Heading into your retirement years brings a slew of new topics that require attention, and one of the most maddening may be Medicare. Figuring out when to enroll, which type of coverage may work best for yu, and which product to purchase can be daunting. To help you wade easily into the waters, here are ten essential things to know about Medicare.
Medicare Comes with a Cost
Medicare is divided into parts. Part A, which pays for hospital services, 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 covers doctor visits, outpatient services, home health care, durable medical equipment (like wheelchairs, walkers, and other equipment), and other preventive services (see below). It comes with a monthly price tag; new enrollees pay about $170.10 per month (maybe more, if you report taxable income). [i] Part D covers prescription drug costs, also has a monthly charge that varies depending on your plan; the average Part D premium is about $33 a month. [ii] In addition to premium costs, and unless you purchase a “Medigap” supplemental policy (and, then, depending on which Medicare Supplement you may choose), you can also be subject to co-payments, deductibles, and other out-of-pocket expenses.
You Can Fill the Gap
Most who choose to use traditional Medicare also choose to sign up for a Medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments, and other gaps. You can switch Medigap plans at any time, but you might be charged more or denied coverage based on your health if you choose or 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; the only difference between same-letter policies is the cost. Plans G and F are the most popular policy because of their comprehensive coverage. [iii]
There Is an All-in-One Option
You can sign up for traditional Medicare -- Parts A, B, and D, and a supplemental Medigap policy – and, at least most of the time, you can select your services provider without regard to the ‘in or out of network’ issues that plague employer-sponsored plans (often also available to retirees) and Medicare Advantage plans, which provide medical and prescription drug coverage through private insurance companies.
Also called Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on your chosen plan. 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. Your choice of providers may be more limited with Medicare Advantage than with conventional Medicare.
High Incomers Pay More
Choose traditional Medicare, and if your income is above a certain threshold, you'll pay more for Parts B and D. Premiums for both parts can come with a surcharge when your adjusted gross income (plus tax-exempt interest) is more than $91,000 if you are single or $182,000 if married filing jointly. High earners pay about $238.10 to $578.30 per month for Part B, depending on their income level. They also pay extra for Part D coverage, from about $12.40 to $77.90, on top of their regular premiums. [iv]
When to Sign Up
You are eligible for Medicare when you turn 65.
If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B. You can turn down Part B since it has a monthly cost; if you keep it, the cost will be deducted from Social Security payments if you already are receiving them.
If you are covered by an employer-sponsored plan, and happy with it, confirm with your employer as to whether you must enroll in Medicare Part B. Some employer-sponsored plans become ‘secondary’ to Medicare coverage automatically at age 65.
For those who are not covered by any employer-sponsored plan and have not initiated Social Security income at age 65, you may want to enroll in Medicare Parts A and B. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. Sign up in the first three months to ensure coverage starts when you turn 65.
If you are still working and have health insurance through your employer (or if your working spouse's employer coverage covers you) you may be able to delay signing up for Medicare. But you will need to follow the rules, and must sign up for Medicare within eight months of losing your employer's coverage, to avoid significant penalties when you do eventually enroll. [v]
A Quartet of Enrollment Periods
There are several enrollment periods, in addition to the seven-month initial enrollment period. Suppose you missed signing up for Part B during that initial enrollment period and you aren't working (or aren't covered by your spouse's employer coverage). In that case, you can sign up for Part B during the general enrollment period. That runs from January 1 to March 31 and coverage will begin on July 1. Remember that you will have to pay a 10 percent penalty for life for each 12-month period you delay in signing up for Part B. Those covered by a current employer's plan 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 to the general enrollment period to sign up. Open enrollment, which runs from October 15 to December 7 every year, allows you to change Part D plans or Medicare Advantage plans for the following year, if you choose to do so. (People can now change Medicare Advantage plans outside of open enrollment if they switch into a plan given a five-star quality rating by the government). [vi]
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 2022, the coverage gap begins when a beneficiary's total drug costs reach $4,430. [vii] While in the doughnut hole, you'll receive a 75% discount on brand-name drugs and a federal subsidy for generic drugs in 2022. Catastrophic coverage, with the government picking up most costs, begins when a patient's out-of-pocket costs reach $7,050. [viii]
You Get More Free Preventive Services
Medicare beneficiaries can receive a number of free preventive services. Including an annual free "wellness" visit to develop or update a personalized prevention plan. And a free cardiovascular screening every five years, annual mammograms, annual flu shots, covid shots, and screenings for cervical, prostate and colorectal cancers. [ix]
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Medicare's rules can be confusing for many people. The Medicare website (medicare.gov) can be a valuable resource. Every year, Medicare also mails Medicare & You to beneficiaries and makes this fact-filled publication available online. You may want to review it to make sure you have an accurate understanding of the Medicare program.