Breaking Down Medicare

Everyone over 65 who is entitled to Social Security is also eligible for Medicare. Some look forward to Medicare because they believe it costs less and covers more. You’ve had 1.45% of your income deducted from your paycheck your whole working life to pay for this benefit, so maybe it’s time to redeem that down payment. We pride ourselves on being Medicare experts. This short article is meant to give you a Medicare primer so we can have a more in-depth conversation when we meet. Below, I’ll discuss the three main parts of Medicare (A, B, & D) as well as other components like Medicare Advantage (Part C) and Medigap before turning our attention to enrollment possibilities.

What Is The Plan And What Does It Cover?

Part A – Hospital Insurance

Hospital stays of up to 150 days, extended care in a nursing home for up to 100 additional days, and unlimited home healthcare services related to a medical event are covered in Medicare Part A. Hospice care for terminal illnesses is also included. Patients pay a periodic deductible during care depending on their length of stay, and nursing home care requires a copayment of $200+ per day after 20 days of care. So, while Part A insurance doesn’t cost anything, because you paid for it during your working life, you do bear some financial responsibility while receiving care.

Part B – Medical Insurance

If you visit a doctor’s office and have diagnostic tests like bloodwork, preventative screenings, or outpatient surgery, you’ll use this part of Medicare. Part B is optional, but if you don’t enroll within the applicable eligibility window, your premium will be subject to a 10% late enrollment increase permanently. You, along with all Part B enrollees, pay a flat monthly premium that adjusts annually (currently $174.70 in 2024, but could be more if you have high income). It normally comes right out of a retiree’s Social Security check, but you can pay it directly to Medicare if you aren’t enrolled in Social Security yet. Medicare pays 80% of all approved Part B charges but has no maximum out-of-pocket limit, meaning you have a potentially significant financial liability.

Part D – Prescription Drugs

We had a nice successive alphabet theme going on here, but I’m going to skip C and come back to it. Just remember D for Drugs provided through private insurance at a Discount. To be on Part D, you are required to be enrolled in Part A & B. Notice above that none of the other parts of Medicare cover ongoing prescription drug costs (e.g. diabetes or cholesterol medication), so this plan deals with those needs and the costs. The premium for these plans varies based on what drugs you need covered and could be more if you have a high income. These premiums, like Part B, come straight out of your Social Security benefit and are subject to the same 10% late enrollment penalty.

Part C – Medicare Advantage

Back to C….An Advantage plan is an all-in-one design that replaces traditional Medicare Part A and B (and could include D) with a private insurance plan. Medicare pays your Advantage plan provider directly for the plan cost, and you still pay Medicare at least your Part B premium. Medicare Advantage tends to have a lower monthly cost and some added benefits (e.g. dental & vision) but higher out-of-pocket costs and fewer provider options. It can be a more affordable option for someone who is in excellent health. You can switch between traditional Medicare and Medicare Advantage during two annual enrollment periods, but there is some nuance here regarding qualifying for Medigap Insurance (discussed below), so contact us beforehand so we can help you navigate the intricacies. Most of our clients have regular Medicare, but nationally, there’s close to a 50/50 split for enrollees.

Supplement – Medigap Insurance

My aim in laying out the coverages and giving you the plan details above is to demonstrate that Medicare Part A & B have gaps that leave you with a potentially big financial responsibility. As such, you can purchase additional coverage on top of Part A & B (but not if you have a Part C Advantage Plan), called a Medigap policy, which has several plans that cover your responsibility in varying degrees. Much of the choice centers around covering your extended nursing care responsibility (See Part A above) and Part B excess charges, which bleeds into the complicated relationship between what Medicare pays and what doctors, hospitals, and other providers charge. Plan G is the most robust, covering all but a small Part B deductible.

With a fundamental understanding of the Parts of Medicare, we’ll move on to discuss enrolling.

Enrollment Possibilities

Even though Medicare eligibility is open to all who are eligible for Social Security, that doesn’t mean you have to file for Social Security benefits in order to enroll in Medicare. In fact, if you enroll for Social Security benefits, you will automatically be enrolled in Medicare Part A & Part B, but that might not be advantageous for your situation. With Medicare enrollment, the recommendation rests primarily on whether you have access to workplace insurance. In that case, you can delay Medicare enrollment and avoid any late enrollment penalty. Below are general guidelines and should not be construed as advice for your specific situation, but only illustrate the factors we consider with you.

If you and your spouse are done working at 65:

1. Apply for Medicare within 3 months before or 3 months after the month you turn 65. If you don’t, that’s where the aforementioned permanent surcharge could apply.

2. Rather than having your Part B premium deducted from your Social Security benefit, if you are waiting to claim that benefit, you will pay your Part B premium directly to Medicare.

3. Select a Part D plan that is appropriate.

4. Select a Medigap policy that fits your cost-sharing capacity and financial situation.

If you have access to medical insurance through work at 65:

1. Evaluate the cost, coverage, and providers compared to your available Medicare options.

2. If your employer plan is advantageous, keep it and enroll only in Medicare Part A*** because it has no cost and covers hospital and nursing care. Medicare will be the second payor in any claim.

***The only exception to enrolling in Medicare Part A is whether the workplace plan you chose is a High-Deductible Health Plan (HDHP) with a Health Savings Account (HSA). If it is, you’ll want to delay Part A enrollment because Part A is not an HDHP, and having any non-HDHP in the mix causes you to be ineligible to contribute to an HSA. (You can use your already deposited HSA dollars no matter what) There’s a little bit of nuance to this factor, so let’s have a conversation to make sure you’re making the right choice for your family.

3. When you decide to leave your employer plan or stop working, you have access to a special 8-month enrollment period and would follow steps 2 – 4 above after that.

We’re here for you when it’s time to consider your options. You’ll be glad you started investigating how Medicare works well in advance, so you don’t feel pressure to decide, given the prospect of enrollment windows and surcharge deadlines. This essential Medicare framework provides a frame of reference to start a conversation with one of our financial planners. We partner with trusted Medicare brokers who shop available plans for you to find the supplemental coverage you want, and we stay engaged alongside you throughout, so you feel confident in your decision. Reach out and book an intro call with us if that time is now.