Medical costs can be a significant barrier to a comfortable retirement. Fortunately, the Medicare program was designed to help retirees meet these expenses. Since the program was established in 1965, Medicare has been a key component of most Americans’ retirement plans. Today, Medicare reduces health care costs for seniors by about 64%.
Like other government programs, Medicare can be confusing. There are many choices you must make regarding your Medicare coverage and missteps can lead to penalties. Additionally, choosing the wrong Medicare coverage for your situation can result in poor coverage and higher out-of-pocket costs in retirement. To avoid these negative outcomes, you should take the time to understand the most important details of the Medicare program – beginning with this overview.
To learn more about Medicare, view our on-demand webinar Medicare Planning: What You Need to Know to Manage Costs and Avoid Late Filing Penalties. This webinar is hosted by Meld’s resident Social Security and Medicare specialist, Pat Burris, CFP®.
The Basics of Medicare
Medicare is a national health insurance program which helps older and disabled Americans cover their medical costs. It is not a welfare program and shouldn’t be confused with Medicaid which provides health coverage for those in need.
Medicare is funded with a combination of tax dollars, monthly premiums, coinsurance, and deductibles. Original Medicare consists of Parts A and B which cover some of the costs of inpatient and outpatient health care, respectively. For additional coverage, you can purchase a Medigap or Medicare Advantage plan, described in detail later in this article.
Medicare Eligibility and Enrollment
Medicare is available to Americans aged 65 or older and those who have been disabled longer than 24 months. Unlike Medicaid, income and assets are not considered when determining Medicare eligibility.
You will automatically be enrolled in Medicare Parts A and B if you are already receiving Social Security benefits when you turn 65. If you are retired but not receiving Social Security benefits when you turn 65, you’ll need to enroll in Medicare to avoid penalties. However, you may be eligible to delay Medicare enrollment if you are still working when you turn 65.
You can enroll in Medicare during one of three enrollment periods. These include:
- Initial Enrollment Period – A 7-month period surrounding your 65th birthday.
- General Enrollment Period – January 1 through March 31 of each year.
- Special Enrollment Period – An additional enrollment period for special circumstances.
In the past, there was a significant delay between signing up for Medicare and the beginning of benefits. Recent changes have ensured that Part B coverage now begins the first day of the month after you sign up when you sign up during your Initial Enrollment Period or the General Enrollment Period.
Medicare Coverage
Medicare does not cover all health care costs in retirement. Instead, Original Medicare helps to cover some of the costs associated with common health care needs. Original Medicare covers:
- Medicare Part A – This coverage is generally funded by tax dollars and covers inpatient hospital services, skilled nursing facilities, hospice, and home health care.
- Medicare Part B – This coverage is funded with monthly premiums and covers outpatient care, visits to your doctor, preventative care, and durable medical equipment.
Once you’ve enrolled in Original Medicare A and B and have your Medicare card, you can choose to purchase additional coverage. This makes achieving retirement health care coverage a two-step process that typically takes at least two months. The two main types of supplemental coverage are Medigap and Medicare Advantage.
- Medigap Policies – Medigap is supplemental coverage that helps pay your share of costs in Original Medicare. You can also purchase additional coverage like Medicare Part D which provides assistance paying for prescription drugs.
- Medicare Advantage – Medicare Advantage plans bundle the benefits you would receive under Parts A, B, and sometimes D with other benefits typically provided by a Medigap policy. In most cases, you must use the doctors in the Medicare Advantage plan’s network.
If you buy a supplement plan, you must choose between Medigap and Medicare Advantage. You cannot have both.
Choosing a Medicare supplement or Advantage plan is a crucial step in retirement planning. In fact, choosing the wrong Medicare plan is one of the 7 most common Medicare mistakes. To determine which plan meets your coverage and cost needs, consult an experienced financial advisor.
Medicare Costs
Medicare Part A is available at no cost if you or your spouse worked more than 40 quarters at a covered job during your lifetime. If you worked less than 40 quarters, you can voluntarily enroll in Medicare Part A with a monthly premium. Even if you qualify for Medicare Part A at no monthly cost, you could owe deductibles and coinsurance amounts when you receive care. Medicare Part A costs change each year based on the costs of administering the Medicare program.
Medicare Part B has a monthly premium, even if you worked more than 40 quarters. There is also a deductible that you must meet before Medicare begins to share your costs. In addition, Part B is subject to an Income-Related Adjustment Amount [IRMAA]. This increases monthly premiums for high earners.
Costs and coverage for Medicare supplement and Advantage plans can change each year. For this reason, you should review your policy annually with an experienced financial advisor to determine if your plan still meets your needs.
Get Answers to Your Medicare Questions with Meld Financial
If you need help understanding your Medicare options, the team at Meld Financial can help. Our advisors have helped clients achieve their retirement goals in each of the last 5 decades and we have the experience to answer your most pressing retirement questions.
Our team will develop your Financial Fingerprint® – a comprehensive wealth management plan that is quick to assemble, easy to understand and simple to modify as your circumstances change. This nimble plan was developed in-house, and it accounts for government benefits like Social Security and Medicare. With Financial Fingerprint® and a partnership with the Meld Financial team, you can transition to Medicare and enter retirement with confidence.
Contact us to get started.
