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Medicare

Healthcare: The clinker for retirement plans

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On rumors that the State of Arizona will offer only two employee healthcare plans, Cigna and Aetna, when open enrollment comes around, I once again reviewed the financial prospects for my upcoming enforced retirement.

Right now, the State offers employees an incredible EPO plan, to which I subscribe with joy. It covers my doctors at the Mayo Clinic, and it costs all of $13 a pay period—that’s right, folks: $26 a month! Earlier retirement calculations have assumed that I’d stay in this plan this fall, which would mean that the discounted COBRA would cover it until I turn 65 in May, 2010, at about $150 or $200 a month.

Cigna is roundly hated by medical care professionals, some of whom will not even allow you in the door if that’s you’re insurer. At one point, Cigna was our only choice, after every other insurer dropped out of the bidding, claiming that Cigna came in with a bid too low to cover reasonable costs. Healthcare professionals I know here say that Aetna is even worse in terms of slow payment, bogs of paperwork, and collection hassles.

And you can be sure that neither of these outfits will offer a plan that covers virtually all our costs for $26 a month. To coin a phrase: LOLOLOL! That means my healthcare costs will go way up in September, and the cost of COBRA may very well be unaffordable even at the discounted rate.

However, both apparently will cover the Mayo, so I figure that if they offer a high-deductible plan, that will be the thing to get…and hope I don’t get sick or hurt before next May.

Contemplating this state of affairs brought me back to the question of what the whole cost of cobbled-together Medicare coverage actually will run. I’ve been estimating around $300, but I really have no idea, because I can’t find out what Medigap costs in Arizona.

I’m determined not to be herded into an HMO, which is what the Medicare Advantage plans are. My mother died hideously at the hands of HMO doctors. She would have died anyway, but she didn’t have to suffer the way she did. The people who operate an HMO—doctors included, in my experience—do not have your welfare at heart; what they have at heart is the bottom line. It’s not in the organization’s interest to treat you when you develop an expensive, catastrophic illness. They longer they can delay treating you, the less they’ll have to pay for your care between the time they no longer can ignore you and the time you croak over.

Now, if you’re going to die anyway, really: who cares whether you get treatment for the disease itself? The issue here is that all the time your doctors insist there’s really nothing wrong with you, they’re not giving you palliative care. A disease that’s going to kill you is likely to be extremely painful. And so what happens is that until you reach a near-comatose state, you suffer.

You suffer a lot.

To stay out of a Medicare HMO plan, you have to cobble together coverage by combining Medicare Part A (free for most US workers), Medicare Part B (about $100 a month), the required Medicare Part D (about $30 a month), and private Medigap insurance to cover the large holes in the government coverage (premiums apparently a closely held secret).

You can get Medigap insurance through your employer, if your employer offers retiree coverage. GDU does: the present, magical $26/month premium morphs into something well in excess of $300 a month, bringing the tab for the total package close to $500 a month. That’s for one person who takes no meds and has no health issues—other than the stress brought on by working for the freaking Great Desert University.

That’s well beyond my price range.

Stop the presses! Just this minute, a volunteer for Medicare called and said she would send a sheet comparing premiums for local Medigap carriers, plus a bunch of other information. We’ll see what that amounts to.

While gnashing my teeth over this, I found a Web site showing that Medigap policies can range in price—for the SAME COVERAGE!—from around $100 to to around $500 a month. A site over a year old shows that in Arizona, the most popular Plan C ranges in price from $976 to $2,735 a year. Not only that, but cheaper policies are engineered to increase in cost over time, so that after a few years you can end up paying more than you would have paid if you’d bought a more expensive policy at the outset.

The whole system is a minefield of rip-offs!

This is a problem. I can’t afford more than a total of $300 a month for health-care insurance, and the munificent amounts I’ll be able to scrape together between Social Security, much-reduced retirement savings, and a part-time job whose de facto hourly rate is well under minimum wage will disqualify me for any help with these costs. People are advised to comparison-shop for Medigap policies, but it’s virtually impossible to get rates online. You have to track down your state’s SHIP office and hope to God their volunteers have built a list comparing the several score of Medigap offerings in all their various permutations, and got the figures right (these outfits are apparently staffed exclusively by volunteers, or nearly so). Good luck with that!

Good luck, indeed. The volunteer who just called reports that COBRA does not count as “credible” coverage. In other words, according to her if I buy COBRA to cover the five months between Canning Day and my 65th birthday, these Medigap carriers can refuse to cover me for any pre-existing conditions, real or in the minds of their bureaucrats. Now, I had understood that Medigap insurers were not allowed to punish you for being sick. But evidently if that was ever true, it’s changed. Although they can’t refuse you coverage, they’re allowed to refuse to cover whatever ailment they think they’ve identified, at least for up to six months. But according to this page, COBRA does exempt you from the six-month waiting period…so, as feared, the volunteer counseling that seems to be the only source of comprehensive information has its limitations. Such as, oh…say, accuracy.

Any way I massage the figures, under the best of conditions things are going to be excruciatingly tight once I enter my enforced retirement, at least untilI reach age 66 and can again earn a living wage—or as close to it as I can come after being out of the workforce for two years.

Unless I get a lot more Social Security than I expect or the tax bite is a lot smaller than I think it will be, a 4 percent drawdown from savings won’t let ends meet. Five percent will keep me in the black…by about $50 over the course of a year, assuming I never, ever overspend my much-straitened budget. Even a 6 percent drawdown will just cover expenses, with only a couple hundred bucks to spare at the end of a year. Those estimates are based on Medicare and Medigap costs of no more than $300 a month.

If the cost exceeds that amount, then I’m up the creek. I’ll have to sell my not-out-of-the-ordinary home and move into an apartment or a trailer.

Defies belief, doesn’t it? Especially when you realize that studies show average Baby Boomer retirement savings range from $38,000 to $88,000, with a mean amount (in 2005, before the economic collapse!) of $49,944. That would put my savings, from which a sustainable drawdown can be expected to generate $17,000 to 25,500 a year, at 4.8 to 11 times the typical total you’d expect someone in my age bracket to have accrued. How do people with “normal” savings rates afford health care and still have enough to live in retirement?

Or…do they?

The high cost of Medicare

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In a comment to my recent post about planning for the pending layoff/retirement/whatever-we’re-calling-it, Abigail asks about the costs of Medicare, which I estimate will be around $300. I’ll be eligible for Medicare in May of 2010. So, between the December 31 canning date and May I’ll have to take COBRA, which will cost about $480 a month.

Medicare alone doesn’t cover all your costs: it’s an 80-20 plan. The older you get, the shorter the odds that you’ll suffer a catastrophically expensive illness. Heart bypass surgery, for example, can cost $170,000; 20 percent of that would be $34,000, which you have to pay out of pocket. Cancer treatment can quickly mount into the hundreds of thousands of dollars. Clearly, if you have to pay 20 percent of costs like that, a major illness—almost inevitable in old age—will pauperize you.

To protect yourself, you have to buy a supplemental policy called “Medigap” insurance. You also are required—it’s not an option—to take and pay for prescription drug coverage under Medicare Part D. By law, Medicare Part B and Medigap insurance provide no prescription coverage. If you decline to sign up for Part D when you start Medicare and then later change your mind, you are gouged royally for the privilege of signing up later.

To be fully covered, you have to cobble together coverage with the standard Medicare Part A (which is free), Medicare Part B (which costs about $100 a month), Medicare Part D (which evidently runs about $30 to $65 a month but which, if you suffer an illness that requires expensive drug therapy, will leave you holding the bag for upwards of $4,350), and Medigap insurance (provided by private insurers, apparently ranging in cost from an average of about $100 to about $285 a month—it’s next to impossible to find out what the actual costs are). By the time you’ve added up Part B, Part D, and Medigap, you end up with a monthly cost of about $300 a month. That amount will never go down, and you can be sure that like every other cost else in life, it will continue to rise.

At this time, the combined cost of full Medicare coverage is about 12 times what I pay for my employer’s EPO plan, which covers my doctor of 30 years. Since 1987, he has practiced at the Mayo. The Mayo Clinic, because of Medicare’s low reimbursement rates, now refuses to accept new patients who are covered by Medicare. They will keep you if you’re already an active patient, but if you walk in off the street and you’re covered by Medicare, they won’t take you.

You can opt out of the public system and instead buy private insurance through Medicare Part C. These plans are basically HMOs, and they are dangerous. They’re extremely restrictive—you have little or no choice as to which doctors you see, and like all HMOs they’re not in business to take care of you; they’re in business to make a profit. Consequently, it’s in their interest to limit the amount and quality of healthcare you get and to direct you to the cheapest providers.

Now, the problem is that hospitals in Arizona are about as good as schools in Arizona, which is to say “not very.” It was at one of our major regional health centers where I waited over four hours with acute appendicitis and never saw so much as a triage nurse. When I finally got to the Mayo’s ER, they slapped me into surgery instantly. In another major hospital, my mother-in-sin underwent successful aortic surgery but almost died because, while recuperating in a hospital room, she had a heart attack that went unnoticed by anyone but a CLEANING LADY! Her life was saved because a maid happened to wander into the room and figured something was wrong.

Only one hospital in Arizona consistently gets top national ratings, and it’s the Mayo. That’s why you need to retain your choice of doctors and medical facilities, no matter how much that privilege costs you.

Planning for layoff-induced “retirement”

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In a moment of lucidity, I realized that of course if my basic survival account is padded with a five- or ten thousand-dollar cushion, what will matter in “retirement” is not month-by-month income (earnings will fluctuate wildly because teaching money will come only in spring and fall), but how much I will earn on average. That is, after the layoff, I won’t be living on bimonthly paychecks. I’ll be living on a fund of money that is restocked once a month from a variety of sources. 

When income from these sources runs low, I’ll have to use some of the cushion to live on. But when income rises while community college classes are in session, the cushion should be replenished, assuming my average costs don’t overrun average income.

Thinking about this the other day, I realized to my amazement that—any way you look at it!—my income in forced retirement will be higher than my salary. Unfortunately, the changed circumstances of retirement will make that irrelevant, because costs will rise significantly. However…there it is.

When GDU is paying my full salary, the net is $3,044. The pay cut created by two furlough days a month has reduced my take-home pay to $2,836.

My financial advisor says that with a 5 percent drawdown, my savings will last 100 years. At 7% the money would last 50 years. A 5 percent drawdown plus Social Security plus teaching income should create a net of $3,288, assuming the total tax gouge is around 20 percent. 

This looks wonderful, eh? Well…not so fast.

Even though my net monthly expenses will drop because I’ve paid off the second mortgage on my house and because I will cash in the whole life insurance policy as soon as this tax year ends, it still won’t be enough.

Right now I’m paying my share of the mortgage on the downtown house with a small drawdown from my largest IRA. In other words, I’m not paying the mortgage out of my salary. That cost will have to be folded in to the 5 percent survival drawdown—in fake “retirement,” I will have to help pay the mortgage out of money I would ordinarily use to live on.

Even that would be manageable…except for Medicare.

Medicare, Medicare Part D, and Medigap insurance will cost twelve times what I’m paying for health insurance now! And that will run my average costs over $3,288 a month.

Freelance income might take up the slack, but it’s so sporadic and so unreliable, I’m not including it as a source of average monthly income. As we’ve seen, the likelihood that I can keep my credit card charges down to $1,200 is slim, and so overruns of this tight little budget are probable and may be frequent. All it will take is one vet bill or one repair bill to run the thing deep into the red.

It looks like I’ll be forced to take a 6 percent drawdown, even though I don’t want to and even though I think it’s highly ill-advised.

One pool repair bill runs upwards of $115. You can’t walk into the vet’s office for less than $100. A pair of glasses costs $300. As you can see, then, at 6 percent I’ll get by…but it’ll be tight. Very, very tight. 

Probably some freelance money will continue to flow in, maybe as much as two or three hundred dollars a month. whoop-de-doo!

Yesterday I dropped by the college, where the departmental chairman was hanging out with the secretary. They said not to worry about enrollments: because the college nullifies unpaid early enrollments and community college students are just as broke as the rest of us, most people wait until the week before classes start to sign up for classes. The chair was confident all three classes would make, but, he said, even if they don’t, he still has several unstaffed sections. He said he was sure I would end up, willy-nilly, with three sections. 

So that will help to fill up the fund that I’ll be living on after December.

And it’s pretty clear there’ll be no problem landing three sections a semester as long as I can dodder onto a college campus. GDU has so massively shot itself in the foot—in both feet!—by jacking up tuition, adding a per-credit surcharge to the inflated tuition, and by generally mistreating students that vast numbers of students who would qualify to get into the university are going to the community colleges for their first two years. 

It will be a very long time before the university recovers from its own missteps and from our right-wing legislators’ fierce, vengeful animosity toward higher education, set loose by the departure of Governor Janet Napolitano, who was able to keep the kookocracy under control to some degree. The universities in this state, especially GDU, have been permanently damaged by the crash of the Bush economy and actions of the surviving extremists in our elected offices.

It’s too bad—a disaster, really, for our state—but on a selfish, personal level…what redounds to the junior colleges’ benefit may redound to mine.

Projected cash flow at 5% drawdown
Projected cash flow at 5% drawdown; red = outgo

Health insurance flap settles down

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Our Beloved Employer’s announcement that its only health insurance plan to cover the Mayo has been discontinued caused some annoyance among a number of employees. As it developed, I was not alone.

The HR website gave no clue as to what plans we will have for the open enrollment that starts today. One page says something about Aetna, but another page — dated 2007 — makes no mention of an Aetna plan. If you call on the phone or e-mail, they won’t tell you anything. Instead, they instruct you to attend one of the “benefits fairs” slated for this month.

So I trudged across campus to today’s “fair,” hoping to pick up some paperwork that will compare plans and maybe even say what hospitals are covered. No such luck: the two-hour “fair” amounted to an endless PowerPoint presentation! Attendance was standing-room only.

Oh, lord. So I sat on the floor, having run a little late because my car’s battery went dead and it took an hour or two for my mechanic to come up to my house, jump-start the chariot, and then follow me to his shop and change the battery and fix the fuses that blew in the process. Mercifully, the HR “presenter” paused as she cast up a slide listing the prices of the various plans, just long enough for me to raise my (literally) sweaty little paw and ask if any of them covered the Mayo. Yes, she said: RAN-AMN, an EPO with a monthly premium of $30.

Hot dang! I couldn’t believe it. The plan that worked was a sister EPO — our 2007-08 premiums have been about $25. I picked the now-defunct Schaller-Anderson plan because HR told me it was the only plan that covered the Mayo. So this means either they misinformed me last year or RAN-AMN has picked up the Mayo as a network member.

I’d figured I was going to have to go with the PPO, whose rates are around $200 a month for a single person, or try to get a bare-bones high-deductible plan and go with a doctor in a boutique practice, by way of getting access to medical care…something that’s in short supply around here. Having learned to take what HR says with a crystal of sea salt, I called the Mayo’s billing department and learned that yea verily, they are part of RAN-AMN’s network.

So that’s a relief. If I’d had to go back to the PPO, it would have meant the end of my plan to save enough to pay off the Renovation Loan, since the monthly setaside for that is almost exactly the same as the PPO’s premium.

Interestingly, deep in RAN-AMN’s fine-print paperwork, I found a proviso saying that if you are eligible for Medicare (not if you have it, but if you’re eligible), then the insurance you’re buying through GDU becomes “secondary.” This implies that you can NOT opt out of Medicare just because you have a job that offers comparable but cheaper coverage.

It looks to me like Medicare is going to be an expensive proposition. Everyone gets Medicare Part A, “free” for 40 years of payroll deductions. But it doesn’t cover much and leaves you open to bankruptcy should you develop an expensive ailment. So you have to take Medicare Part B, which costs almost $100 a month. Then you also have to take Medicare Part D — if you decline it and then later pick it up, you have to pay an extra premium (a de facto fine), for the rest of your life. Medicare D costs around $30 a month, and rising. But Medicare A, B, and D still don’t cover you well adequately, because Medicare has become so chintzy that more and more doctors won’t accept “assignment” — that is, they won’t work for what Medicare pays. So, to guarantee you can see the doctor of your choice or a competent specialist, you also must buy “supplemental” or “Medigap” insurance, which apparently costs upwards of $145.

So you have to cobble together four different plans to get full coverage, and by the time you’ve done that, the cost of health insurance for a retiree will exceed $250 a month. I would find that a strain on the decent salary I’m earning. To have to pay eight or nine times my present healthcare premiums for Medicare when I’m living on a reduced, fixed income will pose an interesting challenge.

As you can imagine, any Pushmi-Pullu as jury-rigged is this is complicated and confusing. The government’s official Medigap document linked above is 52 pages long, and following it requires your full, undivided attention. Then we have this overview of Medicare, 113 pages full of details whose complexity rivals the U.S. tax code!

Look, I’m grateful not to have to pay the exorbitant rates with which insurance companies gouge older Americans — $400, $500, $600 a month. But still…I’m brought back to the same thought that always occurs to me every time I have to look into our health-care system:
There’s no excuse for this.