Medicare: Open Enrollment and Financial Planning

Autumn 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! If you are a current Medicare user, the open enrollment period runs from October 15th to December 7th. This is your opportunity 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.

Already have Medicare? Even if you are happy with your current plan, premiums, copayments, provider networks, and prescription drug formularies can change each year.

Table of Contents

1 Review the Open Enrollment Action Items below:
- 1.1 Sign Up When You Are 65
  - 1.1.1 Q: Do I sign up for Medicare if I’m still working?
2 The Main Components of Medicare – A, B, C & D!
3 Going Deeper into Medicare
4 Medigap or Medicare Supplement Plans A-N

Review the Open Enrollment Action Items below:

Review your Annual Notice of Change (ANOC). In September, your current Medicare Advantage or Part D plan will send you an ANOC. It summarizes changes to premiums, deductibles, copayments, coverage, and drug formularies for the coming year.
Check your Medications. Review the plan’s new formulary (drug list) to see if your current prescriptions are still covered or if their costs have changed. Go to medicare.gov/plan-compare to view different options.
Use the Oct 15–Dec 7 enrollment window to shop for the right plan. Medicare Advantage members have an additional special open enrollment window from Jan-March 31. If you are not happy with your new coverage, you have one more opportunity to make a change. You can either switch to another Medicare Advantage Plan or switch to Original Medicare (underwriting may be required) and another Part D plan.
Review your income annually. If IRMAA applies, you’ll get a notice from SSA. If you’ve had a life-changing event (retirement, loss of spouse, etc.) that significantly reduced your income, you can appeal the surcharge using Form SSA-44.
Review your healthcare directives periodically – This may be a good time to look at your healthcare directive, living will, power of attorney, etc.).
Work with your financial advisor on income and healthcare cost strategies. Advisors who know your financial plan can provide expert advice on choosing Medicare coverage that is right for you. Understanding how your income affects your Medicare premiums can help you avoid surcharges.

For those preparing to sign up for Medicare or want to learn more about it – read on.

Sign Up When You Are 65

It’s paramount to sign up for Medicare when you are eligible or you may risk paying late enrollment penalties for life! Signing up 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).

Q: Do I sign up for Medicare if I’m still working?

A: If you are still working at age 65, whether you can delay Medicare without penalty depends on your employer coverage. If your employer has 20 or more employees, you can usually delay enrolling in Part B; if fewer than 20, you may need to sign up at 65. When you later enroll, your employer provides proof of coverage (Form CMS-L564) so you can avoid penalties. For prescription drug coverage (Part D), employers are required to send an annual “creditable coverage” notice that lets you delay signing up without penalty. Be sure to speak with your HR or benefits department to understand how your workplace coverage coordinates with Medicare and to avoid gaps.

***Pro Tip: You may want to sign up for Part A at 65 even if you don’t have to. Why? It’s free (for most) and it could be your secondary insurance to cover costs beyond what your employer’s plan covers. However, if you have a Health Savings Account (HSA) through your employer, enrolling in Part A will stop you from making HSA contributions – so confirm with HR before enrolling.

The Main Components of Medicare – A, B, C & D!

There are two types of Medicare coverage: Original Medicare and Medicare Advantage. You enroll in one or the other.

Original Medicare consists of Part A (Hospital Insurance) and Part B (Medical Insurance) – both are government programs with enrollment online at Medicare.gov.

Medicare Part A covers hospital stays with deductibles and daily coinsurance amounts, while Part B generally pays 80% of approved outpatient costs after the deductible — leaving you responsible for the rest.

To cover the other 20% of covered costs, Medicare users can buy Medigap/Medicare Supplement (called Part C). Private insurance companies offer different plan types A-N and premiums vary by provider.

Medicare Advantage (also called Part C) is an alternative way to receive your Medicare benefits through a private insurance company approved by Medicare. These plans are required to cover everything Original Medicare covers under Parts A (hospital) and B (medical), and most also include prescription drug coverage (Part D). Many Medicare Advantage plans offer extra benefits not included in Original Medicare—such as dental, vision, hearing, and wellness programs—but they often use provider networks (like HMOs or PPOs) and may have different copays or rules for accessing care.

Drug Coverage (Part D) is extra coverage that people with Original Medicare can choose to help lower costs of prescription drugs. Medicare Advantage Plans usually offer/include this coverage.

Medicare Benefit Period is one year, from your birthday to your next birthday.

For fuller coverage, most people choose one of two options:

Original Medicare + Medigap/Medicare Supplement + Part D
Medicare Advantage Plan (+ Part D for some PPO plans)

Going Deeper into Medicare

Medicare Part A (Hospital Insurance)

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 worked and paid Medicare taxes for at least 10 years.
2025 costs: $1,676 deductible per benefit period; $419 daily coinsurance for days 61–90 of hospitalization; $838 daily coinsurance for days 91–150 (lifetime reserve days). After 150 days, the patient pays 100% of the costs. Note: Medicare gives each beneficiary 60 “lifetime reserve days.” These days start after 90 days in the hospital. Medicare pays its share when you tap into these days, but you owe a higher daily coinsurance (in 2025 it is $838). They don’t renew each benefit period.
No Cap. There is no maximum out-of-pocket. A long hospital stay can start to add up, hence the need for additional insurance to cover this risk.

Medicare Part B (Medical Insurance)

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 supplemental insurance.
2025 Standard Premium: $185.00/month; Deductible: $257.
No Cap. There is no maximum out-of-pocket. Twenty percent of a large number is a large number, hence the need for additional insurance to cover the remaining 20%.
Premiums are based on income. If your MAGI (from two years prior) is above certain levels, you pay the standard premium plus an Income-Related Monthly Adjustment Amount (IRMAA) surcharge.

What is not covered by Original Medicare?

Types of services not fully covered by Medicare include most dental care, routine vision exams, eyeglasses (except after cataract surgery), hearing aids, most hearing exams (diagnostic exams may be covered), routine foot care, and acupuncture (covered only for chronic low back pain).

There’s More to Medicare.

Medigap or Medicare Supplement Plans A-N

Helps cover what Original Medicare does not: deductibles, coinsurance, and copayments.
Requires enrollment in both Part A and Part B.
Choose between Plans A-N based on preferred coverage and finances.
Offered by private insurers (Blue Shield, Healthnet, Anthem, United Healthcare/AARP, etc.)
Premiums are generally higher than Medicare Advantage.
Provides nationwide portability—accepted by nearly all U.S. doctors and hospitals that take Medicare, no referrals required.
Note: Some Medigap plans (like Plan N) include modest copays ($20 for office visits, $50 for ER visits if not admitted). Many plans have no copay.
Must enroll within 6 months of starting Part B for guaranteed-issue coverage. After that, medical underwriting may apply.

Q: How do I choose my Medigap / Medicare Supplemental Plan?

A: The comparison chart below indicates Plan G provides the most coverage of all the Medigap Plans available today.

***Pro Tip: Once you have determined that Medigap/Medicare Supplement Plan G is the coverage you want, the next step is to compare monthly premium costs amongst insurance carriers. Remember, they all provide the same coverage for different monthly premiums, with slight variations in discounts.

Medicare Advantage Plan (Part C)

An alternative to Original Medicare offered by private insurers (Aetna, Humana, Kaiser, etc.).
Includes all benefits of Parts A and B, usually prescription drug coverage (Part D), and often extras like dental, vision, and fitness.
Provides financial protection with an annual maximum out-of-pocket limit.
Requires using in-network providers and may need referrals.
Premiums are generally lower than Medigap and can be $0.
HMOs require referrals to visit specialists, timing and access can be an issue.

Note: In addition to the Oct 15–Dec 7 Annual Enrollment Period, Medicare Advantage enrollees also have a special window from Jan 1–Mar 31 each year to change to a different Advantage plan or return to Original Medicare.

Q: What if I have Medicare Advantage and want to switch to Medicare Supplement (Medigap)?

A: In most cases, if you try to switch from Medicare Advantage to a Medigap plan after your initial 6-month enrollment period, you will have to go through medical underwriting. That means an insurer can deny coverage or charge higher premiums if you have health conditions.

***Pro Tip: Guaranteed issue rights — situations where you can get Medigap without underwriting — are limited. For example, if your Medicare Advantage plan leaves Medicare, stops serving your area, or you move out of its service region, you can return to Original Medicare and have a right to buy certain Medigap plans. Also, if you first joined Medicare Advantage when you turned 65 and want to switch back within the first 12 months, you get a one-time “trial right” to buy any Medigap plan. Outside of these windows, switching is not guaranteed.

Medicare Part D (Prescription Drug Coverage – 30 Plans)

Provides coverage for prescriptions through private insurance plans approved by Medicare.
Beneficiaries pay monthly premiums, deductibles, and cost-sharing that vary by plan.
2025 base premium: $36.78/month. Actual plan premiums vary by region (often $10–$80).
Catastrophic Coverage: $2,000 annual maximum out-of-pocket for covered Part D drugs. After you’ve spent $2,000 (includes deductible, copays, coinsurance), you pay $0 for the rest of the year. Plans can also offer “smoothing” so beneficiaries can spread the $2,000 cost evenly through the year instead of front-loading expenses.
If you do not enroll when first eligible and lack other creditable drug coverage, you’ll incur a lifetime late-enrollment penalty: 1% of the base premium × months uncovered.
Higher-income beneficiaries pay IRMAA surcharges in addition to their plan premium.

Q: Do I still need Part D if I don’t take medications?

A: Yes, and here’s why you might still enroll even if you aren’t currently taking medications:

Late Enrollment Penalty: If you skip Part D when first eligible and don’t have other creditable drug coverage, you’ll owe a lifetime penalty if you later decide to enroll. The penalty is 1% of the base premium for every month you went without coverage, permanently added to your premium.
Protection Against Future Costs: Even if you don’t need prescriptions now, health needs can change quickly. Having a low-cost plan ensures you’re covered.

You still pay a premium to have a Part D plan, even if you don’t use any prescriptions. The national base premium in 2025 is $36.78/month, but actual plan premiums vary by insurer and region — many low-cost plans are in the $10–$20/month range.

***Pro Tip: If no drugs are needed, choose a low-cost plan available in your county, so you maintain coverage, avoid penalties, and keep flexibility for the future.

Medicare Penalties At A Glance

If you don’t enroll in Medicare Part A, Part B and Part D when you are eligible, you may incur penalties.

Part A (Hospital Insurance)
- Penalty: 10% of your monthly premium.
- Duration: Double the number of years you delayed enrollment.
- Example: Your premium $100/month. If you delayed 2 years, your premium = $100 + 10% ($10) = $110/month for 4 years.
- Exception: No penalty if you or your spouse worked enough to earn 40 quarters of Medicare-covered employment.
Part B (Medical Insurance)
- Penalty: 10% of the standard Part B premium for every 12 months you delayed enrollment.
- Duration: Permanent — you pay the higher premium for as long as you have Part B.
- Example (2025): Standard premium $185/month. If you delayed 3 years, your premium = $185 + 30% ($55.50) = $240.50/month for life.
- Exception: No penalty if you had creditable coverage from current employment (yours or spouse’s) and sign up during a Special Enrollment Period.
Part D (Prescription Drug Coverage)
- Penalty: 1% of the national base premium ($36.78 in 2025) × number of months you went without creditable drug coverage.
- Duration: Permanent — added to your Part D premium every month for life.
- Example (2025): 20 months uncovered = 20% × $36.78 = $7.36/month penalty, added on top of your chosen plan’s premium.
- Exception: No penalty if you had other creditable prescription coverage (like employer or VA benefits).

Out of Pocket Comparison

Financial Planning Considerations

Years before turning 65:

Income Planning: Work with your advisor to manage future income levels to reduce IRMAA surcharges.
HSA Contributions: Stop at least 6 months before enrolling in Medicare to avoid penalties.
Dental: Check with your dentist to see which plans they accept before selecting coverage. Or choose to pay for dental care or insurance outside of Medicare insurance.

***Pro Tip: If you move states, notify SSA and your insurance provider. Medicare Advantage and Part D plans are regional, so you may need new coverage.

Medicare Resources

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