Medicare provides a variety of coverages for various medical treatments and services. However, Medicare can be very confusing to those who it is supposed to benefit. While I can't answer all of your questions here, my hope is to provide you with information about some of the basics of Medicare. Medicare has many parts and coverages, here are the four main parts.
The different parts of Medicare
Part A or hospital insurance covers hospital care, skilled nursing facility care, nursing home care, hospice, and home health care services.
Medicare Part A is typically free if:
- You are receiving or eligible to receive retirement benefits from Social Security or the Railroad Retirement Board.
- You or spouse had Medicare-covered employment for at least 40 quarters.
- If you are under age 65, the coverage is free if you have received Social Security or Railroad Retirement Board disability benefits for at least 24 months.
If you are not eligible for free Part A coverage, the cost in 2018 is $422 per month if you paid into Medicare for less than 30 quarters while working, it is $232 per month if you paid in for between 30-39 quarters.
Part B or medical insurance covers medically necessary services and supplies as well as preventative services. Some examples include clinical studies, ambulance services, durable medical equipment, inpatient and outpatient mental health services and a second opinion prior to surgery.
The standard Part B premium for 2018 is $134 per month, but this may be higher based upon your income level. If your income level (2016 modified adjusted gross income is used for 2018 costs) is above $85,000 for a single person and $170,000 for those who are married and filed jointly, the costs increase at incremental levels to a maximum of $428.60 per month for single filers with incomes above $160,000 and married filers with an income above $320,000.
Parts A and B together are what is commonly known as “Traditional Medicare.”
Part D provides prescription drug coverage not provided in original Medicare (Parts A and B). Part D plans are offered by private insurance companies or Medicare approved providers. You can also obtain prescription drug coverage via a Medicare Advantage program. Costs will vary as will covered drugs and providers. What’s covered and not covered, as well as pharmacies included in the plan’s coverage, can and will change from year-to-year. It is important to review the plan in light of your sometimes-changing needs each year prior to the annual open enrollment period.
Medicare Advantage Plans or Part C are plans offered by a private insurer who contracts with Medicare to cover the benefits offered under Parts A and B. Most Advantage plans also offer prescription drug coverage and may offer other services and coverages not typically covered by traditional Medicare. These plans, and what is covered, can vary widely so you will need to do your homework both initially and each year during open enrollment.
Enrolling in Medicare
Medicare eligibility begins at age 65 for most of us, it can begin earlier if you are disabled and have been receiving Social Security disability checks.
If you are already collecting retirement or other benefits from Social Security, you will be notified about signing up Medicare automatically. If not, then you will need to initiate the process.
When you are first eligible to enroll, you have a seven-month window to sign up for Parts A and B. The enrollment period starts three months prior to the month you reach age 65, includes the month of your birthday and extends three months after that month.
Failing To Sign Up Could Cost You!
If you are not eligible for Part A at no cost and fail to enroll on time, the penalty is up to a 10% increase in the monthly premium and this increase will last for twice as many years as you were eligible for Part A but failed to sign up.
Failing to enroll in Part B when first eligible can result in a 10% penalty for each full 12-month period for which you were eligible but didn’t enroll. This penalty remains in place for as long as you have Part B coverage in place.
Penalties for failing to enroll in a Medicare Part D drug plan may be applied if you fail to obtain coverage for any continuous period of 63 days or more after your initial enrollment period.
In all cases if you have other coverage, such as “credible” coverage from employment or a spouse’s employment, the penalties will not apply. Once you retire you will have an initial enrollment period after which penalties could apply.
Once you are enrolled, there is an annual open enrollment period during which you can change coverages and providers. This period runs from October 15 through December 7 each year.
The Cost of Healthcare in Retirement
Healthcare is one of the largest costs for retirees. One study by Fidelity pegs the cost for a couple, both aged 65, at about $260,000 over the course of their retirement. These costs are increasing each year. Add to this the uncertainty under the current political climate and this issue becomes even more critical.
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About the Author:
Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.