Medicare

Medicare is a primary source of health coverage for most retirees aged 65 and older, but there are limits to what is covered under the massive taxpayer-funded government insurance program. However, Medicare coverage doesn't provide financial assistance for services that an estimated 70% of senior citizens will need at some point during their lives.1  In a July 2014 U.S. News & World Report article, the Employee Benefits Research Institute (EBRI) noted Medicare generally covers roughly only 62 percent of an individual’s medical expenses.2  This does not include coverage for things like dental, vision or hearing services.  So knowing what’s covered by Medicare, and preparing for what is not, should be an essential part of your retirement income planning.

Medicare basics

You are eligible for Medicare if you have worked and paid Social Security taxes for at least 10 years.  If you are receiving Social Security before your 65th birthday, you will be automatically enrolled in the program. Otherwise, you will have to enroll on your own within six months of turning 65.  Employees who are still working and covered by their employer's plan should check with their employer to see how their plan aligns with Medicare and make the determination whether Part B coverage should be obtained while still employed.3

Parts of Medicare

It’s important to understand how Medicare works because there are different options for coverage. The program has four major parts: Part A, Part B, Part C and Part D. Parts A and B are known as “Traditional Medicare.” They work together to provide a range of coverage. The other parts—Part C and Part D—are optional and can be purchased based on your needs. Here’s an overview of how each part works.
Part A is hospital coverage. It pays for in-hospital care, inpatient care in a nursing home, home healthcare and hospice care. There is a $1,260 annual deductible that adjusts annually. Anyone who has worked for at least 10 years and paid payroll taxes qualifies for Part A, and those who do not qualify have the option to purchase Part A benefits.
Part B is medical insurance. It pays for doctor visits, routine exams and other services and supplies not covered by Part A. There is a monthly premium for Part B, which is $104.90 in 2015 and is paid for through a deduction in Social Security benefits, if you are already receiving Social Security. There is also an annual Part B deductible, in 2015 its $147 per year.  If you aren’t already receiving Social Security, this will be charged to you as a separate premium.
Part C plans are also known as Medicare Advantage plans. These are federally approved policies you can purchase from private insurers as an alternative to Traditional Medicare Parts A and B.  These are optional policies providing the same coverage you would get with Traditional Medicare, and some offer additional benefits, such as vision, hearing, dental or drug coverage. Most also offer low or no deductibles. Monthly premiums depend on the type of plan you choose.
Part D is prescription drug coverage. It is federally approved and offered through private insurers to help individuals save on their prescriptions. All Part D plans offer a certain degree of prescription drug coverage, and some offer enhanced benefits and options. The plans are set up to share the cost of drugs until you reach your annual limit or gap in coverage, known as the donut hole.
You can add Part D coverage to Traditional Medicare or to a Part C Medicare Advantage plan, although some Medicare Advantage plans include prescription coverage. Monthly premiums vary by plan, but it helps if you enroll as soon as you are eligible for Medicare. Otherwise your premiums will be higher and you may pay a penalty.
There is also something known as Medicare Supplement insurance or Medigap coverage. Offered by private insurers, these plans are designed to help pay for things that Traditional Medicare does not.4 However, you must be enrolled in Original Medicare in order to enroll in a Medigap plan.
More about the basics of Medicare

Your Costs

 
You are personally responsible to cover certain expenses under Medicare Parts A and B.5  A partial list includes:
 
  • Deductibles, copayments that exceed approved amounts
  • Dental care, vision care, hearing tests and aids
  • Long-term care services including hospital or skilled nursing facility stays of longer than 60 consecutive days.
 
For more information, visit Medicare.gov

Some next steps

  • Know when to sign up for Medicare
    If you are already receiving benefits from Social Security, when you turn 65, you will automatically be enrolled in Medicare Part A and Medicare Part B.  Otherwise, you can sign up the following times for Part A and/or Part B:
  • Initial Enrollment Period - When you are first eligible for Medicare, you have a seven-month period to sign up. This seven-month period begins three months before your 65th birthday, includes the month you turn 65, and ends three months after you turn 65.
  • General Enrollment Period - Should you miss your Initial Enrollment Period, you can sign up between January 1 through March 31 of each year. Your coverage will begin July 1. Late enrollment may require having to pay a higher premium.
  • Special Enrollment Period - If you or your spouse (or family member if you are disabled) is currently working and covered by a health insurance through an employer or union, you will have a Special Enrollment Period when your coverage ends.
 
Get more info at www.Medicare.gov about signing up .
  • Become familiar with the parts of Medicare
    Sort out the ABCs and Ds of Medicare before you enroll and you can avoid having to pay penalties for re-enrolling later on.
  • Prepare for health expenses in retirement
    While you are still working, you may have the opportunity to contribute to a Health Savings Account, which are offered in conjunction with high-deductible health insurance policies. Money saved in these plans can be withdrawn tax-free to pay for qualified medical expenses. Once you’ve reached age 65, the funds can be withdrawn to pay for other expenses, but you will pay ordinary income tax on the distributions (similar to an IRA).  Once you apply for or receive Social Security and/or Medicare payments, you are not eligible to continue contributing to a Health Savings Account.6
 
Next Steps

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1 Medicare in 2015: The Huge Healthcare Expense It Won’t Pay.  The Motley Fool. http://www.fool.com/retirement/general/2015/01/04/medicare-in-2015-the-huge-healthcare-expense-it-wo.aspx
 
2 How to Factor Medical Expenses into Your Retirement Plan.  US News.com.  http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2014/07/08/how-to-factor-medical-expenses-into-your-retirement-plan
 
3 Should I get Part B?  10/15/15. www.medicare.gov - https://www.medicare.gov/sign-up-change-plans/get-parts-a-and-b/should-you-get-part-b/should-i-get-part-b.html#collapse-3156
 
4 What’s Medicare Supplement Insurance (Medigap)? 10/15/15. www.medicare.gov   - https://www.medicare.gov/supplement-other-insurance/medigap/whats-medigap.html
 
5 What’s not covered by Part A & Part B? 10/15/15. www.medicare.gov   -  https://www.medicare.gov/what-medicare-covers/not-covered/item-and-services-not-covered-by-part-a-and-b.html
 
6 Can I have a Health Savings Account as well as Medicare?  April 2014.  www.aarp.org  -http://www.aarp.org/health/medicare-insurance/info-04-2009/ask_ms_medicare_question_53.html
 
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