apt to take a nap. Medicare is a hairy beast and while we have had over 60 years to understand it, it still baffles the best and brightest. Carrie, why don't you help us level set by helping listeners understand what Medicare and its various parts do?
Speaker 2:I would love to and to your point. People come into our office every day and say things like gosh, I'm a PhD, md, jd. I should know more about this. And our answer is the same every day. No, you shouldn't. Medicare is simply something that looms out in the netherworld. Until it becomes your reality, there's no reason why you should know anything about it. So our goal is to demystify it, simplify it so that it's something that everybody can understand, at different levels, because everyone comes into it differently.
Speaker 2:But, we do try to make it as simple as possible, got it. I think it's helpful for everyone to know how we got into this mess and I say that with affection. Most days, we truly love what we do. My company, under a different name, for many, many years managed group health plans for small employers, which gives us a unique perspective that a lot of brokers wouldn't have. Especially today, with rising costs, with employer coverage options, and we just started getting more and more calls from people within those groups saying, hey, so-and-so is turning 65, retiring what?
Speaker 3:do, we do.
Speaker 2:So initially we got into this just in an effort to help. It was probably five minutes later that we started to see how difficult it is to navigate. And then we started to see financial implications where we realized in many, many cases, even if someone chose to work beyond eligibility, a move to Medicare made better sense for everyone. That was almost 20 years ago, so good news is we started to transition into this market when the Affordable Care Act was passed. We lost a lot of those accounts because most smaller employers exited Right the health insurance business.
Speaker 1:Exactly right Got it.
Speaker 2:We carried on on transition and today, this is all we do this is not something that we dabble in. Our role is to explain to people when they move into Medicare what their options are, and the message that we push out more than ever which would be helpful for many of your clients is understanding that if you choose to work beyond 65, making the assumption that staying the course with your employer plan may not make sense.
Speaker 1:I think we may come back to that. Abby has a story she might share. So we all hear about Part A, Part B, Part D. How does it all work?
Speaker 2:Part A is hospitalization. This is what you fund in the years that you work. So as long as someone has 10 years of work history, they will have pre-funded Part A hospitalization, sufficiently enough that there's no collectible premium. When you move into Medicare, oftentimes you'll hear people say Part A is free. No, it's not, you paid for it all along there just isn't anything once you have those 10 years.
Speaker 2:Part B is essentially everything but a hospital stay. That's doctor lab typically. Anything that you think of that's outpatient is going to fall under part B. That is where the government attaches a premium, which is means tested. Maybe Abby will speak to that as well, so together, part A and B, otherwise known as original Medicare, is an 80% plan with no prescription coverage. So what we do is explain to people what their insurance options are to address that 20%, as well as any prescription needs, and that's where things start to get clearer.
Speaker 1:So that's like a supplement or Medicare Advantage plan. What's Medicare? Part D Part. D is prescription coverage, so is that part of Medicare and if it is, why do they need prescription coverage through a supplement?
Speaker 2:Part D is actually the newest part of Medicare. It came into the market in 2006. And it is not mandatory. It's not something that you have to elect when you're first eligible. But if you don't and elect it later, you're charged a late enrollment penalty. But if someone is enrolling in a Medicare supplement, it is not part of that supplement. It's a separate standalone policy. In the case of an Advantage plan, Part D prescription coverage is incorporated.
Speaker 1:Okay, and so age 65 is kind of the magic number, but you will get into the nuances of 65, their birthday when their birthday is all that kind of stuff. It's not as simple as just saying. You need to start thinking about this when you turn 65, is it?
Speaker 2:about this when you turn 65, is it? No, it's not. In fact, we encourage people to use the three months before they turn 65 as their due diligence. Your own personal open enrollment begins three months before the month of and three months following.
Speaker 1:I'm asleep already, I'm sorry. All these deadlines, I'm confused.
Speaker 2:It's a lot. It's a lot, which is why there aren't many companies in the state of Ohio who do what we do, because it is a lot. But it's imperative that people get proper guidance, that is for sure.
Speaker 1:So I read something about an IEP, a GEP and an SEP. What is that?
Speaker 2:Well, even I, as a veteran in this industry, stay away from a lot of those codes. It gets wildly confusing. To keep it simple, you're either initially eligible, which is IEP initial election period, so that would be someone that's 65 or approaching 65? Correct, and then SEP special enrollment period, is someone who's now 68, who's retiring and is now pursuing Medicare post-eligibility date and then the GEP.
Speaker 1:what is that?
Speaker 2:General election period is typically when people who have dropped the ball and didn't apply for Part B when they otherwise should have can only do so between January and March 31st each year.
Speaker 1:Okay.
Speaker 2:That doesn't affect too many people.
Speaker 1:Gotcha, I'm checking the room to make sure Abby and our producer are still awake.
Speaker 3:Still here.
Speaker 1:So let's wake up by talking more about Medicare supplements and Medicare Advantage plans. These are basically private health insurance policies that cover gaps in coverage that Medicare Part A and Part B don't cover right, and is that what the donut hole is?
Speaker 2:The donut hole is no longer part of our ilk, if you will. That went away and that only pertained to Part D prescription coverage, and I can come back to that because we are now dealing with legislation. Well, the fallout, I should say with the Inflation Reduction Act as it is impacting Part D.
Speaker 1:And I can touch on that. But effectively.
Speaker 2:the donut hole no longer exists, Okay.
Speaker 1:The Medicare supplements versus Medicare Advantage. What's the difference? And my understanding is different insurance companies let's say it's Anthem or Medical Mutual cover different counties in the state. So folks need to know. You know, if they're, let's say, they've always been with Medical Mutual, they love Medical Mutual, is Medical Mutual an option in their county?
Speaker 2:I'll come back to that.
Speaker 1:Okay.
Speaker 2:But to keep it simple, okay, and to stay awake. Essentially, when you move into Medicare, you have two options for coverage. The marketing and advertising and general noise leads people to think that they have tens of thousands of options, but in reality you have two Part A and B. Together is an 80% plan. So your choices are either a Medicare supplement with a standalone Part D prescription plan or a Medicare Advantage plan where drug coverage is built in For decades Medicare supplements, the technical term being Medigap policies were the only game in town.
Speaker 2:Medicare came into law in 1965. They came into existence not long afterwards and for a long, long time, from the late 60s until the late 90s, that was the only option unless you had a retirement plan to look to. A Medigap policy is a policy that you purchase from an insurance company and it essentially wraps around Part A and B and ultimately pays the 20% that Medicare does not.
Speaker 1:So there's hardly any out-of-pocket cost if you pay a Medicare supplement premium and Medicare Part B premium. Correct, correct, you're pretty much good, yes, okay.
Speaker 2:The spirit of an intent of a supplement is to minimize any further out-of-pocket costs. Gotcha. And then, because they are still considered to be private and prescription drug plans are regulated, typically someone will also elect a standalone prescription drug plan that will accompany that supplement. And what drives the selection of a prescription plan is purely based on what someone is taking at the time of enrollment. And that's where we have historically spent the lion's share of our time in terms of educating. It's been a moving part since 2006, for sure and continues to be.
Speaker 3:I have to imagine it probably changes every single year, even throughout the year in some circumstances.
Speaker 2:It does. I can tell you, though, that it was very, very stable for a long time until last year. The Inflation Reduction Act, which was passed in 2022, called for a cap in prescription drug coverage as of 2025. So, as of this year, no one in Medicare will pay more than $2,000 for their medication, which is wonderful for many people who do take expensive, brand name primarily medications.
Speaker 2:What was not made clear that we all learned at this table in grade school is that needs to be paid for somehow, so we have been grappling with this for the better part of now three years now trying to give people proper guidance, because today, a brand name medication can retail at $1,000 a month easily. So, if you think about that, that person taking that otherwise $12,000 a year medication is only going to pay two. Somehow we have to rectify the other 10. Thus, premium increases are on the horizon. We expected pretty significant increases going into 25. However, a decision was made last fall, before the election, to subsidize prescription plans going into 2025. We don't anticipate that to stick as well going into 26, but frankly, we don't have information at this point and typically won't until early October.
Speaker 1:So let's go through a scenario. A client retires at 63. They're not eligible for Medicare A or B, so they go on to their spouse's plan if their spouse is still working or they secure private coverage through the exchange. At what point do they need to start the Medicare process? Is it three months before they're 65 or what?
Speaker 2:Ideally, 64 and a half is a good time because you can start asking questions. Typically the marketing starts at about that point. People start getting phone calls and solicitations in the mail. It's a very, very noisy market, so anyone who doesn't get all of that information is the exception. Typically people are calling us at about that age saying I think I should do something now, but the earliest you can take any action is three months before.
Speaker 1:And is it a similar time frame for a Medicare supplement or Medicare Advantage plan?
Speaker 2:Either way, either way. So when we meet with people, we explain here are the options, here's how they work, how they differ, and then, once that person makes that decision, we facilitate their enrollment in that coverage. We spend a lot of time explaining to people that it doesn't distill down to a coverage issue as much as it is how much you want to pay for it and when, and, to some extent, how much flexibility you need to have.
Speaker 1:Okay, abby, wake up. Wake up, abby. So we talk a lot around here about Irma.
Speaker 3:Oh man, Taxes is what's going to wake us up. That's exciting.
Speaker 1:And my 95-year-old aunt named Irma. She'll wake you up. So you've explained this before, but for listeners, what is it?
Speaker 3:So Irma it's called Income-Related Medicare Monthly Adjustment, which I know Keri, you deal with this probably just as much as we do, and we talk about it all the time with folks. So it's essentially what we call a penalty on your Part B and Part D Medicare premiums. Why we call it a penalty is because the more you make, the more IRMA you're going to pay. So if somebody gets to be a high enough tax bracket, they're going to have to pay an additional amount towards their Medicare premiums and that's where the IRMA is calculated. So there's different tiers based on your filing status, how much income you make, and so on and so forth. So we pay attention to IRMA a lot around here. So obviously, as holistic financial planners, we're doing a lot of tax planning. So this comes into play. The interesting part about IRMA especially you know not that what I just said wasn't interesting is Riveting.
Speaker 3:It's always riveting. They have a two-year look back, so that kind of adds to the complexity of it. So for 2025, they're looking at 2023 tax returns. So there's a lot of planning around it with the IRMA and the Medicare premiums.
Speaker 1:We talked a little bit about this in one of our recent podcasts about do-it-yourselfers and how a decision made in a portfolio to sell something short-term capital gain in a taxable account creates this extra income. And boom. Not only are they paying income taxes on the short-term capital gain, but they're also going to pay. But they don't know that for two years after the mistake was made.
Speaker 3:Or we've had clients that you know, new clients that came in and they filed separately, for example. And you know, without going down too deep of a rabbit hole, when you file separately you're penalized even more on the Medicare side. So they were, they jumped right to the highest tier.
Speaker 1:Which is how much? What is the highest monthly surcharge amount?
Speaker 3:$628 a person per month.
Speaker 1:Per person, so a married couple, as I said, a financial move in one area could add $1,350 per month to their expenses. That's over $16,000 in a year. And again, they didn't know that. They triggered that for two years.
Speaker 3:And there's not much you can. There's. Sometimes you can appeal it if there's reason to which I think we'll talk about, but you can't just go back and change your tax return without reason. So sometimes there's nothing you can do about it.
Speaker 1:So I think you use the term adjusted gross income. Yes, I'm assuming manipulating AGI or adjusted gross income, you could lower your IRMA. How do you do that?
Speaker 3:Right. So I like to explain that it's based on adjusted gross income versus taxable income. So that's one thing to denote. Because taxable income we have a little bit more say over at times. You can give more to charity to lower your taxable income. That's a big one that we talk through. Giving to charity doesn't lower your adjusted gross income. So your adjusted gross income you can reach these brackets by just having your required minimum distributions and Social Security and there's not much you can do about that because those are forced incomes, right incomes. So the adjusted gross income ways we can play with that a little bit is taking some less IRA distributions if we don't need to doing Roth conversions in years that your income is lower to lower future adjusted gross income. So those are very high level. I know we can dig into Roth conversions probably for an entire episode.
Speaker 1:Unlike tax brackets, which are marginal, meaning if you are in a 22% tax bracket, a portion of your income is taxed at 10 and a portion is at 12. And then, say, 22,. The IRMA brackets are not marginal. Is that right?
Speaker 3:That's correct. So once you hit that IRMA bracket, it's not one month is taxed at IRMA and then the next it's not Once if you go a dollar over, you're in that next tier.
Speaker 1:So, aside from taking less IRA income, what are some other IRMA strategies we've encountered?
Speaker 3:So the Roth conversion is a big one. Qualified charitable donations is another one. So we talked about charitable donations and how we might not be able to give to charity to lower our adjusted gross income. Qualified charitable donations is one way that we can do that. The caveat there is you have to be 70 and a half, so there's an age limit there. But that actually reduces your adjusted gross income.
Speaker 3:So, for example, if somebody has a required minimum distribution of $100,000 a year, we can give some of that required minimum distribution to charity, therefore effectively lowering their tax, their income tax, but also giving to charity, therefore effectively lowering their income tax but also giving to charity, which is part of their goal. So we actually had a client last year at the end of the year we were doing some tax projections for and we said if you give $1,500 more to charity, we'll save you about $100 or $150 a month in Medicare IRMA. And they said, duh, no brainer. So just some simple tax planning can have a really big compounding effect. The Roth conversions again, that's another big one that we do. That takes maybe a little bit more pre-planning because it really is taking income at lower rates early in retirement potentially to lower your required minimum distributions kind of down the line. So that's a couple decade long planning, even the Roth conversion strategy.
Speaker 1:So Carrie Medicare lets you appeal your Medicare premium for scenarios, certain scenarios. What are some of those?
Speaker 2:It's not uncommon for someone to come into the office today and say, well, yeah, I made that in 2023, but now I'm retired, or last year I had a significant reduction in income. That could be because of reduction in work hours, retirement, divorce. Social Security has a list of what they consider to be life-changing events, and if someone can show that they've fallen into one of those categories, they're more often than not successful in getting IRMA reduced maybe not to the standard, but perhaps a level or two downward. And my encouragement is to fight the good fight. The worst they're going to say is sorry you're stuck.
Speaker 3:So we see it a lot with retirement that's the biggest one I think we see is somebody retired, they're using their 23 return, they're no longer, they're just living off of retirement income. So that's one that we help folks with a lot. Or they sell a property like a rental property. That's another big one that we run into.
Speaker 1:So what if one spouse still works and the other is retired? Could they just file separately to avoid the Irma situation?
Speaker 3:Yeah, so I spoiled that earlier. You did Sometimes.
Speaker 2:Sometimes Sometimes.
Speaker 1:Okay.
Speaker 2:But there has to be significant disparity in the incomes. Yeah, because someone filing as an individual, the threshold is half of what it is if you file jointly, so there has to be a pretty big difference.
Speaker 1:And I would think it would be the same with a divorce. As you were going through the list of sort of exceptions to the IRMA or life-changing event, I'm thinking divorce, okay, the IRMA brackets for single people are half the dollar amount thresholds are half of what they are for married. So in the case of a divorcee, let's say their income is $200,000. Okay.
Speaker 2:If the threshold currently, if you filed in 2023 as a married couple filing jointly, the cutoff is $212,000. If you were an individual filer, the threshold was $106,000. So people who file as single, married single or just single straight up are, as Abby said earlier, penalized at a much higher rate.
Speaker 1:Yeah. So you would have a scenario where, let's say, one of the two had an income of $300,000 and the other one at $100,000 or $107,000, let's say the $107,000 would be greatly benefited by filing separately.
Speaker 3:but the $300,000 would be really hurt by filing separately. I mentioned the one client that they had filed separately and we looked into that. We ran all different. They filed separately because it made sense from a tax standpoint so that's why they had done that filing. So we actually ran some numbers for them to say here's how much we're saving in Medicare, irma. Maybe we get a little less of a tax refund because of it, but the offset of saving the IRMA was significant. So we run those scenarios of filing separately and how that affects Medicare and the tax situation, because they're all interconnected of course.
Speaker 1:So I know there was a case recently that you two collaborated on.
Speaker 3:We did talk about it.
Speaker 1:There was a gentleman that he retired once, but then he was reemployed. I think in the meantime he turned 65. So take me through that scenario.
Speaker 3:Yes, he filed for Part A because he turned 65. Okay, and at the same time mistakenly filed for Part B.
Speaker 1:Even though he was employed.
Speaker 3:On coverage with his employer.
Speaker 1:Right, he was covered by the new employer's health plan. I'm assuming this happens all the time where people think well, I do A and B at the same time. They're kind of one in the same, so I'm going to do both. But he didn't need to be on B and because he's employed, his income's higher.
Speaker 3:He was in the highest. I mean he was in the $628 per person.
Speaker 1:So he was paying $16,000 more than he needed to.
Speaker 3:Correct and didn't even need the Part B. Yeah.
Speaker 1:And what was the solution?
Speaker 2:Well, when someone is, erroneously paying Part B premium, they can petition Social Security to say, because erroneously paying Part B premium, they can petition Social Security to say I now have access to employer coverage and Social Security will suspend that Part B premium until such time that they need it down the road.
Speaker 1:Okay, could you go back and forth?
Speaker 2:Yes, and I have a client who did just that, that and the last time he did it he called me and said if you have any clients in the future who want to do this, please have them call me and I will disabuse them of the notion yeah. Because they don't make it easy. I mean, that is a fact.
Speaker 1:Yeah, bureaucracy at its best.
Speaker 2:Yeah, but it's all driven by how noisy it is. I mean, if I had a dollar for every time I've had a conversation where I'm just talking someone down off the rafters because their neighbor has told them that they're going to Medicare jail because they didn't enroll, I'd be a gajillionaire. So many people, just out of fear and intimidation, will enroll in both parts A and B, unaware that they're literally wasting money, because the rule is as long as you continue to stay on your employer plan and that employer has at least 20 employees. Part B is duplicitous, but it can be undone. It's just not an easy thing to do.
Speaker 3:And this client did it, obviously, I think he was on both for probably six months before it. Finally, he said the process was not terrible to get off of the Part B, he just had to show the proof of coverage. But now we've saved him a couple thousand dollars. They don't refund you for the previous six months, unfortunately, but at least ongoing.
Speaker 2:I think, probably the most stunning Irm, and I'm sure Abby has faced this. It can be a very uncomfortable conversation because many people are not prepared, and probably the most difficult conversation is when husband and wife are moving into Medicare within a month or two or at the exact same time. One has been a high income earner, the other one has earned nothing and when they find out they both have to pay that higher IRMA amount. It's a tough pill to swallow because it's a double whammy on premium.
Speaker 1:Write your congressperson yeah.
Speaker 2:It's not based on who earned what? It's based on the return Correct and that can be an ouch.
Speaker 1:Well, thanks, ladies, for helping us make sense of something everyone will eventually need to know about and, as always, we thank our listeners. Be sure to tune in next time when we discuss often overlooked savings vehicles such as health savings accounts, flexible spending accounts and employee stock purchase programs and more. I'm Andy Kehler, and this is Financial Opportunities Uncovered brought to you by Kehler and Adler Family Wealth. If you have questions on anything you heard in this episode or have an idea for a future episode, connect with us on LinkedIn or email me at andykeeler at knwealthcom.
Speaker 4:The opinions expressed in this program are for general information purposes only and are not intended to provide specific advice or recommendations. It is only intended to provide education about finance, tax, retirement and related planning topics. To determine which investment strategies are appropriate for you, consult your finance, tax or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember, investing involves risk and possible loss of principal. Please seek advice from a licensed professional. Keillor and Nadler Family Wealth is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Keillor and Nadler Family Wealth and its representatives are property licensed or exempt from licensure. No advice may be rendered by Keillor and Adler Family Wealth unless a client service agreement is in place.