September 2019: The Basics of Medicare
This month’s article will focus on an often overlooked but vital part of retirement, health insurance, specifically Medicare. Our article will focus on the basics of Medicare, including: what it is, enrollment, types of coverage, along with the potential costs.
What is Medicare? Medicare is a Federal health insurance program for US citizens that are 65 and older, and who have paid the Medicare tax via the payroll tax for at least 40 quarters or 10 years. Technically, each Part of Medicare is optional to enroll in. Participants are encouraged to enroll in each of the Parts during their enrollment period (the seven months surrounding their 65th birthday three months before the participant’s birthday month, their birthday month, and the three months after their birthday). For people that are already receiving social security benefits before the age of 65, they will be automatically enrolled in Medicare Part A and B. If a potential participant is insured by a private insurance plan at the age of 65, like an employer insurance plan, they may post-pone their enrollment till this coverage has ended. In addition to the elderly, Medicare also helps cover people younger than 65 who have been receiving Social Security Disability Insurance for at least 24 months. Medicare coverage and costs varies by participant, their income, and the type of coverage they choose to have. Ultimately, Medicare coverage is divided into four parts:
Part A (Hospital Insurance): This is insurance for the most basic level of hospital care. Part A helps cover the costs for inpatient care in a hospital, inpatient care in a skilled nursing home facility, Hospice care, and Home Health care. As there are no monthly premiums with Part A, most people who qualify for Part A should sign-up as soon as they’re eligible. Part A does require additional out-of-pocket payments via copayments, coinsurance, or deductibles for any form of services performed. In addition, Part A does not cover the costs of the doctors who took care of you while in the hospital, along with many other additional costs you may incur while being treated in a hospital.
Part B (Medical Insurance): Part B helps cover the costs for medically necessary doctors’ services, outpatient care, home health services, durable medical equipment, mental health services, and other medical services. Unlike Part A, Part B requires the participant to pay a monthly premium to Medicare and if a participant does not enroll in Part B during the enrollment window, but chooses to enroll later, there will be a 10% increase to their monthly premium for each 12-month period you could have signed up. The standard Part B monthly premium is $135.50/month, in addition to the standard amount there is also Income Related Monthly Adjustment amount (IRMAA), which is an extra charge added to the monthly premium for those that exceed a specified salary threshold. The IRMAA can cause Part B premiums to increase to $460.50/month for the individuals with higher income. More can be read about this extra charge, here. This and a few other variables discussed below affect the monthly premiums of Part B. Just like Part A, Part B will require additional out-of-pocket payments through copayments, coinsurance, or deductibles for any form of services performed. Most people enroll in Part A and Part B, if they can afford it.
Part D (Prescription Drug Coverage): No, I did not forget Part C, we will cover that next. Part D is very similar to prescription drug insurance that you would get through a private health insurance provider. Similar to Part B, Part D plans charge a monthly premium that varies by plan and participants are highly recommended to enroll in Part D during their enrollment window, otherwise they will be faced with a penalty that will increase their premiums should they enroll later. But depending upon a number of variables, like plan type, network, insurance coverage, Medicare will pay a portion of the prescription costs. In addition, participants will be required to pay out-of-pocket charges for prescriptions just like they would with a private insurance plan. This out of pocket expense varies based upon the participant, their coverage, their drug costs, etc.
Part C (Medicare Advantage): Part C is for participants that choose to enroll in Part A, B, and D. This type of Medicare coverage is actually provided by private insurance companies and is similar to a health insurance plan you would receive through an employer. Most of the Part A and Part B coverage will be provided by the private insurance company, while your prescription coverage will vary by plan. Not to mention, Medicare Advantage plans may provide coverage for additional items that Original Medicare may not cover, like: vision, dental, hearing care, transportation, adult day-care, etc.
Just like private health insurance, participants of Medicare Advantage will choose plans that are HMO, PPO, fee-for-services plans, in addition to some other types of plans. Also similar to private insurance plans, participants will pay a monthly premium for this coverage. The premium varies based upon a number of factors, like plan style, the network, whether the insurance company pays the Part B premium, the list goes on. Most people that have planned correctly and have retirement income of any level, will be in a Medicare Advantage plan. This plan offers the best set of resources and coverage for people 65 years old and older.
Ultimately, this month’s article is not an end-all-be-all article of Medicare, but rather should be viewed as a primer. Medicare is an extremely important element of retirement, and your coverage from it should be well thought out and researched. Although we are not insurance experts, if you need any help with Medicare, please contact us.