How Does Medicare Work?

Medicare is such an essential part of retirement planning because you can save for your retirement, but there’s often no way to cover 100% of your medical expenses out of pocket. There are also a lot of Medicare mistakes you can make simply because you’re not well-informed on the topic.

In our most recent podcast, we had the pleasure of speaking with one of the leading experts in Medicare: Diane Omdahl.

She’s the co-founder and President of 65 Incorporated.

Who is 65 Incorporated?

65 Incorporated is a business that provides Baby Boomers and seniors with unbiased Medicare information. The company offers software and consulting services that help guide you to the right Medicare option for you. 

You’ll find the company on:

  • Kiplinger
  • MarketWatch
  • U.S. News

Diane is a registered nurse working in long-term care, and then she became a director of a home health agency, where she learned all about Medicare rules first-hand. Now, for over two decades, she has helped educate seniors on Medicare.

When Should a Person Begin Planning for Medicare?

Retirement planning is different for everyone, and while many people retire at 65, some retire at 62. First and foremost, it’s crucial to know that you cannot be on Medicare until you’re 65. If you retire early, you’ll need to get health insurance to cover those years.

Diane recommends that you start planning out your Medicare 9 – 12 months before you plan on going on Medicare.

You’ll need to create a My Social Security account to apply, so this is something that you can do beforehand to get the ball rolling. The biggest issue Diane finds is that people run out of time because they don’t take measures beforehand.

One of the biggest misconceptions that Diane sees is that people think they need to take Medicare at 65 no matter what.

You can:

  • Enroll in Medicare
  • Stay on health insurance if you work with a company that has 20 or more employees
  • Contribute to an HSA

If you have health insurance through your employer or contribute to an HSA, it may not be in your best interest to go on Medicare just yet. However, if you’re on Social Security or on disability, you will automatically be enrolled in Medicare.

Every person’s situation is unique, and that’s why it’s important to sit down with a professional to learn when the best time is to enroll in Medicare. 

What is Open Enrollment?

Open enrollment starts on October 15 and ends on December 7 of each year. This period allows people with a Part D or Advantage plan the option to change plans. You may love your current plan, but if you’re not paying attention during open enrollment, it’s not uncommon for plans to change.

Some people will be on very low-cost Part D plans, and then find that the price of their current plan doubles after open enrollment.

You have to pay attention to your plan during open enrollment.

Can You Change Your Medicare Plan?

There are two main Medicare “paths,” as Diane likes to call them.

  1. Original Medicare with supplement plans
  2. Medicare Advantage 

When you make your initial plan to go on either path, it is very important. You can change plans, but things are getting a little more complicated in some states. You may not be able to change plans easily due to health reasons or where you live.

Also, note that there are three main Medicare parts:

  • Part A, which covers hospital and home healthcare.
  • Part B, which is an outpatient medical component.
  • Part D, which is your prescription drug plan.

What is Original Medicare?

Original Medicare has multiple parts:

  • A
  • B

You’ll also want Part D and some sort of Medigap plan.

What is Medicare Advantage?

Medicare Advantage is also considered Part C, and it was introduced to help combine Part A, B and D into one.

How to Choose Your Medicare Path

Medicare has these two paths, but which one is right for you? This is where it gets tricky. Eventually, everyone’s health will begin to decline to some degree. However, the biggest issue is financials.

  • Original Medicare is where you pay monthly and have to pay for certain procedures.
  • Medicare Advantage is more like a pay later solution, where you pay for procedures later.

Coverage rules differ, too. If you want to see a specialist, you need a referral on the Advantage plan and not on the Original plan.

Original Medicare has a lot less coverage rules than Advantage plans with some caveats, such as buying a mobile wheelchair. Under the Original Medicare plan, your doctor can recommend physical therapy without additional approval.

So, there’s a lot to think about.

Unfortunately, many people want to get Medicare as quickly as possible. There’s a lot of information surrounding Medicare, and you may want to just get it over with and choose a plan that isn’t optimal for you.

Don’t do this.

It may be more difficult in the future to change your plan, and in some cases, it may not even be possible.

That’s why it’s so important to sit down with an expert like Diane to choose the right path the first time.

For example, Diane received a call from someone with:

  • Cancer
  • Cannot get a referral
  • Cannot get the supplement

He’s stuck in an HMO plan, and he needs prior approval before chemo can begin. Unfortunately, he needs to jump through hoops and may even need to delay treatment because he’s not on the right plan to begin with.

When to Sit Down with a Financial Advisor to Discuss Medicare

Ideally, you’ll want to sit down with a financial advisor at 62 or so to discuss Medicare. Medicare has a two-year look-back period, and the period will determine how much you pay for Medicare.

Financial advisors can help you restructure your wealth to help reduce your Medicare expenses.

Medicare is one of those things that you need to focus on when trying to secure your retirement. You want to sit down with an expert to discuss Medicare and learn which option is the best choice for you. Don’t just fall for everything they say on television about Advantage plans because you’ll often find that there are missing tidbits and misleading claims that can cost you a lot of money.

Want to hear the podcast for yourself?

Click here to look through our list of podcasts.

Retirement Before Medicare

Medicare begins at age 65 for people in the United States, so if you enter early retirement before this threshold, you’ll be retiring before Medicare. Most people that come to us will say that they want to work until 65, 66 or even 70.

Since we believe in retirement planning using concrete data, we’ll plug in the person’s figures and forecast what their retirement may look like.

For some people, they’ll find that they have significant money leftover at age 90, so they want to see what happens if they retire at 62. We can easily run these forecasts, but there are a few things that occur when you start thinking of retiring early.

Early Retirement and a Few Factors to Consider

If you can secure your retirement by 60, it’s a wonderful feeling. You’ve done everything properly, and now you’re able to enjoy your life a little more. However, if you do retire early, there are some factors you need to consider.


Medicare is going to be unavailable until you’re 65, and if you’re no longer working for a company that offers health insurance, you’re now on your own. Health insurance expenses will be a major factor, especially with rising insurance costs.

Lost Income Potential

If you retire before 65, you’re no longer paying into Social Security, nor are you able to allow your investments to accumulate as much money as you would if you stayed in the workforce. Of course, this is a tradeoff of early retirement, but it’s something to consider based on your current financials.

Potential retirees that are trying to make all the calculations on their own may miss crucial factors that help shape their retirement plans. We use special software that can easily be adjusted to add in:

  • Special expenses
  • Fun funds
  • Additional expenses or income

Running what-if scenarios, such as retiring before Medicare or if rates rise for Medicare, can help you better understand your retirement potential.

While you may be a master of Excel, it’s far too easy to miscalculate your funds or miss a calculation that throws off your retirement figures in both directions.

Real-time output and reports are crucial to outline whether you have enough money to secure your retirement and what can happen if you do retire before you’re eligible for Medicare.

Social Security

Another thing to consider if you’re retiring early is that you will pay less into Social Security. You can start Social Security as early as 62, and your contributions stop at 70. For some people, they plan on retiring at 65. If you’re working and have ample income, it doesn’t make sense to take Social Security.

Instead, in the scenario above, it makes the most sense to let your Social Security build so that it’s higher when you do retire.

Some people will retire at 65 and not take Social Security until they’re 70 to maximize their benefits. We like to run figures until a person is 90 to have a good idea of what it means to take Social Security.

Ideally, we run figures for taking Social Security at:

  • 65
  • 67
  • 70

It may seem like a no-brainer to take Social Security at 70 because that’s when your benefits will be their highest. However, if you must take money out of your retirement account because you stopped working at 65 and don’t take benefits until you’re 70, this will impact your retirement, too.

For example, if you still have $500,000 in retirement funds at 90, why would you wait to retire?

You’re unlikely to use all your retirement before your demise at that point. If you’re holding out on Social Security and continue working to maximize these benefits, will they really matter in the whole spectrum of things?

There’s a lot to think about if you plan to retire early, and it’s a very individualized thing.

You might want to help pay for a person’s wedding, renovate your house, and make other big purchases. If you’re retiring before Medicare, these expenses may be fine, or they may leave you taking money out of your retirement accounts earlier than expected.

If you do plan to retire a little earlier, we recommend running the figures to have a clear picture of:

  • What your health insurance costs will be.
  • What happens to your retirement accounts because you’re paying for insurance out of your investment accounts?
  • Etc.

Ideally, you’ll work with someone, like us, who can run the numbers for you to plug in all these variables and what-if scenarios. We can even forecast what happens if you plan to retire at 55, so you can have a clear picture of how realistic retirement is for your situation.

If you need help running these reports and want to know what your retirement before Medicare may look like, schedule an introductory call with us.