Medicare decisions and expenses
One of the biggest retirement worries is the cost of healthcare. In fact, 86 percent of workers say they lack confidence in their ability to pay for medical expenses during retirement.1
Like Social Security, Medicare is a fairly complex benefit with several options. But don't get overwhelmed. Just follow these steps:
- Learn the basics of Medicare
- Consider your options and costs
- Create a plan
The basics of Medicare
This information will help you become familiar with the basics of Medicare. For details, visit Medicare.gov or call 1-800-MEDICARE.
Parts of Medicare
There are four parts to Medicare:
- Part A — hospital insurance provided by the U.S. government
- Part B — medical insurance provided by the U.S. government
- Part C (also known as Medicare Advantage) — hospital and medical insurance provided by private companies
- Part D — prescription drug coverage
Together, Parts A (hospital insurance) and B (medical insurance) are known as Original Medicare. With Original Medicare, you'll decide if you also want Medicare Part D (prescription drug coverage).
Part C or Medicare Advantage is an alternative to Medicare Parts A and B. You will get your hospital insurance and medical insurance through this plan. You may also get prescription drug coverage through the plan. If the Medicare Advantage Plan you choose doesn't offer prescription drug coverage, you may be able to join a Medicare Prescription Drug Plan.
Keep in mind that you may also want Medigap insurance to help cover the copays and deductibles of Medicare. Medigap is a supplement to Medicare Parts A and B provided by private insurance companies. You cannot add a Medigap policy to Medicare Part C (Medicare Advantage).
When you're eligible
You're eligible for Medicare when you turn 65. If you'll need coverage at age 65, it's recommended that you sign up during the Initial Enrollment Period that begins three months prior to your birthday to avoid delaying your coverage. You are still eligible to sign up three months after your birthday, but your coverage will be delayed.
If you're still working
If you're covered under a group health plan based on your or your spouse's current employment, you can wait to make a Medicare decision during an eight-month Special Enrollment Period that starts the month after your employment or coverage under the group health plan ends, whichever happens first. You usually don't pay a late enrollment penalty if you sign up during the Special Enrollment Period.
If you prefer, you can enroll in Medicare Parts A and/or B during the seven-month period that begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65, but keep in mind:
- Typically, participation in Part A is free, but you do pay a monthly premium for Part B. To avoid paying that premium while you're covered under a group health plan, you can enroll in Part A, and delay Part B or wait to enroll in both.
- If you delay enrollment in Part B, your Medigap open enrollment period will also be delayed.
When to enroll in Part D and when to purchase a Medigap policy
With Original Medicare, if you want prescription drug coverage, you can enroll in Part D during your Initial Enrollment Period, a Special Enrollment Period (when, for example, other coverage ends) or the annual Open Enrollment Period.
If you want a Medigap policy, the best time to buy is during your six-month Medigap open enrollment period, which begins the month you're enrolled in Medicare Part B. During that period, you can buy any Medigap policy sold in your state, even if you have health problems.
You usually don't pay a monthly premium for Medicare Part A if you or your spouse paid Medicare taxes while working.
In 2013, most people pay $104.90 each month for Part B. However, if your modified adjusted gross income as reported on your Internal Revenue Service tax return from two years ago is above a certain amount, you'll likely pay more.
Medicare Advantage plans are provided by private companies and the cost can vary quite a bit from one plan to another. Remember, these plans include hospital and medical insurance and typically include prescription drug coverage. You cannot add a Medigap policy.
Cost for Medicare Part D will depend on which plan you choose, and may incur an additional charge depending upon your income.
Cost for an optional Medigap policy will depend on which plan you choose.
Medicare Parts A and B provide the lowest up-front costs, but can also create the most gaps. Medicare Parts A, B, D and Medigap together will create the highest up-front costs, but will provide the fullest coverage with the least amount of gaps.
Pay attention to these important dates once you're ready to enroll in Medicare.
- Initial Enrollment Period: Age 65 (three months before, through three months after)
- Special Enrollment Period: Extending up to eight months after your employment or group coverage ends. Note that you're not eligible for a Special Enrollment Period when COBRA or any retiree health plan coverage ends.
- General Enrollment Period: January 1 through March 31 each year
If you don't sign up for Medicare Parts A and/or B when first eligible or during a Special Enrollment Period, you can enroll during the General Enrollment Period. You may have to pay a higher Medicare Part B premium because you could have had Medicare Part B and didn't take it. If you sign up for Part A and/or B during the General Enrollment Period, you may sign up for Part D from April 1-June 30. Your six-month Medigap open enrollment period will begin when you enroll in Part B.
- Annual Open Enrollment Period: October 15 – December 7
During this period you can:
- Change from Original Medicare to a Medicare Advantage Plan or vice versa.
- Switch from one Medicare Advantage Plan to another Medicare Advantage Plan.
- Switch from a Medicare Advantage Plan that doesn't offer drug coverage to a Medicare Advantage Plan that offers drug coverage or vice versa.
- Join a Medicare Prescription Drug Plan or switch from one Medicare Prescription Drug Plan to another.
- Drop your Medicare prescription drug coverage completely.
Don't put off learning more about Medicare. Use any of the resources below to make sure you fully understand the benefit:
- Call 1-800-MEDICARE
- Visit Medicare.gov
- Call your state's Senior Health Insurance Information Program (SHIIP)
More from this issue of The Principal Retirement NewsletterSM:
1 Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., EBRI Retirement Confidence Survey, March 2013.