Medicare is the primary health insurance for U.S. citizens over 65. Unless you (or your spouse) are still working and covered by an employer-sponsored group health plan, everyone ages 65 and older must sign up for Medicare to obtain health insurance. The Medicare rules are complex and can be confusing. It is important to fully understand your Medicare options to obtain cost-effective health insurance in retirement.
Medicare System Basics
The Medicare insurance system consists of several different parts.
Part A covers hospitalization, skilled nursing, home health care, and hospice. Part A is free to everyone who has paid the Medicare payroll tax for at least 40 quarters (10 years). Spouses, ex-spouses, and survivors of persons who meet the 40-quarter requirement are also eligible for free Part A coverage. People age 65 and older with fewer than 40 quarters may obtain Part A by paying a monthly premium.
Part B covers physicians’ services, diagnostic X-rays, lab tests, and certain preventive services. Everyone who is eligible for Medicare is eligible. Part B has a monthly premium that is either deducted from your Social Security check or billed monthly. Your income affects this premium; it’s higher if you have higher income.
Part C is a private insurance option called Medicare Advantage.
Part D covers prescription drugs. This coverage is delivered through private insurance companies that contract with Medicare. Everyone who is eligible for Medicare is eligible for Part D and you cannot be denied coverage if you sign up within a specified time.
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Enrolling in Medicare
Enrollment in Medicare Parts A and B is automatic for anyone receiving Social Security benefits at age 65. However, if you’ve delayed receiving Social Security (as is often recommended), you’ll need to apply.
Initial enrollment begins on the first day of the third month before your 65th birthday. If you enroll during the three months before your birthday, coverage will begin on the first day of your birthday month. If you wait until your birthday month or the three months following your birthday, coverage begins on the first month following enrollment.
Don’t delay! If you wait too long, you might incur penalties that can permanently raise your health insurance costs in retirement.
In addition to enrolling in Medicare, most people will obtain supplemental insurance (often called Medigap) to cover the many out-of-pocket costs of Medicare. The Medigap open enrollment period lasts six months and begins the 1st day of the month in which you are 65 or older and enrolled in Medicare Part B. If you do not buy a Medicap policy during the specific guaranteed-issue period, the insurance companies can charge more based on health status or refuse coverage altogether.
The Medicare website has a tool for searching Medigap policies (https://www.medicare.gov/find-a-plan/questions/medigap-home.aspx). After you enter your zip code, it will bring up an overview page of all the standardized plans, a checklist of covered benefits, the range of premiums, and the estimated annual cost for the average policyholder.
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If you are still working when you become eligible for Medicare, the first thing you need to do is contact the benefits administrator to find out how your insurance works with Medicare. Most people enroll in Part A when they are first eligible for Medicare because there is no premium for Part A (if you have worked and contributed to Social Security for at least 10 years). The timing of when you should enroll in Part B or Part D depends on how many employees work for your employer.
This is a very brief introduction to the Medicare system. The rules are complicated and missing a deadline could be very expensive. So, it really pays to have your homework done well before the enrollment deadlines. At Blankinship & Foster, we have Medicare specialists that help our clients do all the research, chose the right combination of insurance plans and navigate the signup process.
The good news is that taking the right steps with Medicare should result in saving money. Most of our clients see their health insurance costs drop dramatically once they enroll. And, in most cases you can continue with the same doctors and the same medical group you’ve been using.
To learn more about how we make transitioning to Medicare a seamless part of your “Get to How” wealth planning, please contact us.
