Articles and Resources from the FourThought Team

< back September 15, by Ryan Henderson

The Medicare Magical Mystery Tour

Ah, Medicare! Free healthcare at last! While most people understand that it is, in fact, not free and that we have been paying into it for decades, when we reach Medicare enrollment age it can feel like a gift after a lifetime of paying high health insurance premiums.

Then we start the process of enrollment, and what felt so good starts to feel like a test of our will.  Medicare is a vast and complex system that requires a strong working knowledge and many decisions to ensure that you strike the right balance between quality and cost—and that it works with your personal financial plan.  Here are some of the most important things to know now, before you turn 65.

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  1. Medicare and social security are connected.

If you file for social security before age 65, the system will automatically enroll you in Medicare when you turn age 65. If you decide to delay taking social security you will receive a Medicare enrollment kit two months before your 65th birthday. You will then need to enroll manually.

  1. There are other critical timeframes and deadlines.

If you haven’t started taking your social security benefits, you won’t get a letter in the mail reminding you that it’s time to enroll in Medicare and begin making decisions. You can start the enrollment process up three months before you turn 65, and you’ll have until three months after your birthday month to enroll.

If you miss the enrollment deadline, you may end up paying and penalty, higher premiums or both.

If you are still working and have employer-sponsored health coverage, you can probably wait to sign up — but more about that later.

  1. Medicare language is an alphabet soup with its own vocabulary.

Before you make any decisions it’s important to know the basics. Especially important are the different “parts” of Medicare:

  • Medicare Part A  – covers hospital visits
  • Medicare Part B – covers outpatient costs including doctor visits
  • Medicare Part C – refers to Medicare Advantage plans. With these plans, private health insurance companies have contracts with the government. They are not provided directly by the government like Medicare is. Many resources about Medicare often skip Part C when talking about Medicare benefits because it is not a separate benefit like Parts A, B and D.
  • Medicare Part D – helps with the cost of prescription medications

There are also a hundred other terms to know. To brush up on your Medicare, try perusing the glossary available on the Medicare website: https://www.medicare.gov/glossary

  1. Medicare doesn’t cover everything, and it has costs.

As with any health insurance there are premiums, deductibles, and copays, and it does not cover services including eye exams, dental work, overseas care, podiatry, nursing homes and rehabilitation, cosmetic procedures and hearing aids.

  1. There are two basic choices and you must choose one: traditional Medicare with or without “Medigap” coverage or a Medicare Advantage plan.

Think of it as choosing between ordering the prix fixe meal (Medicare Advantage) at a restaurant, where the courses are already selected for you, or going to the buffet (original Medicare), where you must decide for yourself what you want.

If you elect to go with traditional Medicare, your buffet will include Part A (hospital care), Part B (doctor visits, lab tests and other outpatient services) and Part D (prescription drugs). If you want insurance to cover deductibles, copays and some of the services not traditionally covered, you may purchase a Medigap plan or supplemental policy sold by private insurers.

Under this plan the government sets the premiums, deductibles and coinsurance amounts for Parts A and B. Under Part B, you are responsible for paying 20 percent of doctor visits and lab tests. The government also sets maximum deductible rates for the Part D prescription drug program, although premiums and copays vary by plan.

Medigap plan costs are altogether different. No matter what your insurance company charges you, the coverage and benefits are uniform. Therefore, if your premiums increase it may be worth shopping around to see if you can do better with different insurer.

If you decide to go with a Medicare Advantage plan, it will be more like a set menu, since a private insurer has already bundled together parts A and B and almost always D into one comprehensive plan. You must still pay the government-set annual Part B premium and sometimes an additional premium as well. However, instead of a 20 percent coinsurance amount for doctor visits and other Part B services, most MA plans have set copay amounts for a physician visit—and typically that means lower out-of-pocket costs than traditional Medicare.

Medicare.gov has a useful online out-of-pocket cost calculator to help you make plan comparisons. Visit https://www.medicare.gov/oopc/

  1. It’s not always best to start using your Medicare benefits just because you’re eligible.

If you plan to work past 65 and you work for a company with more than 20 employees and an employee-sponsored group health plan, you may be better off keeping your current health benefits and delaying Medicare; you will not be charged a penalty for enrolling later

However, if you work for a company with fewer than 20 employees you should take your Medicare at age 65, although you will have to manually pay your Part B premiums (these are usually deducted from Social Security.)

Sources:
AARP: https://www.aarp.org/health/medicare-insurance/info-2020/what-is-medicare.html
Medicare.gov: https://www.medicare.gov

Ryan Henderson CFP®, ChFC®, CLU®, CEP® is a financial planner at FourThought Private Wealth.

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