Medicare is the core component of healthcare coverage for most retirees. Medicare is also misunderstood by many people as they approach age 65. As Medicare open enrollment approaches, here is a brief overview of the basics of Medicare to help increase your understanding of this important program.
Medicare is a federal health insurance program for those who are age 65 or over. It also covers those under age 65 with certain disabilities, as well as anyone diagnosed with end-stage renal disease. Those eligible can sign up for benefits three months prior to reaching age 65.
Eligibility for Medicare generally requires having paid into Medicare for at least ten years while working and being either a U.S. citizen or a permanent legal resident who has been in the U.S. for at least five years.
Original Medicare includes Medicare Parts A, B, C, and D.
Medicare Part A is hospital insurance and covers things like inpatient hospital care, care in a skilled nursing facility related to a procedure or illness, hospice care, and home health care. There is no monthly premium for Part A for those who are eligible, but there is a deductible of $1,556 for 2022.
Medicare Part B is medical insurance. It covers services from doctors and other healthcare providers; outpatient services, home health care; durable medical equipment such as wheelchairs and others; and preventative services such as screenings and vaccines. The standard premium for Part B for 2022 is $170.10 per month. This may be higher based on your income and filing status from two years ago. There is an annual deductible of $233 for 2022 after which most eligible costs are covered at an 80% level.
Medicare Part D covers the costs of prescription drugs. This coverage is offered by private insurance companies, and costs and deductibles will vary. Costs and coverage levels for prescription medications will vary by plan, as will providers that are considered in or out of network.
Medicare Part C, also known as Medicare Advantage, includes the benefits covered in Parts A and B. Medicare Advantage plans generally include prescription drug coverage and other benefits such as dental. Vision, hearing, and others are all bundled together under one plan. Medicare Advantage plans are offered by private insurers.
Medigap policies supplement Medicare coverage and help pay Medicare out-of-pocket costs, copays, and deductibles. These plans are issued by private insurers.
If you are receiving Social Security benefits, or benefits from the Railroad Retirement Board, at the time you reach age 65 you will automatically be enrolled in Medicare Parts A and B.
If you are not automatically enrolled, then there is an initial seven-month enrollment period that starts three months prior to the month of your 65th birthday. This period includes your birthday month and then extends for three months after that.
If you are required to enroll in Medicare and don’t do so within the initial enrollment period, you could be subject to higher premiums and potential penalties.
Failing to enroll during the initial enrollment period can result in premium surcharges later on for some Medicare Parts.
If you are working and your employer has more than 20 employees then you can defer enrolling in Medicare until you are no longer employed and covered by this health insurance. This is also the case if you are covered under a spouse’s employer's health insurance. Your employer must offer you the same health insurance benefits as younger employees as long as you or your spouse are actively employed at the company.
That said, you may still want to enroll in Medicare Part A as there is no cost. You also have the option to decline your employer’s insurance and rely on Medicare. Enrolling in Part B, however, could have some implications later on if you wanted to purchase a Medigap policy (supplemental coverage). You might find that you are better off waiting on Part B until you are no longer covered by the employer’s plan.
If you are working for a company with fewer than 20 employees then it is up to your employer whether or not the company health insurance plan or Medicare is primary.
While you are not required to enroll in Medicare when you become eligible, not doing so during the initial enrollment period can result in premium surcharges and penalties later on.
Medicare requires that you be enrolled in a Medicare-approved prescription drug or that you have creditable prescription drug coverage elsewhere. This might be from an employer’s plan if you are still working, or if you are covered by your spouse's employer plan.
Failure to either enroll in an approved prescription drug plan or produce evidence of creditable coverage will trigger a penalty that is permanently added to your Medicare drug plan premium for the rest of your life.
The same holds true for Medicare Part B, again unless you have coverage elsewhere such as health insurance through an employer. The penalty for not enrolling in Part B when eligible is permanent as well.
Note that enrollment in COBRA coverage from a former employer is not an allowable substitute for enrolling in Medicare, nor is retiree medical coverage in most cases.
While Medicare Parts A and B offer extensive coverage, there are a number of areas that are not covered. Here is a partial list of items not covered under Medicare:
In many cases, these items are covered by Medicare Advantage plans or other types of Medicare supplemental plans. If these are areas of concern to you based on your health situation, this should be considered if you decide to purchase a Medicare supplemental plan.
Medicare is a crucial part of your retirement health care planning in most cases. It’s important to understand what Medicare covers and what is not covered. Additionally, it is critical to understand the rules and any deadlines to enroll.
What we’ve discussed above will hopefully give you a start in understanding Medicare, but Medicare is complex and everyone’s situation is a bit different.
Please feel free to contact us with your Medicare questions. We are here to help.
Bill Canty, CFP®, CPA
Ed Canty, CFP®
Joe Canty, Investment Advisor Rep.
Maureen Walsh, EA, Investment Advisor Rep.
Tina Alteri, CPA, Tax Advisor