Medicare is the federal government health insurance program for those who are age 65 or older (do not confuse Medicare with Medicaid which is a medical assistance program for those with lower incomes.) Medicare is also available to some younger people with disabilities and/or those who suffer from end-stage renal disease. Medicare consists of four key sections:Part A = Hospital insurance (In-patient services)Part B = Medical insurance (Out-patient services)Part C = Medicare Advantage (Private Medicare health plan similar to Medicare Parts A and B)Part D = Prescription drug plan
Almost every US resident who is aged 65 or older will qualify for Medicare. However, if you are approaching the age of 65 you must determine whether you will be automatically enrolled in Medicare or whether you will proactively need to sign up for Medicare.
As a general rule, if you already receive Social Security benefits or Railroad Retirement Board benefits, you live in Puerto Rico and already receive Social Security benefits, you will be automatically enrolled in Medicare Part A and Part B starting with the month in which you turn 65. In fact, if you fall into one of these categories, you will receive a package in the mail about three months before your 65th birthday. This package will contain your new Medicare card and information about how Medicare works.
If, however, you do not fall into one of the above-listed categories – say, for example, you are still working and have not started taking your Social Security benefits – you will need to sign yourself up for Medicare. Your Initial Enrollment Period (IEP) begins 3 months before the month of your 65th birthday and continues for the 3 months following your birthday month. Signing up for Medicare is relatively simple – you can sign up at your local Social Security office, call Social Security at 1-800-772-1213, or sign up online at the Social Security website (www.socialsecurity.gov/medicare/apply.html).
Please note that it usually makes the best sense to sign up for Medicare as soon as you are eligible to do so – even if you are still working and/or are covered by an employer’s health insurance plan. If you miss the 7 month IEP window, you will then have to wait until the next general enrollment period which usually runs from January 1st to March 31st each year. If you sign up during a general enrollment period, you will not receive coverage until the following July 1st. Also, by failing to sign up for Medicare during your IEP, you may unwittingly subject yourself to a higher Medicare Part B premium. For each 12-month period in which you could have had Medicare Part B but did not, you could face a 10% premium hike.
Once you have determined whether or not you need to proactively sign up for Medicare and how you will do so, you then need to figure out what you will sign up for and how much it will cost.
Medicare Part A: Part A will help you pay for inpatient hospital care as well as hospice care and skilled home-health services if you become housebound. Most people receive Part A for free provided they and/or their spouse paid Medicare taxes while they were employed. Usually, you need at least 40 quarters of working and paying into the Medicare system in order to qualify for premium-free Part A coverage. There are, however, some people who do not satisfy this criteria and they can find themselves having to pay monthly premiums of up to $426. Medicare Part B: Part B will help you pay for doctor’s visits, outpatient services, medical equipment and supplies, and even some preventive services. All U.S. citizens, regardless of work history, qualify for Part B, but, if you want Part B you have to pay for it. Part B costs $104.90 per month although higher income retirees will pay a higher monthly premium. If you file jointly and your modified adjusted gross income is $170,000 or less, you will pay the standard $104.90 monthly premium. If you file taxes jointly and have a modified adjusted gross income in excess of $170,000 then your monthly premium will range from $146.90 to $335.70. Medicare Part C: Part C is also known as Medicare Advantage and is a private sector version of Medicare. Medicare Advantage plans cover all the services covered by Medicare but they will often have different rules on such items as whether you need to get a referral in order to see a specialist or whether you will incur any out-of-pocket charges and what those charges will be. A majority of Medicare Advantage plans also include prescription drug coverage – something not covered by Medicare Part A and B. Depending on the health services you need and the prescriptions drugs you currently take or may take in the future, it may or may not make better sense for you to select a Medicare Advantage plan over traditional Medicare. Before you decide whether to select a Medicare Advantage plan instead of traditional Medicare, you will need to review the ins and outs of the private plans available to you and compare them to traditional Medicare in light of your specific health needs. Medicare Part D: Part D is the optional prescription drug coverage you can choose to buy. If you already have Part A and/or Part B, you will automatically qualify to purchase Part D. As a general rule, it usually makes the best sense to sign up for a Part D plan as soon as you are eligible to do so. If you delay signing up for Part D and do not have another type of prescription drug coverage (such as that offered by Medicare Advantage plans) you will probably have to pay a late enrollment penalty. Although Medicare covers most of the cost of your Part D plan, it is likely you will face a small monthly premium – the average plan charge is around $32 per month. If your modified adjusted gross income as a joint filer exceeds $170,000 you will also face an additional monthly premium of between $12.10 and $69.30.Just like Part C, Part D plans are offered by private insurance companies rather than the federal government. Every Part D plan lists the drugs it covers. Before you select a prescription drug plan, you should review the available plans and the lists of drugs each covers. You should also consult with your primary care physician. Ideally, you will find a plan that covers all or almost all of the medications you take. Part D plans also often have different rules in terms of copayments which could impact your decision. Supplemental Coverage: As if all the decisions surrounding Medicare were not complex enough, you will also need to evaluate whether or not you should purchase additional insurance to fill in the gaps in Medicare. Some employers will allow former employees to continue on the company’s group plan into retirement. An employer plan then serves as a supplement to your Medicare plan and can help to offset copays, deductibles, and other items not covered by your Medicare insurance.
If you are not able to remain on your employer’s insurance plan while in retirement, you should consider purchasing a Medigap supplemental health insurance plan. If you are married, you and your spouse will each need your own Medigap policy. Also, in order to purchase a Medigap policy, you must first have Medicare Part A and B.
As you are probably already well aware, Medicare is extremely complex and there are many opportunities to make the wrong decision, miss a deadline, or incur a penalty. Also, Medicare does not cover all the medical expenses you may face after you reach age 65. For example, Medicare, Medicare Advantage, and Medigap do not cover the cost of long term care. Thus, when planning for your healthcare needs in retirement you will need to think beyond Medicare.
This article provides you with some of the basics about Medicare but does not begin to address the many ins and outs and shortfalls of this insurance plan. This article also does not address which plan or combination of plans makes the best sense given your personal financial and medical circumstances. Additionally, as your medical needs change and as the insurance plans themselves change over time you will regularly need to reevaluate whether you have the best combination of Medicare and other health insurance plans.
There are a number of helpful resources online – www.medicare.gov and www.socialsecurity.gov are good places to start. However, you may also need to get advice from someone who specializes in Medicare and health insurance. We can help connect you to some local professionals if you would like some guidance through the Medicare process. Please do not hesitate to contact your investment advisor here at Burke Lawton Brewer & Burke for some suggestions.