- Eric Walter, CFP®
Medicare - The Basics
The cost for healthcare continues to significantly outpace inflation and, for some, may be the biggest expense during retirement. There are varying costs, decisions, and need-to-know items.
Part A: Hospital Insurance
-Premium-free for most at age 65* with enrollment as early as 3 months prior to the month you turn 65. Depending on when you sign up, there could be gaps in coverage. Coverages include: hospital care (subject to deductibles & coinsurance), post-hospital nursing home or extended care facility (with limits), hospice care if terminally ill, and some home health services. If you have health insurance through your employer (20+ employees), Medicare is secondary and you may delay enrollment. Most people still enroll since it is free but you cannot contribute to an HSA if you do. If your employer has fewer than 20 employees, Medicare is considered primary and generally you should sign up.
* There are circumstances for earlier eligibility; also, some situations that require premiums for Part A.
Part B: Medical Insurance
-Costs for 2020 include: base premium of $145/month, deductible of $198, and 20% co-pays for covered services. However, for higher income levels there are income adjustments that raise the monthly premium as high as almost $500. Coverages include: physician services, outpatient services at participating hospitals, diagnostic testing, home health services, annual physicals and other preventative services. Penalty for late enrollment: a lifetime 10% annual premium increase FOR EACH YEAR you do not sign up. This deadline varies based upon work status.
Part C: Medicare Advantage
-Issued by private insurers, rather than the government, as an approved alternative covering the services under Part A & Part B. Most also offer drug coverage and provide other additional coverages such as dental & vision. Warning: functions as an HMO rather than a PPO. This means you have to go through a gatekeeper to receive ANY services and are restricted to in-network doctors, hospitals, etc.
Part D: Drug Coverage
-Premiums vary by plan but you must first be enrolled in both Part A & Part B. Higher income levels are subject to a premium adjustment of up to $77/month (plus premium). Drug manufacturers provide a 50% discount. Penalty for late enrollment: a lifetime 1% monthly premium penalty FOR EACH MONTH you do not sign up.
Medicare Supplements: Medigap
-Issued by private insurers to cover the gaps in Medicare such as deductibles, coinsurance, and other various out-of-pocket costs. Plans are standardized and referenced by letter (A, B, C, D, F, G, K, L, M, & N). This is a highly recommended supplement since Part A & Part B have no stop-loss provisions leaving significant financial exposure. Unlike Medicare Advantage plans, these are run as PPOs which allow you to choose your own doctors, hospitals, etc.
For more information you can visit www.medicare.gov. There are also other resources such as AARP.