The Ins and Outs of Medicare

Healthcare is expensive. You may have a collage of coverage during your working years, including group plans, individual coverage and COBRA. Many people think, “if I can just get to Medicare age (65), I will finally have good, inexpensive health coverage.” However, there are more caveats and intricate details related to Medicare than most people think. It’s best to fully explore your options in advance so that you’re equipped with the information you need when it’s time to enroll.

Medicare plays a major role in the US healthcare system and provides coverage to most people over 65. When you enroll, you can choose how you get your Medicare coverage based on two primary paths: Original Medicare or a Medicare Advantage Plan.

With Original Medicare, there are 3 “parts.” Part A covers costs associated with in‐patient hospital services, skilled nursing facilities and some home health care services. As long as you (or your spouse) paid FICA taxes for 40 or more quarters, you will not pay a monthly premium for Part A coverage. However, you will have a deductible, copayments and potential coinsurance for covered services. For 2021, the Part A deductible is $1,484. For hospital services:

Part B covers costs generally associated physician care. This coverage includes out‐patient procedures, preventative care, treatment of illnesses and durable medical equipment. There is a premium for Part B coverage that ranges from $148.50 to $504.90 per month, depending on your modified adjusted gross income from 2 years prior. For example, your 2019 modified adjusted gross income determines your Medicare Part B premium due in 2021. You will also pay a deductible of $198 per year and 20% coinsurance after meeting the deductible.

Part D provides prescription drug coverage. It is offered through standalone plans from private insurers. In order to enroll in Part D, you must have Part A and Part B. Enrollment in Part D is voluntary, although there are penalties for not enrolling in a timely manner. Depending on the provider, you may or may not have a deductible or co‐pay. Insurers do not all provide the same coverage. You will want to evaluate your options to find the plan that will best cover the medication(s) that you take.

Medigap or Supplemental Policies can be purchased to provide additional coverage that will help pay some of the costs discussed above. These are provided by private insurers and the monthly premium will vary depending on the coverage. One common misconception is that Medicare or Medigap policies cover long term care needs. For nursing home care, Medicare will cover the first 20 days. For days 21 through 100, you will pay coinsurance. Days beyond 100 are not covered by Medicare until the benefit period starts over. There are also many home healthcare resources that are not covered by Medicare. If these expenses are a concern, you should explore Long Term Care Insurance.

The other option for obtaining Medicare coverage is through a Medicare Advantage Plan. These are sometimes referred to as “Part C” but they have no association with Parts A, B and D found in Original Medicare. These are PPO and HMO plans that are run by private insurance companies. If you choose one of these plans, you receive the various Medicare benefits through the insurer rather than through the traditional Medicare program. This coverage can be considered more of an all‐in‐one plan that covers hospital services (Part A), medical services (Part B) and prescription drugs (Part D). These plans are similar to traditional health insurance. You might need a referral to see a specialist and there are often ‘in network’ and ‘out of network’ providers.

Sometimes individuals are still working and covered by group health insurance at age 65. If a group plan covers you through your employer or your spouse’s employer, you may have the ability to decline Medicare Parts A and/or B. However, if you do not take the proper steps to delay coverage, you could face a lifetime late enrollment penalty. First, your employer must have 20 or more employees and offer a group health plan. Second, you should compare your coverage under the group health plan with Medicare Part A coverage. Part A does not have a premium, so many people elect to have Part A and a group health plan. Under this scenario, Medicare Part A becomes your primary coverage for hospital services and your group plan is secondary. One important caveat is that you cannot contribute to a Health Savings Account (HSA) if you are enrolled in Medicare. If your group plan is a high deductible plan and you would like to contribute to the associated HSA you will need to decline Medicare coverage.

You also have the option of declining just Part B coverage. This election would allow you to remain on your existing group plan and to avoid the premium associated with Part B. When your employment ends, you must prove continuous health insurance coverage and enroll in Medicare within eight months. Another caveat – COBRA is not considered a group health plan. Electing COBRA does not allow you to delay your enrollment in Medicare.

Even with Medicare, a 2019 Fidelity Investments study projects that a 65‐year‐old couple retiring this year will need an average of $285,000 (today’s dollars) to cover medical expenses throughout retirement. This includes expenses associated with Medicare Part B and Part D premiums, deductibles, copayments and out‐of‐pocket prescription drug costs. There are so many Medicare options available that it is often helpful to consult with a licensed Medicare consultant.