As you near retirement age, you’ll likely start to notice all of the advertisements, articles and discussions about Medicare that are out there. It can sound a lot like alphabet soup – Parts A, B, C, D, supplement, etc.
And you’re probably asking: Which parts do I need? When do I get it? How do I get it? What does it cost? You can be overwhelmed with what feels like an endless number of decisions. While these are certainly very important decisions, they don’t have to be as daunting as they sound. Let’s break it down…
THE PARTS
Parts A & B are our country’s government-operated health insurance |
|
| Part A (Hospital Insurance) |
Helps pay for in-patient care in a hospital or limited time at a skilled nursing facility (following a hospital stay). Part A also pays for some home health care and hospice care. |
| Part B (Medical Insurance) |
Helps pay for services from doctors and other health care providers, out-patient care, home health care, durable medical equipment, and some preventive services. |
The following are operated by private insurance companies under rules set by Medicare |
|
| Supplemental (Medigap) |
Helps pay for medical expenses not covered by Parts A & B. There are several standardized plans from which to choose depending on your needs. |
| Part C (Known as Medicare Advantage) |
Plans are offered by approved private insurance companies that include services covered in Parts A & B and typically offer extra coverage including prescription drug coverage. Service providers typically must be in-network. |
| Part D (Prescription Drug Coverage) |
Helps cover the cost of prescription drugs. |
WHEN CAN I ENROLL IN MEDICARE?
Initial Enrollment
You are eligible for Medicare when you turn age 65. There is a seven-month enrollment period that begins three months before the month you turn 65 and ends three months after the month you turn 65.
Suppose you turn Age 65 on April 15. Your enrollment period runs from January 1 to July 31.
| 3 months before | 65th Birthday Month | 3 months after | ||||
| January 1 | February | March | April | May | June | July 31 |
| 7-month enrollment period | ||||||
General Enrollment
If you do not sign up for Medicare during your initial enrollment period, you can sign up during the General Enrollment period, which is from January 1 to March 31 of each year. In this case, coverage will start July 1 of that year. However, you will likely be subject to a late enrollment penalty each month for as long as you have Medicare coverage – unless you are eligible for a Special Enrollment Period.
Special Enrollment Period (SEP)
If at that the time of your Initial Enrollment Period you were covered under a group health plan based on your or your spouse’s current employment, you may be eligible for the Special Enrollment Period.
The Special Enrollment Period is an 8-month period that begins the month after employment ends or the group coverage ends, whichever comes first. Once you turn 65, you can switch from group coverage to Medicare any month. For purposes of the Special Enrollment Period, COBRA and retiree health insurance is not considered coverage based on current employment.
There is no late penalty during a Special Enrollment Period.
MEDICARE SUPPLEMENTAL, OR MEDIGAP
As the name implies, there are gaps in the coverage provided by Medicare Parts A & B. Medigap policies are sold and operated by private insurance companies under rules established by Medicare.
Companies offer standardized plans identified by letters (Plans A, B, C, D, F, G, K, L, M, N). Each standardized plan offers different benefits from basic to more comprehensive. The more comprehensive the coverage, the more expensive the premium.
For the same standardized plan, the only difference between a policy offered by one company to the next should be the monthly premium charged. The plan that is right for you will depend on your needs and your budget.
MEDICARE ADVANTAGE PLANS
Medicare Advantage Plans are offered by private insurance companies and must follow rules set by Medicare – it’s an alternative way to get your Medicare coverage. The private insurance company is paid a fixed amount for your coverage by Medicare. The Medicare Advantage Plans cover all services under Parts A & B, but some may provide extra coverages. Most plans include prescription drug coverage (Part D).
In addition to paying your Medicare Part B premium, you will also pay a premium for Medicare Advantage plan and you cannot have a Medigap policy. Furthermore, you must use in-network providers.
There are many factors to consider when determining if a Medicare Advantage Plan is right for you.
MEDICARE PART D (Prescription Drug Coverage)
Part D is an optional benefit available to anyone who has Medicare. You may enroll in a Medicare Part D plan during your initial enrollment period. The plans are provided by private companies who charge a monthly premium. Each plan can vary in cost and specific drugs covered and the premium reflects these differences. If you enroll in a plan at a later date, you will be subject to a late enrollment penalty for as long as you have coverage.
WHAT WILL IT COST?
Medicare Part A
Generally speaking, if you are eligible to receive Social Security Benefits, Medicare Part A is free.
Medicare Part B
In 2020, the standard monthly premium for Part B is $144.60. If you are receiving social security benefits, the monthly premium is deducted from your social security benefit.
Your monthly premium is means-tested. This means that if your modified gross adjusted income reported on your income tax return two years ago exceeds certain amounts, you will pay additional monthly premiums.
As you will see in the table below, your income tax planning should take into consideration the various income thresholds and increased premiums.
If your yearly income in 2018 (for what you pay in 2020) was |
You pay |
Part D |
||
| File individual tax return | File joint tax return | File married & separate tax return |
||
| $87,000 or less | $174,000 or less | $87,000 or less | $144.60 | $0.00 |
| above $87,000 up to $109,000 | above $174,000 up to $218,000 | Not applicable | $202.40 | $12.20 |
| above $109,000 up to $136,000 | above $218,000 up to $272,000 | Not applicable | $289.20 | $31.50 |
| above $136,000 up to $163,000 | above $272,000 up to $326,000 | Not applicable | $376.00 | $50.70 |
| above $163,000 and less than $500,000 | above $326,000 and less than $750,000 | above $87,000 and less than $413,000 | $462.70 | $70.00 |
| $500,000 or above | $750,000 and above | $413,000 and above | $491.60 | $76.40 |
As with most financial planning matters, there may be nuances and complexities that are unique to your situation. Therefore, this article is designed as a useful overview, but is not intended to be comprehensive. If you have questions, please consult with your wealth advisor.
– Terry Hartigan, CFP® | Managing Partner, Private Wealth