I’m retiring abroad. What Medicare plan should I get?
Editor’s Note: Journalist Philip Moeller, who writes widely on aging and retirement, is here to provide the answers you need. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
Jon: I live in Ecuador and will be moving to Mexico in 2017. I’m eligible for Part A and B, but only Part A is active at this time. My understanding is that I am not eligible for a Part D drug plan, because I do not live in the U.S., but that I can continue Part A and acquire Part B, assuming I make payments for Part B while living outside the U.S. The only advantage to continuing Part B would be if I flew back to the U.S. for major surgery. This will be more practical when we’re in Mexico.
If I choose the Original Medicare Part A and Part B, I’m still liable for the co-pay, and I do not think supplement insurance companies will want to cover me. If I choose Medicare Advantage, then I have to pick a city and insurance company. My understanding is that there is no co-pay with Medicare Advantage.
Is it possible to set get a Medicare Advantage plan even though I am not living in that particular city? If I get Original Medicare, can I choose a “home” city that would be convenient to fly to even though I have no other connection?
The bottom line for me is that Part B is of no value to expats if they cannot use it or cannot get supplement coverage or a Medicare Advantage plan. How do we set it up so we can return to the U.S. if needed and have full coverage without having a U.S. address?
Phil Moeller: Jon’s questions raise interesting and potentially complicated points about what people who are eligible for Medicare should do when they are going to be living outside the U.S. for an extended period.
First off, Medicare generally does not cover medical expenses outside the U.S. There are limited exceptions for people living near the Canadian or Mexican borders. Medicare may cover them for emergency care if they can document that going to a non-U.S. care facility was a medically appropriate decision. There also are some situations where Medicare will provide coverage to someone on a cruise ship near U.S. waters.
People with Original Medicare (Parts A and B) can get a Medigap policy (also known as a Medicare supplement plan) that provides coverage of emergency medical expenses outside the U.S. Medigap plans are regulated and sold at the state level. According to UnitedHealthcare spokeswoman Sarah Bearce, you need to be a resident of a state when you first buy a Medigap plan. After that, if you moved outside the U.S., your Medigap plan would continue in effect so long as you paid the premiums.
However, she notes, only Medigap plans C, D, F, G, M and N have foreign travel coverage, and there are restrictions: “The foreign travel benefit covers 80 percent of ‘foreign emergency care that begins during the first 60 days of a trip period’ after a $250 annual deductible, and it has a $50,000 lifetime maximum. This benefit likely wouldn’t be useful if you permanently live outside the U.S.”
Medicare Advantage plans are more restrictive. “To be eligible for a Medicare Advantage plan,” Bearce says, “your permanent address, as on file with Social Security, must be in the plan’s service area. If you signed up for a Medicare Advantage plan while in the U.S. but then relocated overseas, the plan would be required to disenroll you after you were out of the plan service area for six months.”
An insurer wouldn’t tell you this, of course, but I don’t know that anyone would check closely on where you’re actually living. As long as you have a legal U.S. address in the plan area, you could get medical care there, and it would be covered. I would check with an attorney on the minimal requirements for maintaining such a legal address.
This approach could make sense if you need minimal medical care and don’t really plan on returning to the U.S. very often. I say this because there are lots of low-cost Medicare Advantage plans. Buying one of these would allow you to avoid dropping Parts B and D of Medicare. (Having Part B is a requirement for getting a Medicare Advantage plan. Most such plans also include Part D drug coverage.)
And you don’t want to drop Part B or D. Doing so exposes you to lifetime re-enrollment penalties. These are percentage surcharges tacked onto your future Part B and D premiums. They are 10 percent a year for Part B and 1 percent a month for Part D. They are cumulative, and as noted, you never escape them.
Here are some other details from Medicare about coverage outside the U.S. Good luck to you, Jon.
Tom: I will be subject to the IRMAA surcharge [Medicare’s high-income premium surcharge] for the first time in 2017. I received an invoice that includes a $13.30 charge for Part D drug coverage, but I’m on a Medicare Advantage plan and not enrolled in Part D. I called Medicare, and they tell me I’m subject to the Part D charge even though I’m not enrolled in Part D. Is that correct?
Phil Moeller: Most Medicare Advantage plans include Part D coverage. If you are certain yours does not, then I’d agree with you that you should not be subject to the surcharge. You are, however, on the hook for lifetime late-enrollment penalties should you ever decide that you want a Part D policy.
Kevin: I am 69 and about to apply for Social Security retirement benefits. I am a U.K. citizen and moved to the U.S. in 1990. In the U.K., I was paying National Insurance and so now receive a U.K. old-age pension. Does the Windfall Elimination Provision apply to that work and earnings in the U.K. (when, of course, I had no idea I would be moving to the U.S.)? If yes, then surely I am being taxed twice on the U.K. state pension — once through federal income tax and again through a reduction in my Social Security benefit.
Phil Moeller: Unfortunately, the WEP does apply to you. While it may seem unfair, the logic of the rule still holds. As our Social Security book explains, due to the progressivity of the way Social Security benefits are calculated, people with a public pension and some work where they paid Social Security payroll taxes usually would receive unfairly high Social Security benefits without the WEP.
Michael: I read your Social Security book and am now about 70 percent through your Medicare book. Is there an obvious best route to follow for Medicare regarding signing up for Original Medicare (Parts A and B), a Part D drug plan and Medigap versus getting a Medicare Advantage plan? My wife and I are both 68 or soon to be. One of us has some expensive medicines. We do not have any major chronic illnesses.
Phil Moeller: I don’t believe there is a purely objective answer to your question, but you should be guided by your health and financial conditions. There are solid reasons to support each of these Medicare choices. Original Medicare, with a Part D plan and Medigap, is the more expensive option of the two, but generally provides more complete coverage and more choice in the health care providers you can use.
One big factor from where I sit is that Medicare choices should be designed to protect the “future” you, not the “present” you. You may be blessed now with good health, but there are no assurances that this will be the case in the next five minutes, let alone the next five or 10 years.
Personally, and with sufficient funds available, I believe in getting the most comprehensive coverage possible, and right now, I would have trouble achieving this goal with a Medicare Advantage plan. My primary concern regards being limited to the doctors and hospitals in a plan’s network. I have no idea what medical specialists I might need in the future. I do know that Original Medicare will cover me with any doctor or institution that accepts Medicare. I have no certainty about who I would be able to see if I had a Medicare Advantage plan.
Secondarily, Medicare Advantage plans are based on local or regional coverage. Many plans do not cover you if you travel in the U.S. outside your home market. Original Medicare provides coverage anywhere in the U.S. Some Medicare Advantage insurers are including broader coverage in their plans, but again, why should I have to worry about this if I can afford Original Medicare and a Medigap plan?
Having said this, Medicare Advantage plans can be much, much cheaper than the most comprehensive approach with Original Medicare, Part D and Medigap. They also may cover things that the other package does not, such as limited dental, vision and hearing insurance and athletic club membership. They have ceilings on out-of-pocket spending, and thus provide the same kind of protection as do Medigap plans.
If you do not have a warm-weather second home and spend all your time in your home market, the regional coverage limits of a Medicare Advantage plan would never be a factor. Lastly, if you find a plan that includes your preferred doctors, hospitals and other health providers, you would be well-positioned to look out for the medical needs of a “future” you.
Keith: My wife attempted to apply for Social Security spousal benefits to begin once she turned 62. I am 69 and will soon turn 70. My full retirement age benefits would have been $1,885.70 per month, but due to unemployment, I filed early at age 64, which reduced my monthly benefits to $1,643.90 per month. My wife’s full retirement age benefits would be $976.10 per month. The Social Security representative we talked to seemed to be relatively new and had to consult with a supervisor several times. We were told that my wife could not draw spousal benefits off of my account because her full retirement age benefits ($976.10) were more than what half of my full retirement age benefits would be ($942.85). Is this correct?
Phil Moeller: The information you received from Social Security was correct. Here’s why: When your wife files for spousal benefits she will be “deemed” under Social Security rules to be simultaneously filing for other benefits to which she is eligible, including her own retirement benefit. In evaluating her claim, Social Security will compare the two benefits. If her retirement benefit is the larger of the two, she will not receive any spousal benefit. If the spousal benefit was larger, she would receive her own retirement benefit plus an “excess spousal benefit” equaling the amount by which her spousal benefit exceeded her retirement benefit.
If you do not need the money right now, I would suggest your wife delay filing. Her benefits will rise at the rate of 7 to 8 percent a year until they max out when she turns 70. Benefits at age 70 are about 75 percent higher than at age 62. While it’s true you would forego up to eight years of lower benefits, the odds that you or your wife will live into your 90s are quite high.
If you are in good health and don’t have a family history of early death, delaying Social Security is the best available longevity insurance you can get. Benefits are protected from inflation by an annual cost of living adjustment, they are guaranteed by the federal government, and they are taxed more favorably than the ordinary income you would receive when selling your 401(k) or IRA investments.
Nick: I am 71 years old and just heard about spousal benefits. I was married for 23 years and have been divorced for almost 20 years. My ex will be 62 this coming January. Is it possible to collect part of her Social Security?
Phil Moeller: You can only collect additional money if your divorce spousal benefit is larger than your own benefit. Spousal benefits max out at half of the other person’s benefit entitlement. For this amount to be larger than your own benefit, your former wife would have to have earned a much larger salary than you. If this is the case, you can apply for a spousal benefit, and Social Security should tell you whether you would get any additional money. If that’s the case, your additional payment would roughly equal the amount by which the spousal benefit exceeds what you’re already getting from Social Security.