Medicare decisions for ex-pats

Medicare questions about Americans living outside the U.S. could support a separate edition of Ask Phil. Many older Americans travel extensively or live outside the U.S. for extended periods. Medicare generally does not cover health care expenses outside the country, although some Medigap and Medicare Advantage plans do cover emergency foreign medical expenses. There also are some exceptions for residents living near Canada whose best emergency care options are in that country.

The question many temporary or permanent ex-pats ask is whether they should keep their Medicare coverage. My standard answer is that it depends on the likelihood of their returning to the U.S. and on the duration of their absence. Dropping Medicare and its various premiums will save them money, of course, but these savings need to be balanced against the costs of late-enrollment penalties for Parts B and D of Medicare should the person return to the U.S. and wish to sign up for Medicare again.

If people decide to retain their Medicare, they should know that basic Medicare – including Medigap plans — will cover them right away should they return to the U.S. They do not need to establish residency in the U.S. to be covered. However, they do need a local residence to use Medicare Advantage and Part D prescription drug plans.

Basic Medicare permits enrollees to get care anywhere in the U.S. from doctors and hospitals that accept Medicare patients. Basic Medicare includes Part A for hospital coverage and Part B for doctors, outpatient expenses and durable medical equipment. Many people with basic Medicare also purchase Medigap plans, which provide supplementary coverage that plugs many of the coverage holes in basic Medicare.

Medigap plans are regulated by the states, and a person must be a resident of a particular state before being able to purchase a Medigap plan from insurers in that state. After that, however, it turns out that their Medigap plan will cover them anywhere in the U.S., and they need not have an established U.S. residence to use their policy.

The best time to buy a Medigap plan is during a person’s initial Medicare enrollment period. At that time, people have what are called guaranteed access rights to Medigap. This means that insurers must sell them a plan and can’t charge them more for coverage if they have a pre-existing health condition.

Medigap annual premiums can exceed $2,000 a year, and it may not make sense to incur this expense for coverage that can’t be used. However, expats may have limited Medigap choices if they return to the U.S. and buy a policy after the period for their guaranteed access rights has expired. And should they need emergency care in the U.S., it’s likely they won’t be able to buy a Medigap policy that takes effect quickly enough to help them pay such bills.

More than 50 percent of Medicare enrollees have purchased Medicare Advantage plans, which are managed care plans offered by private insurers. They can combine all the features of basic Medicare and include out-of-pocket spending ceilings that, like Medigap, protect people from catastrophic medical expenses. However, Medicare Advantage plans generally require people to live in a local service area, and it may not make sense for Americans residing outside the U.S. to keep such plans.

The same limitation is true for Part D prescription drug plans, whether bundled with a Medicare Advantage plan or offered as stand-alone coverage for people with basic Medicare. These plans are not available to people who return to the U.S. until they have established residency.

The lack of a Part D prescription drug plan does not mean that someone with basic Medicare lacks coverage for all drugs. The Part A hospital component of Medicare does cover drugs administered in hospitals and other institutional care settings. Part B covers drugs administered by doctors and other licensed professionals in their offices and other outpatient settings.

Because the issue of U.S. residency is connected with Medicare coverage, let’s cover some of these broader issues as well.

As it turns out, most Americans don’t need to be U.S. residents to even get Medicare. The Social Security Administration oversees Medicare eligibility. It says that a U.S. citizen can qualify for Part B of Medicare if they also qualify for premium-free Part A. There is no residency requirement. What this means is that an ex-pat who qualifies for Social Security can purchase Part B of Medicare without ever coming to the U.S. and establishing residency.

It’s a different story, however, for Americans who have not qualified for premium-free Part A. Most people qualify by working at least 10 years in jobs where they paid Social Security payroll taxes. They also can qualify if a spouse or, in some situations, an ex-spouse has qualified. If these conditions are not met, then the person must pay for Part A. The premiums can be steep, exceeding $500 a month.

In theory, it may be possible to live outside the U.S. and retain local residency. However, the burden of proof can be high, and I think it’s a risky health insurance strategy.

Social Security publishes official criteria for what it calls “convincing evidence” of residency. Unfortunately, being in prison is its most dramatic proof — perhaps of limited value in this discussion! No single item on this list is likely to represent sufficient proof by itself, and authorities can require that multiple conditions be met:

  1. Property, income or other tax forms or receipts;
  2. Proof of U.S. home ownership or rental lease or rent payment record;
  3. Utility bills addressed to the claimant;
  4. S. driver’s license;
  5. Telephone directory listing;
  6. Regular and frequent participation in social programs such as vocational rehabilitation, Meals on Wheels or evidence showing that the claimant regularly receives services from a social agency;
  7. Proof of employment, such as pay stubs or a contract;
  8. Proof of active participation in a religious, fraternal, or social organization;
  9. A record of volunteer activity which shows regular and frequent performance;
  10. Clinic cards or doctor’s record showing dates of visits for regular medical treatment;
  11. Proof of a local U.S. bank account or check-cashing card at a local establishment; and
  12. Correspondence addressed to the claimant

Establishing faux residency in the U.S. may provide comfort to some Medicare enrollees. But I would not use it to maintain Medicare Advantage or Part D coverage and risk having an insurer reject a huge claim. And believe me, these are the kinds of claims that insurers are motivated to question.