As you approach retirement, there are a few new topics to consider, and one of the most confusing may be Medicare. Everyone over 65 is eligible for Medicare. This includes all U.S. citizens and legal residents who have lived in the U.S. continuously for at least five years. In addition, some people under 65 can get Medicare if they receive Social Security Disability benefits. However, figuring out when to enroll, what to enroll in and what coverage will be best for you can be frustrating. So, to help you wade easily into the waters, here are ten essential things you need to know about Medicare.
There are Four Parts to Medicare
Medicare is divided into four parts. Part A covers most of the costs of hospitalizations. Part B covers most of the costs of medical services, such as doctor visits, procedures, and diagnostic tests. The bills for Parts A and B are paid by Medicare.
Parts C and D are where the private insurance comes in. Part C is an alternative way to receive Medicare. You can sign up for a Medicare Advantage plan offered by a private insurer and receive all your services under Parts A and B, and usually prescription drug coverage as well, through the plan. But, instead of Medicare paying for your hospital and doctor bills, it pays the insurance company offering the Medicare Advantage plan a flat payment for each enrollee. Then the plan is responsible for managing and coordinating your care.
Part D is prescription drug coverage. It is offered by private insurers who contract with Medicare. Each prescription drug plan is slightly different, which is why you’ll want to shop carefully for your drug plan. Even if you don’t take any prescription drugs when you first go onto Medicare, you’ll want to sign up for a Part D drug plan because if you go without drug coverage for very long, you’ll face a penalty when you finally do enroll.
Medicare has a cost
Part A is free if you or your spouse paid Medicare payroll taxes for at least ten years. (People who aren’t eligible for free Part A can pay a monthly premium of several hundred dollars.) Part B has a monthly price tag — for most people in 2021, that monthly cost is about $148.50. Part D also has a monthly charge that varies depending on which plan you choose. The average Part D premium is about $39 per month. You will also be subject to co-payments, deductibles, and other out-of-pocket expenses.
Medicare Does Not Cover Everything
In addition to premiums, there will be some other out-of-pocket costs under Medicare. For example, if you must be hospitalized, the first $1,484 in hospital costs will come out of your own pocket before Medicare starts paying. Some private insurance plans cover this. The Part B deductible is a reasonable $203 per year. However, this is waived for some preventive services such as flu shots and certain screenings. The Part D deductible is $445 per year under the standard Medicare design. However, Part D coverage is complicated.
The Medicare & You booklet (available at www.medicare.gov) spends over 20 pages discussing what Medicare covers and only one page talking about what it doesn’t cover. Now, some of these things you can avoid. Cosmetic surgery is optional, for example. But some of these other things may be necessary. Dental work. Eyeglasses. Hearing aids. These are things you’ll have to cover yourself.
You Can Fill the Gap
Most beneficiaries of traditional Medicare will sign up for a Medigap supplemental insurance plan. These plans are offered by private insurance companies and help cover co-payments, deductibles, and other gaps. You can switch Medigap plans at any time. However, when you do, you might be charged more or denied coverage based on your health. This is especially true if you change plans more than six months after you first signed up for Part B.
Medigap policies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits. Usually, the only difference between same-letter policies is the cost. For example, plan G is the most popular policy because of its comprehensive coverage. According to the Medicare.gov website, a 65-year-old man in Colorado could pay from $113 to $402 for Plan G, depending on the insurer. So, shop carefully.
There is also an All-in-One Option
You can choose to sign up for traditional Medicare — Parts A, B, and D, and a supplemental Medigap policy. Or you can go an alternative route by signing up for Medicare Advantage, which provides medical and prescription drug coverage through private insurance companies. Also called Part C, Medicare Advantage has a monthly cost, and the Part B premium varies depending on which plan you choose.
With Medicare Advantage, you don’t need to sign up for Part D or buy a Medigap policy. Like traditional Medicare, you’ll also be subject to co-payments, deductibles, and other out-of-pocket costs, although the total costs tend to be lower than for traditional Medicare. In many cases, Advantage policies charge lower premiums but have higher cost-sharing. In addition, your choice of providers may be more limited with Medicare Advantage than with traditional Medicare.
Higher-Income Households Pay More
If your income is above a certain threshold, you’ll pay more for Parts B and D. Premiums for both parts have a surcharge when your adjusted gross income (plus tax-exempt interest) is more than $88,000 if you are single or $176,000 if married filing jointly. This is known as the Income-Related Monthly Adjustment Amount (IRMAA). As a result, high-income beneficiaries will pay about $59 to $356 more per month for Part B, depending on their income level. They also pay extra for Part D coverage, from about $12.00 to $77.00 on top of their regular premiums.
When to sign up
If you are receiving Social Security when you turn 65, you will automatically be enrolled in Parts A and B. However, if you’re working and covered by an employer group plan, you may not want Part B. In that case, you can decline it. Otherwise, you’ll go ahead and accept Medicare Parts A and B, and your coverage will start on the first day of the month you turn 65.
Parts C and D are not automatic. If you want a Medicare Advantage plan, you’ll have to contact the insurance company offering it and sign up for Part C through them. Or, if you’re going to stay with Original Medicare and have a standalone Part D prescription drug plan, you’ll need to decide which insurance company’s plan you want to go with, and you’ll have to proactively enroll. You should do this at the same time you are enrolled in Parts A and B — before your 65th birthday.
There are Four Enrollment Periods
There are several enrollment periods. The initial enrollment period is seven months long and begins three months before your birth month and ends three months after your birth month. For example; if you were born in August, you can enroll as early as 1 May and as late as 30 November.
Suppose you missed that initial enrollment period, and you aren’t covered by your or your spouse’s employer coverage. In that case, you can sign up for Part B during the general enrollment period that runs from 1 January to 31 March, and coverage will begin on 1 July. But you will have to pay a 10% penalty for life for each 12-month period you delay signing up for Part B.
Those who are covered by a current employer’s plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer coverage (regardless of whether you have retiree health benefits or COBRA).
If you miss your special enrollment period, you will need to wait until the general enrollment period to sign up.
Open enrollment, which runs from 15 October to 7 December every year, allows you to change Part D plans or Medicare Advantage plans for the following year if you choose to do so.
We always recommend that you discuss any changes with a qualified independent Medicare Insurance professional. We would be happy to provide a list of trusted professionals.
Costs in the Doughnut Hole Shrinking
One cost for Medicare is decreasing — the dreaded Part D “doughnut hole.” That is the period during which you must pay out of pocket for your drugs. For 2021, the coverage gap begins when a beneficiary’s total drug costs reach $4,130. In addition, while in the doughnut hole, you’ll receive a 75% discount on both brand-name drugs generic drugs in 2021. With the government picking up most costs, catastrophic coverage begins when patients’ out-of-pocket costs reach $6,550. Any deductible paid before you entered the doughnut hole counts toward that annual maximum, as does the 25% you contributed while in the doughnut hole and the 70% that pharmaceutical companies paid on your behalf.
You Get More Free Preventive Services
Medicare beneficiaries can receive several free preventive services. For example, you receive an annual free “wellness” visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, yearly mammograms, yearly flu shots, and screenings for cervical, prostate, and colorectal cancers.
We can help
As you approach retirement, you will have questions. We have answers and a list of trusted Independent Insurance experts who can guide you in deciding when to enroll, what to enroll in, and what coverage will be best for you. So please feel free to reach out. You are not alone.
If you’d like to download our Medicare Quick Reference Guide for 2021, please click the link here.