An area that I frequently see those nearing retirement get confused about is Medicare. This week we’ll cover what it is and isn’t. Let’s start at the beginning. Medicare was created in 1965 for people age 65 and over. In the years that followed new coverage was added for those with certain disabilities and end stage renal/kidney failure.
Medicare is broken down into 4 parts.
1. Part “A” which covers hospital care including inpatient services, surgery, etc.
2. Part “B” covers medical care or doctor services
3. Part “C” is also known as Medicare Advantage. Part C is still a part of the Medicare program but it is offered through private insurance companies and combines Plans A, plan B and usually plan D into a single insurance plan.
4. Part “D” provides coverage for prescription drugs.
In addition to the four Medicare plan options, there is also a supplement to these plans that covers many of the things that these plans don’t. This is known as Medigap insurance.
When you turn age 65 you are eligible to sign up for Medicare. You can actually sign up 3 months before the month you turn 65 and the 3 months after the month you turn 65 so that means you have 7 months in total to enroll but it won’t be effective until your age 65. People often get confused here because while you can elect to take Social Security early at age 62, you still have to wait until age 65 to enroll in Medicare unless you meet one of the disability qualifiers. There has been a lot of talk in recent years about lowering the Medicare eligibility age to age 62 or even age 60 in order to help those who retire “early” with not having health insurance other than the healthcare marketplace (often referred to as Obamacare). If you are still working, you can enroll in part A but can elect to defer taking part B until you retire. The reason people choose to do this is because you pay more for Medicare part B than you do for part A. Be careful though, if you don’t sign up for part B when you are supposed to you can be subject to a penalty. This penalty can be very expensive. Up to a 10% penalty which is added to your monthly cost for every year you were eligible but didn’t sign up. Worse, this penalty is forever. If you are still working when you turn 65 and covered by your employer, then you won’t be subject to the penalty when you turn 65, only if you retire and don’t sign up when you’re supposed to. The standard premium for 2021 for Medicare part B is $148.50 per month but can go up as high as $504.90 depending on your income. By comparison, Medicare part A is free if you or your spouse paid into the system enough. For the minority of people who do pay for it the premium for 2021 is either $259 or $471 ($274 or $499 in 2022).
It is also very important to know what Medicare does not cover. The standard part A and B do not cover prescription drugs. You must elect part D (for an additional cost) or a Medicare Advantage plan for this. It also does not cover long term care such as a nursing home or assisted living. This is extremely important to understand and unfortunately most people don’t realize this. Medicare also does not include dental coverage, eye exams or hearing aids. There are also deductibles and co-pays just like regular insurance under Medicare. Lastly, Medicare typically will not cover you for travel outside the US though some Medigap plans will provide limited coverage. A great resource for understanding what Medicare will and won’t cover is Medicare.gov/coverage.
If you decide you want to make changes to the Medicare plan you have chosen, you can do that each year during the open enrollment period which typically runs from October 15th until December 7th each year.
It’s not hard to see why people get confused about Medicare and all it’s options. I always suggest speaking to a Medicare specialist before making any decisions about what you want to sign up for or supplements you want to buy. While we do not work in this area, we are always happy to provide referrals to those who do.
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