It is not an easy feat to understand all the aspects of Medicare, much less choosing the plan that is right for you. And unfortunately, we cannot sum up in one article - or even two - how to choose the right plan for you. This is a task that really needs to be coordinated with your entire life plan. But what we can do is help you understand the system so that the task is not so daunting.
#1 Thing to Know:
Medicare is simply health insurance for individuals who have obtained the age of 65. Perhaps the most common misconception is that it will cover all of your medical expenses. There are a couple of ways to insure against the additional expenses that Medicare does not cover - it is critical piece of the puzzle to plan for.
What are the Basics?
There are two parts of Medicare that are initiated through your enrollment in social security at age 65: Part A is the inpatient hospitalization coverage, which is provided at no monthly cost to you. Part B is coverage for medically necessary services such as doctors’ visits which involve a monthly premium that is “means tested,” which means that the amount you pay is based on your income from the prior two years. This premium amount, however, cannot exceed $104.90. There are many things that Parts A and B do not cover that may very well surprise you and that you need to be aware of: certain treatments, medical equipment, surgeries, doctors visits, prescriptions and most long-term care needs. Additionally, there are co-pays and deductibles. It is very important to your wallet that you plan/address Part C or a Medicare Supplement and Part D to have a complete healthcare plan in retirement.
How Do I Start Part A and B?
If you are already taking social security when you turn 65, you will automatically be enrolled in Part A and B. If not, only Part A enrollment is automatic. You will need to sign up for Part B during a 7 month period of time beginning 3 months before you turn 65 and ending three months after the month you turn 65. If you are still eligible under a group plan and still working, you may wait and enroll within a short period of time after employment, or when coverage with the group plan ends and special enrollment times will be available to you after the designated windows.
How Do I Insure Against What Medicare Doesn't Pay?
The good news is that you do have choices. For everything except of prescription drug plans and most long-term care expenses you have two choices: Part C commonly referred to as a Medicare Advantage Plan (or) a Medicare Supplement policy.
Part C (Medicare Advantage Plan) can be compared with some aspects of both an HMO (health maintenance organization) or PPO (preferred provider organization). It combines all of your Medicare needs and requires you to receive services through one of these provider organizations. They are very strict as to how you receive service and when they will pay. For these reasons, they may be inconvenient for someone in a rural area. On the other hand, they often include a prescription drug plan and the monthly premiums are much lower than other alternatives. But - and a big but - there can be a lot higher out-of-pocket cost with a Medicare Advantage Plan. This means they look good from a price perspective as long as you are healthy. The minute you are not, you need to be prepared for these out-of-pocket costs. Because this is the last health insurance you will get in life, this is a very important consideration. Most people incur more and more medical needs as they age. And once you have been on an advantage plan for 12 months, there is no turning back unless you make it through underwriting.
A Medicare Supplement policy also referred to as a “Medigap policy” can simply pay for many of the costs Part A and B don't, including copayments and deductibles. They are much less restrictive than Part C and can be purchased with your specific needs in mind. In other words, you have choices on what you want your policy to cover. This, combined with Part D, allows you to cover just a little or a lot, and the majority of the time, the cost for this combined with all of your other Medicare costs totals less than your health insurance premiums before age 65.
Part D is bought to cover your prescription drugs. Unless Part C covers this for you, don’t wait to buy it. A little known fact is the penalty associated with late enrollment. All of your Medicare needs will need to be completed in the initial 7 month enrollment period. Every month you don’t enroll in Part D a one percent penalty will be assessed using the national base beneficiary premium. There are multiple prescription drug plans available including a very basic plan. And, you can change them every year. The best way to explore these is by talking to your pharmacist and using the Part D tool on the www.Medicare.gov website.
What Does Medicare Not Pay?
No one wants to think they will need it, but long-term care needs have become an epidemic. It is much more likely you will need it than not. Medicare will only pay for the first 30 days if you are moved into long- term care by your doctor. This means everything else will need to come from somewhere else. Unfortunately, this could be the largest medical expense you will face in retirement. Due to the extremity of these costs, there is much to plan for and I encourage you to read “Insurance in Retirement” in the KFS Learning Center, which discusses this in detail.
What do I do now?
- If you will be turning 65 in the next year or going off your group health plan, do not wait - start planning today. The Medicare process can be time consuming and a little overwhelming if you wait until the last minute. Be aware of the time factor in enrollment.
- Let us help. For most retirees their medical expenses are the largest expenses they will have in retirement and health care costs are only going up. Your plan needs to be paramount!