5 Things You Need to Know About Medicare

MedicareHealthcare

Sep 12

5 things you need to know about Medicare Vision Retirement financial planning independent RIA CFP fiduciary investment advice investment management New Jersey New York Bergen county financial advisor Ridgewood NJ

Medicare plays an important role in medical costs as you age, and it’s therefore imperative you understand how it works—especially if retirement is on the horizon. While this post isn’t meant to serve as a comprehensive guide to Medicare, it does provide insight into five key things you need to know about the program.

Medicare consists of four parts that each cover specific services

Known as “Original Medicare,” Medicare Part A and Part B dictate that the government pay providers directly for patient services received. Almost all physicians and hospitals in the United States accept Original Medicare.

Medicare Part A (hospital insurance): This covers patient care in a hospital or skilled nursing facility, in-home hospice, and limited home healthcare services. When you enroll in Medicare, you’ll receive Part A automatically. For most people, there is no monthly premium cost—but there is a $1,556 deductible. You must typically pay the deductible each time you are hospitalized and cover a portion of daily expenses if your stay extends beyond 60 days.

Medicare Part B (medical insurance): This covers medical services and supplies that are necessary to treat health conditions, including visits to doctors and other healthcare providers, medical equipment, and ambulance services. It also covers some preventive services. You are required to enroll in Part B if you don’t have “creditable coverage” from another source, such as an employer, and a failure to do so may result in a 10% monthly premium fee for each 12-month period you lack coverage. Most patients pay a monthly premium of at least $170.10 for Part B and must meet a deductible before benefits kick in.

Medicare Part C (also called “Medicare Advantage”): An alternative to Original Medicare (Parts A & B), these bundled plans are offered by private companies pre-approved by Medicare. Most Part C plans also include optional vision, dental, hearing, and prescription drug coverage (Part D) and additional services such as transportation to doctor’s visits—none of which are covered by Original Medicare. You can purchase Medicare Part C provided you are enrolled in Original Medicare, and monthly premiums vary based on the types of benefits and deductibles needed.

There are various types of Medicare Advantage Plans, with HMOs and PPOs as the most common plans. An HMO plan generally means you must seek care and services from physicians, other healthcare providers, and hospitals within the plan network. Exceptions include emergency care, out-of-area urgent care, and dialysis. Alternatively, PPO plans allow you to visit out-of-network providers for covered services—usually at a higher cost.

Medicare Part D (prescription drug coverage): Administered by Medicare-approved private insurance companies, Part D helps cover both brand-name and generic drug costs. You must have Medicare Part A and/or Part B to qualify for this optional plan and don’t need Part D if your Medicare Advantage plan offers prescription drug coverage. This plan typically includes deductibles (no more than $480), and Part D premiums vary by provider.

Upon reaching the 2022 spending limit of $4,430 (the combined total of what you and your plan have paid for), you’ll enter what’s known as the “donut hole”: a coverage gap whereby you’re responsible for 25% of prescription drug costs.

However, once you’ve paid $7,050 in out-of-pocket covered drug costs, you’ll leave the “donut hole” and enter “catastrophic coverage” territory. Despite the scary-sounding name, this simply means you’ll pay significantly lower copays or coinsurance for covered drugs for the remainder of the year.

Medigap Supplement plans fill in the gaps

Offered through various insurance companies, Medicare Supplement plans (or Medigap policies) cover many out-of-pocket costs Original Medicare does not: including copayments and deductibles. Some policies also cover medical care expenses beyond U.S. borders—another service Original Medicare doesn’t cover.

If a Medigap policy is right for you, know that insurers who offer such policies cannot deny you coverage or charge you more for preexisting conditions when you first enroll in Medicare. However, adding a Medigap policy beyond your initial seven-month enrollment period may cost you more; even worse, insurers can deny you coverage based on your health status. Specifics vary from state to state.

Medigap policies are standardized regardless of which insurance company sells them. This means they can only offer policies from a list of about 10 standardized plans that provide the same coverage, each one denoted by a letter (A, B, C, D, F, G, K, L, M, and N). However, premiums can vary among insurers and differ depending on where you live (Massachusetts, Minnesota, and Wisconsin standardize policies in a unique way). That said, never choose a carrier based solely on premiums, as familiarizing yourself with the carrier’s rating claims history and customer service is also important. Click here to kickstart your Medigap policy research.

Finally, know that you can’t enroll in a Medigap policy if you have a Medicare Advantage Plan. In fact, it’s illegal for someone to sell you a Medigap policy if he or she knows you’re enrolled in the same.

Enroll in Medicare during the provided “window” to avoid penalties

If you’ve received Social Security or Railroad Retirement Board benefits for at least four months before age 65, the government—in most cases—automatically enrolls you in Medicare Part A (hospital insurance) and Part B (medical insurance) when you turn 65. Everyone else who is eligible should heed a seven-month enrollment window to sign up for Medicare during this time. Your enrollment period begins three months before you turn 65 and ends three months after your birthday month. If you miss your initial enrollment period, you can sign up during the Medicare General Enrollment Period (January 1 through March 31 of each year), and your coverage will start on July 1st.

If you fail to qualify for free Part A premiums and don’t buy this when you’re first eligible for Medicare, your monthly premium could go up 10%. Plus, you’ll need to pay this late enrollment penalty for twice (!) the number of years you fail to sign up.

Similarly, if you don’t enroll in Medicare Part B during your initial enrollment period or the Medicare General Enrollment Period, this may result in a 10% monthly premium fee for each 12-month period you could have had coverage. In most cases, this penalty is assessed for as long as you have Part B.

While Medicare Part D is optional, you’ll need to pay a late-enrollment penalty upon signing up if you go without credible prescription drug coverage for more than 62 consecutive days after you’re first eligible. This penalty is permanent and ultimately depends on the length of time spent without Part D or credible prescription coverage.

Increases in income may boost your Medicare insurance premiums

Medicare Part B premiums are based on your income levels. For 2022, if you earn $91,000 or less ($182,000 or less if you file a joint tax return), you’ll pay a monthly premium of $170.10. However, if you earn just $1 more than these thresholds, your monthly premium will jump to $238.10 (or even higher if your earnings far exceed this)!

You’ll also need to consider Medicare surcharges, which apply to incomes above those same thresholds. Starting at $12.40 in additional monthly charges and rising to $77.90 per month, surcharges can be mitigated through proper tax planning or contested by filing an appeal (usually in the face of a life-changing event).

Medicare doesn’t cover long-term care

According to the U.S. Department of Health and Human Services, there is almost a 70% chance that someone celebrating a 65th birthday today will require some type of long-term care (LTC) services in the years ahead. An estimated 20% will need care for more than five years. Unfortunately, many people incorrectly assume that Medicare covers l ong-term care expenses. The truth is that it doesn’t, except in very limited circumstances.

In sum: what you need to know about Medicare

With healthcare costs increasing over time, it’s important to understand your Medicare options and minimize expenses—especially during retirement. That said, if you think navigating Medicare insurance options is confusing, you aren’t alone. Thankfully, a Medicare insurance expert or financial advisor can help you make sense of these seemingly complex options.