September 22nd was the last day of summer and the transition to fall is upon us. School is back in session, Monday night football is back, pumpkin spice flavors everything, and open enrollment for Medicare starts October 15th.
The good news is that you can review your choices and enroll for Medicare online! The open enrollment period runs from October 15th to December 7th and allows you, if you are a current Medicare user, to compare coverage and assess your health and prescription drug needs. During this time, switching to and from Medicare plans is allowed.
There are many details of this essential healthcare program that require careful navigation. As financial advisors, we know planning for healthcare is a necessary component of a comprehensive financial plan, and making careful and informed decisions regarding your healthcare coverage is important for your overall financial health.
Sign Up When You Are 65
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It’s paramount to sign up for Medicare when you are eligible or risk paying late enrollment penalties for life! This is not automatic unless you are already receiving Social Security benefits. You first become eligible for Medicare during your Initial Enrollment Period (the 7-month period that begins 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65).
Unless you have other coverage that’s similar in value to Medicare (like from an employer). Call HR and determine which plan works better for you. They would need to provide a letter every year to allow you to delay signing up for Medicare.
The Main Components of Medicare
Medicare consists of several parts, each covering different aspects of health care:
Medicare Part A (Hospital Insurance):
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- Covers inpatient hospital care, skilled nursing facility care, hospice care, and some home healthcare services.
- Most people do NOT pay premiums for Part A if they or their spouse paid Medicare taxes while working (10 years of tax paying credits).
- $1,600 deductible, then requires a $400 daily copay beginning day 61 of hospitalization, rising to $800 on day 91. After 150 days, 100% of the cost is the client’s responsibility. To handle paying for these uncovered daily copays, clients can purchase Medigap or Medicare Advantage– described below.
Medicare Part B (Medical Insurance):
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- Covers medically necessary services and supplies, including doctor’s visits, outpatient care, preventive services, and durable medical equipment.
- Beneficiaries pay monthly premiums for Part B, regardless of any additional or supplemental insurance.
- The Standard Rate for 2023 is $164.90/month. Deductible $233.
- Premiums are based on an income-based sliding scale. If your modified adjusted gross income (MAGI) as reported on your tax return from 2 years ago is above a certain amount you will pay the Standard Rate plus an income-related monthly adjusted amount (IRMAA). For 2023 Part B premiums, refer to your 2021 MAGI (see table below).
There’s More to Medicare.
Let’s pause here. Part A and Part B are known as Original Medicare. They are administered and provided by the federal government. Medicare Parts A and B will pay only about 80% of a beneficiary’s healthcare costs and the beneficiary is responsible for the remaining 20%. Services NOT covered by Medicare include hearing tests, routine eye care, most dental care, acupuncture, routine foot care, and foreign travel. Private insurance companies can be used to provide greater insurance. In fact, most Medicare users choose (and pay for) one of these two options:
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- Original Medicare and add on Medigap & Part D.
OR - Medicare Advantage plan.
- Original Medicare and add on Medigap & Part D.
Medicare Part C (Medicare Advantage):
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- Offers an alternative to Original Medicare (Part A and Part B) and is provided by private insurance companies approved by Medicare (Aetna, Humana, Kaiser Permanente, etc.). These plans offer financial protection through annual limits on out-of-pocket expenses.
- Includes all benefits of Part A and Part B, and often includes prescription drug coverage (Part D) as well as additional benefits like dental, vision, and fitness programs. Think: all-in-one solution.
- Gives access to care from doctors and hospitals that are within the plan’s network. May need prior authorization to see specialists or get out of network care. These plans typically resemble the healthcare plans people had during their working career.
- Beneficiaries may pay premiums in addition to their Part B premium and will have copays. Premiums are generally lower than Medigap.
- Considerations when choosing a plan – out of pocket costs, max out of pocket limit, and the network of doctors.
Medigap (Medicare Supplement Insurance):
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- Also known as Medicare Supplement Plans, these private insurance policies help cover what Original Medicare does not, such as copayments, deductibles, and coinsurance.
- Beneficiaries must have Original Medicare (Part A and Part B) to enroll in a Medigap plan. Premiums are generally higher than Medicare Advantage. There are no copays.
- May be more expensive but it has a few advantages – you are covered by any hospital or doctor in the U.S that accepts Medicare, and the great majority do. No need for prior authorization or a referral from a primary care doctor. These plans are favored by snowbirds or those who travel often due to their national portability.
- Typically, do not cover vision or dental care, hearing aids, eyeglasses, long-term care, or private-duty nursing.
- After you sign up for Part B, you have 6 months to enroll to have no-questions asked Medigap coverage. If you miss that window or want to transfer from Medicare Advantage to Medigap, you may have to go through medical underwriting and pay more or can be denied coverage based on risk.
Medicare Part D (Prescription Drug Coverage):
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- Provides coverage for prescription medications through private insurance plans that are approved by Medicare. Costs will vary depending on the plan you choose and the prescriptions you need.
- Beneficiaries pay monthly premiums, deductibles, and copayments or coinsurance for medications. The national average monthly premium is $55/month.
- While Part D is optional, if you do not enroll in it when first eligible and don’t have another form of credible drug coverage (employer coverage, Veteran’s Administration benefits), you can start accumulating a penalty that grows larger over time, causing you to pay a lifetime penalty once you do sign up. If you take few medications, consider picking a plan with a low premium so you get some protection at a low cost and avoid the penalty.
- Similar to Part B, if your income is above a certain limit, you’ll pay an income-related monthly adjustment amount (IRMAA) in addition to your plan premium. See table below.
Financial Planning Considerations:
Years before turning 65.
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- Income Planning -Use these years to do income planning with your financial advisor to plan for and possibly reduce IRMAA surcharges. In addition, there are healthcare cost saving strategies to implement for those who retire before they are eligible for Medicare.
- HSA – If you decide to delay enrolling in Medicare because you are still working, make sure to stop contributing to your HSA at least 6 months before you enroll in Medicare to not incur a tax penalty.
- Dental – When determining what plan is right for you – a good first step is to reach out to your dentist and see what Medicare or insurance plans they work with.
Moving States?
Inform the Social Security Administration (SSA) and your Insurance Provider. Medicare Advantage and Plan D are often regional, and you might need to find a plan in your new region.
Medicare Action Items:
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- Review your income annually. If the SSA decides that an IRMAA surcharge applies to your Medicare premiums, you’ll receive a predetermination notice in the mail. If you’ve had a reduction in income (loss of pension, work stoppage, loss of income-producing property, etc.) or a life changing event (divorce, death of spouse, etc.) you can take steps to appeal it, which are often successful.
- Review your current insurance. In September, review the “Annual Notice of Change” (ANOC) provided by your plan provider. Medicare health and drug plans can make changes each year to things like cost, coverage and what providers and pharmacies are in their networks. Did your doctor leave the network? Are your drugs still covered under your plan? If you are satisfied with your current plan, there is no need to do anything.
- Review your healthcare directives periodically. As you assess your health and healthcare needs, revisit your directives concerning your preferences regarding life support, medical decision maker(s), and procedures you wish to avoid.
- Take advantage of comparing plans during Medicare’s open enrollment period 10/15-12/7, when you have the option to change your Medicare Advantage Plan and Part D Drug Plan to save money and/or switch to better coverage.
- Work with your financial advisor. Discuss income planning and healthcare cost savings strategies annually.
Medicare Resources:
Choosing the ideal Medicare coverage for your healthcare needs can be complicated without a comprehensive understanding of Medicare. Talk to your financial advisor about services they recommend that can help you navigate the complexities of this essential healthcare program and make informed decisions regarding your healthcare coverage. Reach out to us for some Medicare resources that we recommend!
If you have questions about Medicare or Retirement Planning in general, click the button below to schedule time with an advisor.
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Medicare Background: Medicare is a federal health insurance program in the United States that primarily provides healthcare coverage for individuals aged 65 and older. However, it also covers certain younger individuals with disabilities and individuals with end-stage renal disease (ESRD) or Lou Gehrig’s disease (Amyotrophic Lateral Sclerosis, or ALS).
Medicare is administered by the Centers for Medicare & Medicaid Services (CMS) and is designed to help beneficiaries access essential medical services and reduce their out-of-pocket healthcare costs. It is funded through a combination of payroll taxes, premiums paid by beneficiaries, and government funding.
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Resources:
Sign up: https://www.ssa.gov/medicare/sign-up
Manage: https://www.medicare.gov/basics/get-started-with-medicare/using-medicare
Tables:
https://www.medicare.gov/basics/get-started-with-medicare/using-medicare
Sources:
https://www.medicare.gov/
https://www.fa-mag.com/news/medicare–the-choices-that-affect-retirement-income-planning-74768.html
https://www.investopedia.com/articles/personal-finance/071014/medigap-vs-medicare-advantage-which-better.asp