Medicare is a big topic for people turning 65, but it’s also a difficult one to get a firm understanding of. You have multiple parts that you may or may not need and trying to get answers about Medicare from the government can be frustrating and fruitless.
The options and choices available can be very overwhelming along with yearly changes that are too easy to overlook.
Understanding Medicare and all of its parts will allow you to go into retirement with peace of mind.
What is Medicare and What is it There for?
Medicare is federally funded healthcare that is available for people when they turn 65. You’ve paid into it all of your life if you’ve worked for 40 quarters. Earning 40 credits throughout your life allows you to pay $144 a month for Medicare Part A and B, and if you didn’t reach this threshold, you’ll be paying $400 to $500 a month, with some adjustments available.
The health insurance offered through Medicare gets tweaked annually, and you’ll have access to a robust form of health insurance.
You can claim Medicare in a few different ways when you reach 65:
- If you’re on social security, the government will automatically deduct your B premiums from your check when you become eligible for Medicare.
- If you’re working, on group coverage and not on social security, the government will automatically deduct your premiums. In this case, you can sign the back of the card and reject coverage at this time.
- If you’re younger than 65 and on disability for 2 years, you’ll automatically be given Medicare and will receive your benefits.
Note: Medicare Part A is free and given to you regardless of your work situation.
Why People Deny Part B Coverage
The main reason people will reject Part B coverage is that it costs money. You can choose to maintain your current health coverage rather than apply for Part B coverage if it saves you money or offers better coverage.
If you have group coverage, you probably don’t want Part B. Otherwise, you do.
Penalties for Not Taking Coverage When It’s Available
If you’re turning 65 and don’t have insurance, you will be penalized. Anyone with credible coverage will not be penalized. Otherwise, the penalty will be 10% higher premiums per year that you don’t take the coverage.
The penalty is forever and never goes away.
Both Part A and D will be penalized. So, over a 5-year period, you’ll be paying 10% more per year for those 5 years, so:
- $148.50 is the standard cost
- $163.35 for a one-year penalty
- $179.68 for a two-year penalty
- $197.65 for a three-year penalty
- $217.41 for a four-year penalty
- $239.16 for a five-year penalty
As you can see, the costs rise drastically year-over-year that you don’t take Medicare.
What Does Medicare Cover?
Medicare covers everything medically necessary. You won’t have coverage for non-necessary procedures, such as hair implants or plastic surgery.
Alternative medicine and acupuncture are starting to be covered with new changes to Medicare.
Different parts of Medicare offer different forms of coverage, and this is a major part of understanding Medicare.
The standard part of Medicare that is offered to all people 65 or older or people that have been disabled for two years. Part A is your hospital coverage, and it’s an entitlement. Unfortunately, there are co-pays and deductibles that make it a poor form of coverage.
Medicare Part B essentially wraps around Part A and fills the holes in the coverage. A lot of the co-pays and deductibles are also covered under Part B, which make Part A much better. Together, 80% of your claims are covered by Part A and B.
You’ll have a lot of coverage, including:
- Doctor visits
- Lab work
- Diagnostics, etc.
Part D is the prescription drugs that are offered from a policy. There are normally 5 or 6 tier plans. This plan’s fee has an IRMAA, or income related monthly adjustment amount, which is an extra charge on top of your premiums if you’re a high-income earner.
A lot of the Part D standalone plans, which accompanies a Medigap plan, have a lot of high standalone plans.
Part C – Medicare Advantage
What is Medicare Advantage? These plans are offered by health insurance companies that work directly with the government. What this plan does is combine Plan:
So, you can apply for Medicare Advantage to really cover the 20% that isn’t covered by Part A and B.
But there’s a drawback: there are some co-pay and deductibles that you’ll have to pay. There are zero premium plans and other plans that do keep these costs down.
Why Choose a Medigap or Medicare Supplement Policy Over Medicare Advantage?
If you don’t want Part C, you can also apply for a Medigap or Medicare Supplement policy, which is slightly different. A Medigap plan will be for the 20% left that isn’t covered by Medicare Part A and B.
You’ll still be paying for prescription plans, too.
Typically, you’ll be paying $100 to $150 more for this plan than you would otherwise. Medicare Supplement plans are not government backed and prices go up each year. Part C doesn’t go up each year, so it’s often the best option to go with Part C to save money.
When Does Medicare Advantage Make More Sense Than Medigap?
Medigap plans can be expensive, and if you’re healthy with no imminent health issues and barely go to the doctor, you’re paying a lot of extra money to avoid potential co-pays. In most cases, the Medicare Advantage plan makes more sense because you’ll be paying a lot less money for your premiums – if any.
If you have a lot of medical issues and prescription drugs, Medigap may make more sense.
Of course, everyone has their own comfort zones where they’re less comfortable with cost sharing. You’ll need to sit down and discuss your options with a professional Medicare advisor who can help you form a plan that works best for your needs.
How IRMAA is Determined
The government will look at the last two tax returns you’ve filed to determine your payment for Medicare.
You can also make an appointment with a social security advisor if, for example, the following occurs:
- Two years ago, you received a massive retirement bonus, or
- You were working and made a lot of money.
You can go back and have an adjustment made to your IRMAA to try and bring your costs back down.
Understanding Medicare Premiums
Premiums are not rated based on your medical history. The exception is some Medigap plans that will rate tobacco users, which will impact your premiums. Advantage plans do not rate the plans, so your medical issues will not have to worry about paying more for their premiums.
Understanding Medicare is a smart decision for anyone nearly or at 65 that doesn’t have health insurance through a group plan already. You have two main enrollment periods per year where you can apply for plans or switch plans as necessary.
The enrollment periods are January 1 to March 31 for Open Enrollment and October 15 to December 7, which is the annual enrollment period.
Remember, Medicare starts on the 1st day of the month on your 65th birthday.
You should take the time to review plans annually, especially if you’re taking expensive drugs. Tweaking your coverage can be beneficial because there may be better coverage options available that save you money.
Speaking to someone that specializes in Medicare is really key to ensuring that you’re enrolled in the right plan that offers you the utmost in healthcare coverage possible. Ideally, you should start talking to someone once you are eligible to enroll. You may need the three months before the first day of the month of your birthday to correct any issues that may exist, such as an error on the side of the government, because these issues can take a long time to resolve.
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