Understanding Medicare – What You Must Know
If you don’t rely on it already, Medicare will eventually be a big part of ensuring that your healthcare costs are covered in your retirement. Health care can be one of the largest expenses in retirement – according to a study done by the Employee Benefit Research Institute (EBRI) in October of 2015, the average retired couple will need $259,0001 to cover their health care costs in retirement. Medicare will cover half of this cost.
But despite the huge role Medicare plays, many people don’t know the facts about it. Below we’ll discuss a few key questions to ask when creating a Medicare plan.
1. What is Medicare?
Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.2 Medicare is broken into different parts to help cover specific medical services. The chart2 below briefly overviews each part:
| Medicare Part | Coverage |
| Part A | Covers inpatient hospital stays, care in a skilled nursing facility, hospice, and some home health care. |
| Part B | Covers certain doctors’ services, outpatient care, medical supplies and preventative services |
| Part C | Also known as Medicare Advantage Plans. This type of Medicare is offered by a private company that contracts with Medicare to provide you with all Part A and Part B benefits. Medicare Advantage Plans include Health Maintenance Organizations, Preferred Provider Organizations, Private Fee-for-Service Plans, Special Needs Plans and Medicare Medical Savings Account Plans. If you’re enrolled in a Medicare Advantage Plan, most Medicare services are covered and aren’t paid for under Original Medicare (Medicare managed by the federal government). Most Medicare Advantage Plans offer prescription drug coverage. |
| Part D | Adds prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private-Fee-for-Service Plans, and Medicare Medical Savings Account Plans. These plans are offered by insurance companies and other private companies approved by Medicare. |
Medicare part A and B are the lowest upfront cost, but can also lead to some gaps in coverage. Conversely, having Medicare parts A, B and D will have the highest upfront cost but provide the least amount of gaps in coverage.
2. How much does Medicare cost?
Medicare Part A
Typically, you do not have to pay a monthly premium for Medicare Part A if you or your spouse paid Medicare taxes while working. If you do not qualify for this premium-free Part A, you’ll pay up to $413 each month in 2017.
Medicare Part B
Most people will pay a standard premium amount for Medicare Part B. The standard amount for 2017 starts at $134 a month for those who have an individual household income as of 2015 of $85,000 or below, or a joint household income of $170,000 or below. For a full list of premiums based on income, visit https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html .
Keep in mind, if you don’t enroll when first eligible, your premium costs will increase 10% every year until you enroll.
Medicare Part C
Medicare Part C is offered by private companies, and therefor can vary in cost from plan to plan. By law, they must provide the same amount of coverage as part A and B, but many private plans offer even greater coverage.
Medicare Part D
Your Medicare Part D costs will depend on which plan you decide to go with. If your income is above a certain limit, you will pay an additional amount between $13.30 and $76.20 each month on top of your premium.
3. When should you enroll?
You are eligible to enroll for Medicare when you reach age 65, even if you are not yet retired. It is recommended to sign up three months prior to your 65th birthday to avoid any delays in coverage, although you have up until three months after your birthday to sign up, but coverage will be delayed and penalties might be incurred. If you miss this enrollment period, you will still have a chance each year following your 65th birthday to sign up for Medicare during the general enrollment period every year from January 1 through March 31. Just remember that if you sign up late, you will have to pay a penalty premium on your Medicare.
4. How do I enroll?
Some people will have to apply for Medicare, while others are enrolled automatically. If you are already getting Social Security retirement or disability benefits when you’re 65, you will automatically be enrolled in Medicare Parts A and B. You will receive a Medicare card in the mail about three months before your 65th birthday. If you are not yet collecting Social Security, you’ll need to contact the Social Security Administration at 800-772-1213 to enroll, or enroll online at socialsecurity.gov.
Having a Medicare plan is an important part of smoothly transitioning into retirement. We highly recommend talking with your financial advisor to ensure that you have a plan for your medical costs in retirement. At Walsh & Associates, we review our client’s retirement strategies regularly to ensure we are up to date with any health coverage changes. Need our help? Don’t hesitate to give our office a call or shoot us an email!
1. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2679023
2. https://www.medicare.gov/sign-up-change-plans/decide-how-to-get-medicare/whats-medicare/what-is-medicare.html