When I’m 65 – An Introduction to Medicare
Medicare is the health insurance plan for older Americans administered by the Centers for Medicare and Medicaid Services, a division of the Federal government and financed by payroll taxes. At age 65, every American who has worked and paid employment taxes for at least ten years during their career, or is married to someone who has, is eligible for health insurance coverage under Medicare.
Medicare’s coverages – it comes in “Parts” A, B, C & D – can be a bit daunting at first glance. After reading this introduction, you will understand how and when to enroll, and how to make appropriate choices from the menu of coverage alternatives.
First You Must Enroll
Enrolling in Medicare is actually pretty simple. The enrollment period runs from the three months prior to your 65th birthday, the month of, and the three months following. Once enrolled, coverage normally begins on the first day of your birthday month. As there are significant penalties for delaying this enrollment, you should do so in the specified time period.
On the web, you can go to www.medicare.gov, or more directly to the online Medicare enrollment application at Social Security’s website. Most people will enroll in both Medicare Parts A & B, either by using the online enrollment application or by phone at 1-800-MEDICARE. If you have already filed for Social Security, you should automatically be enrolled in Parts A & B.
Enrollment in Part D is separate (described below) and should be done in the same timeframe.
If at age 65, you, or your spouse, are still employed and covered by an employer with more than 20 employees, you may not need to apply for Parts B or D right away. The rules are a bit more complex than can be adequately covered in this introductory piece. We generally advise that even those still covered by an employer’s plan sign up for at least Part A, as above. And it is strongly recommended that you check with your benefits administrator to be sure you understand whether, and when, to apply for Parts B and D.
The Parts – Explained
Medicare Part A helps pay for hospitalization, skilled nursing facility care, skilled home health care, and hospice costs. Part A benefits are not capped by total cost, but coverage is subject to significant time limitations as briefly described below.
The good news about Part A: There is no monthly or other premium costs. Part A is paid for by the Medicare Trust fund, which is supported by payroll employment taxes. Apart from a $1,340 deductible per each hospitalization benefit period, Medicare pays 100% of covered Part A costs for up to the first 60 days that you are hospitalized.
The bad news is that for longer hospital and most nursing care stays, there are significant copay costs to the insured. More importantly, Medicare Part A coverage ends after each continuous hospital stay of more than 90 days. Skilled nursing and psychiatric facility care needs are subject to time limits as well.
Note that Part A will not cover the costs of either long-term skilled nursing or home care after the time limits noted above.
Part B Medicare helps pay for physician charges and outpatient costs such as lab tests, home health, and medical equipment.
In 2018, the Part B will cost most people $134 per month. This premium is deducted from your monthly Social Security check once you file for this benefit. Before then, Medicare will send a bill that can be paid by check or direct bank transfer.
Part B is also subsidized by the Medicare Trust, as with Part A. The basic $134 premium pays for only an estimated 25% of the actual costs of coverage. Higher income individuals are required by law to pay a higher portion of the estimated costs. Starting at Modified Adjusted Gross Income (MAGI) of $85,000 for individuals and $170,000 for couples, a monthly surcharge (IRMAA*) is added to cover the costs of Part B and Part D (below). This surcharge currently starts at $66 per month, per person, increasing as income increases. The highest surcharge is $370 per month, per person, for joint MAGI incomes greater than $428,000. Even at this highest amount, the total premium collected pays only 80% of the expected costs for Part B.
There is a small annual deductible under Part B – $183 in 2018 – as well as a 20% co-pay for all covered expenses. Many people purchase a Medicare Supplement (Medigap) plan, discussed below, to cover some or all these deductibles and coinsurance costs.
Part C is the name given to Medicare Insurance plans also known as Medicare Advantage. These alternative plans, the equivalent of HMO or similar coverage, are offered through private insurance companies such as Anthem, Blue Shield and Kaiser Permanente. For a small additional monthly fee, the typical Medicare Advantage plan must include all the coverages under Parts A, B, and often part D (see below), and may offer additional benefits not covered by Medicare such as vision, dental, or health club membership. Individuals currently happy with their HMO coverage may want to consider Medicare Advantage. You can enroll in an Advantage plan via Medicare.gov, the health plan directly, your employer, or health insurance agent. You must however still have Parts A & B and pay the monthly Part B premium. These plans are annual contracts with an enrollment period of October 15 through December 7.
Part D Medicare is the newest Medicare coverage, providing prescription drug benefits for Medicare enrollees. Unlike Parts A & B which are administered by Medicare, Part D coverage is provided through the private insurance companies with a subsidy from the Federal government. The costs and coverages of each plan vary and are set by the insurance provider, following guidelines established by Medicare. The national average Part D prescription plan costs $33/month and has a deductible as well as co-pay costs that can vary widely.
To find the Part D options available to you, enter your information at the Medicare Part D plan finder site. Your health insurance agent may also help identify a suitable Part D plan. To avoid penalties, you should enroll in a Part D plan at the same time you enroll in Parts A & B. Each year, you have the option of changing Part D plans if you are not happy with your current coverage, or your prescription regime changes significantly.
Because of the Parts A & B deductibles, and especially the Part B co-pay costs that have no out-of-pocket maximums, many people opt to purchase a private Medigap, or Medicare Supplemental plan. Medigap policies are private health insurance plans that are guaranteed renewable. The plans will cover some or all these deductible and co-pay costs, and their monthly premiums vary widely, depending on the type of plan chosen. A health insurance professional can assist you in selecting the supplemental plan that is appropriate for you.
It is important to note that Supplemental Plans will cover only those costs that are approved by Medicare. As previously noted, neither Medicare nor Medigap supplemental plans cover the costs of long-term custodial care, assisted living or similar care costs.
People generally find Medicare to be a welcome relief from private health insurance. Most US healthcare providers take Medicare, there is less paperwork, and the total costs to a consumer tend to be significantly less than with private pay insurance. While, as with private insurance, there are elective treatments that Medicare does not cover, in general, most medical costs are covered, subject to the deductibles, co-pays and other limits described above.
DICSLAIMER & ADDITIONAL TOPICS
This has been a brief introduction to the basics of Medicare. As with many programs, there are always exceptions and differences in the rules that may apply to your situation. It may be in your interest to check with Medicare and/or a licensed insurance agent who specializes in these types of health and prescription drug plans to get the right coverages. Here is a useful introduction to Medigap from Consumer Reports.
Medicare considerations for disabled persons, those with end-stage renal disease or ALS, Americans traveling or living overseas, widowed spouses, and those who have paid employment taxes for less than the 10-year minimum are outside the scope of this introduction.
*IRMAA – Income-Related Monthly Adjusted Amount
The author, Martin Weil, is a Certified Financial Plannertm and the founder of MW Investment Strategy,
a wholly-owned subsidiary of Van Hulzen Asset Management.