6 misconceptions about Medicare

Some of the most common Medicare myths, and the realities behind them.

Medicare is kind of like Social Security: It's something you hear about (and pay for) all your adult life, but until you actually need it, you may have only basic knowledge of how it all works. It's no wonder there are so many misconceptions about what Medicare does and doesn't do.

Knowing the real deal before you reach retirement gives you an opportunity to plan smarter now.

I will automatically be enrolled in Medicare at age 65.

Only some people will be. If you are already receiving Social Security benefits, the Social Security Administration will automatically sign you up at age 65 for Parts A and B of Medicare (which cover hospital and doctor costs, respectively). If not, you should sign up for Medicare during the enrollment period, which runs from three months before to three months after you turn 65. While there are different rules for the other parts of Medicare (including Medicare Advantage or Part C, and Part D which is drug coverage) it's up to you to sign up for them as well.

It's important to sign up during your eligibility period, or you may incur penalties. You may qualify for exceptions if, for example, you have health insurance coverage that you want to keep and deferring Medicare will save you money; if you have large-group insurance that covers everything Medicare Parts B and D cover; if you want to keep contributing to a health savings account; or if your current health insurance meets Medicare's requirements for "creditable" coverage.

But if you don't have a qualifying reason, you will experience consequences. "Those penalties can stack up and impact you forever," explains Daniel Ruppel, a Financial Planning Strategist with TIAA. "For example, for Part B, every 12 months you delay past your eligibility, you [could] have a 10% higher premium for the remainder of the time you use Medicare."

"For Part B, every 12 months you delay past your eligibility, you [could] have a 10% higher premium for the remainder of the time you use Medicare."

Medicare pays for everything my employer's insurance did.

If only this were true, but it isn't. Medicare doesn't cover most dental care or eye exams related to prescription glasses as many employer plans do. It also doesn't automatically foot the bill for dentures, cosmetic surgery, hearing aids and exams for fitting them, and routine foot care. It does cover some things you might not expect, such as acupuncture, weight management and mental health services, depression screenings and tobacco cessation.

Medicare covers long-term care.

Only in special circumstances. If you were sent to a skilled nursing facility to recover from an injury or illness following a hospital stay, that would be covered, but a longer stay for purposes like custodial care would not. Assuming that long-term care will be covered can be a costly mistake. If you end up needing it—and research from the Center for RetirementOpens in a new window says that roughly four out of five 65-year-olds will at some point—you could face major expenses later in life.

Explore long-term coverage options from private insurers. It will be more affordable if you start paying premiums in your 50s or 60s, versus later decades. "You can also look into hybrid policies that are a blend of life insurance and have some long-term care coverage. Consider getting a professional that specializes in elder-care planning to help you compare plans based on your needs, assets and family support," says Ruppel.

It's free.

There are numerous costsOpens in a new window associated with Medicare. Most people don't pay a monthly premium for Part A (sometimes called "premium-free Part A"Opens in a new window) as long as they meet basic criteria. But if you're among those who do have to buy Part A, you'll pay up to $499 each month in 2022. In addition, the Part A hospital in-patient deductible and co-insurance amounts to $1,556 deductible for each benefit period.

The standard Part B premium amount is $170.10 in 2022 (or higher depending on your income), and the deductible and co-insurance for Part B is $233. Patients typically pay 20% of the Medicare-approved amount for most doctor services, outpatient therapy and durable medical equipment, after the deductible is met. Premiums for Part C and D, which participants also pay, vary by plan.

I don't need Medicare if I'm wealthy.

People at every income level need—and should use—Medicare. "You can wind up with an astronomical hospital bill. Even if you're wealthy, you paid into Medicare your whole career, use it," says Rob Stevens, a Financial Planning Strategist with TIAA.

Be aware, however, that you'll pay extra because of the Medicare Income-Related Monthly Adjustment Amount, or IRMAA. This is an amount you pay in addition to your Part B or Part D premiums if your income is above a certain level. SSA determines if you owe an IRMAA based on the income you reported on your IRS tax return two years prior, meaning two years before the year that you start paying IRMAA. The income that counts is the adjusted gross income you reported plus other forms of tax-exempt income.

Prescription drug coverage is automatic.

Actually, prescription drug coverage is optional—but it is available to all those with Medicare. Even if you don't take prescription drugs now, consider getting a Medicare drug-coverage plan. If you don't get it when you're first eligible, and you don't have other creditable prescription drug coverage (like that of an employer or union) or get Extra Help (which assists with costs associated with Medicare drug coverage, for those who qualify), you'll likely pay a late-enrollment penaltyOpens in a new window when joining later. Generally, you'll pay this penalty for as long as you have Medicare drug coverage. Each plan can vary in cost and specific drugs covered.

No doubt Medicare can be complex and confusing. But learning about it sooner rather than later can help you avoid costly mistakes.

For more information on Medicare, TIAA's Medicare FundamentalsOpens pdf is a good place to start, as is 1-800-MEDICARE (1-800-633-4227). TTY users can call 1-877-486-2048.

Online resources are also available to find and compare health and drug plans,Opens in a new window download the Medicare and YouOpens in a new window guide, and more. You can also check your State Health Insurance Assistance Program (SHIP) for free, personalized help and advice.

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This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor's own objectives and circumstances.

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