Reverse Mortgage and Medicaid: What You Should Know

Medicare is Awesome, But It’s Not Free – The Medigap v. Advantage Decision

Generally, if you have reached the age of 65 and you have paid Medicare taxes (these are the FICA deductions on your paycheck) for at least 10 years, you will likely be eligible to receive Medicare benefits.

But Medicare (Part A, hospital coverage, and Part B, medical coverage like doctor visits) is not free. You must pay a standard monthly premium of $144.60 for your Part B in 2020 (the maximum limit is $491.60 if modified adjusted gross income is more than $500,000). But even with these monthly premiums, your Medicare coverage will only pay about 80% of your needed medical care. That may sound like a fairly sizable chunk, until you do some quick math.

Let’s illustrate: According to Debt.org, the average cost of bypass surgery in the United States in 2018 was $123,000. Bypass surgery is the most common type of heart surgery in the United States, with more than 200,000 procedures performed each year. So, 20% of the bill, or $24,600, would be your responsibility to pay.

Confronting such a bill could be devastating at any time, but in retirement the financial burden could be catastrophic. To bridge the financial gap in your Medicare cover (the 20% not covered), you can buy additional coverage for which you are provided two choices: a Medigap plan or Medicare Advantage plan.

Both plans, which are designed differently, can have a large impact on your out-of-pocket medical costs, so it’s important to know what they offer and how they work. For example, would you rather pay more in monthly premiums and have lower out-of-pocket costs for services you receive (Medigap) or pay a low or $0 monthly premiums and co-pays for services as you use them (Medicare Advantage)?

Asking your Medicare-eligible neighbors what plans they’re on can provide some useful context, but ultimately, you should make your choice based on your needs and preferences.

The Pros and Cons of Medigap Insurance

Also known as a Medicare Supplement plan, Medigap generally lets you see, without a referral, any doctor in the United States who accepts Medicare patients. Your coverage also travels with you, so if you travel frequently, including internationally, you may find Medigap appealing.

Also on the plus side, you will have fewer, if any, copays and deductibles, with these plans (depending on one of the ten Medigap plans you choose) than a comparable Advantage plan, making it easier to budget.

In exchange for the increased choice and portability that a Medigap policy provides are those inescapable monthly premiums. These are in addition to the monthly Part B premiums that you pay to Medicare.

Medigap plans also come with few extras, unlike an Advantage plan which bundles additional benefits like prescription drugs, dental, vision, and wellness care into one plan.

The Pros and Cons of Medicare Advantage

Generally, Medicare Advantage plans have lower premiums than Medigap. In fact, some plans have no premiums at all. This can happen because you agree to use your insurer’s network of providers with whom it has negotiated contracted rates.

In addition to having lower premiums, Advantage plans typically provide broader benefits, such as vision, dental, prescription drug, and wellness care (think free gym membership).

The downside is Advantage plans don’t travel well. For example, if you’re enrolled in a Medicare Advantage plan and are moving outside your plan’s service area (either to a new address in your state — even to the next county over — or a new state altogether), you will need to enroll in a plan that is within your new service area.

Another negative are copays. For example, you might have a $10 copay at the primary care physician’s office and perhaps $40 for a specialist. If you visit lots of doctors, these copays can add up.

Medicare isn’t the free ride you may have thought it was. It leaves a noticeable gap (20%) in your medical coverage. To help close that gap, you can purchase either a Medigap or Medicare Advantage Plan.

Generally, if you don’t see lots of hospital or medical visits in your future and if you don’t plan on traveling or moving a lot in retirement, an Advantage plan may serve you well, with its lower premiums and bundled prescription drug costs.

Yet no one yet has been able to predict the future with certainty. Despite relatively good health, you could be diagnosed with an illness that you want treated by a specialist outside your Advantage network. You may also not like making copays for each medical visit. In that case, despite the higher premiums, you may prefer a Medigap plan.

If you want to sign up for a Medigap plan, you must do so within six months of enrolling in Medicare Part B.

You can sign up for a Medigap plan during the six months after you enroll in Medicare Part B. Even if you have health problems, it’s guaranteed you’ll be accepted, and insurers won’t charge you more based on your medical conditions during this initial enrollment period. If you miss the six-month window, you will no longer have the guarantee that your application will be accepted. And even if you are able to buy a Medigap plan, you could be charged more for it.

Whether you select Medigap or Advantage, you will have to budget for healthcare costs in retirement. To help you meet your monthly Medigap premiums, you might consider taking out a reverse mortgage loan. A reverse mortgage can provide you with exactly the extra cash flow you need to meet this monthly expense. At the same time, if you’re leaning toward an Advantage plan, you could take out a reverse mortgage line of credit to help you pay for those doctor visits and hospital stays when they do arise. With a reverse mortgage line of credit, you always have it in place as long as you comply with all loan terms, and you are charged interest only on the portion of the line you use, making it an efficient backup.

To be eligible for a reverse mortgage, you must be 62 or older and have substantial equity in the home you own and live in as your primary residence. Although a reverse mortgage pays off your current mortgage, if you still have one, you are still responsible for the maintenance of your home, along with the regular payment of your property taxes and homeowners insurance. Find out if a reverse mortgage is right for you.

For more information about reverse mortgages, reach out to your reverse mortgage professional. For more information about bridging your Medicare gap, start at Medicare.gov, the official U.S. government site for Medicare.

We hope this article has given you some help with things to think about. Of course, every situation is different. The information shared was verified at publication. This article is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.