An oft-overlooked yet headache-inducing retirement transition task is planning for healthcare coverage and thus navigating the Medicare system. Medicare offers a variety of enrollment options, which gives you the flexibility to choose components of the plan that you need. Unfortunately, all those choices can also be confusing to understand. The enrollment process itself can also bewilder even the most prepared retirees, so in this article, I break down the basics of your Medicare plan to help you make decisions that are right for you.
The Coverage Option Puzzle
Medicare is divided into parts: Part A, Part B, Part C, and Part D (there are more options, but we’ll start with the basics). Each retiree or married retired couple must understand and evaluate the different Parts to determine the most relevant and appropriate options for their situation.
Original Medicare is a package that includes Part A and Part B, with the optional add-on of Part D. Part A covers hospital services. If you or your spouse paid Medicare payroll taxes during your working years for at least 10 years, Part A is free for you. If you didn’t, you can still get coverage by paying a monthly premium. Part B covers doctor visits and other outpatient services. Even if you or your spouse paid Medicare payroll taxes, Part B comes with a monthly premium. Part D is an optional add-on that includes drug coverage. Not to make things even more confusing, but Part D has a late enrollment penalty. Even if you don’t need prescription coverage when you are first eligible for Medicare, enroll in the plan to avoid extra long-term costs. (1)
To help with Medicare costs such as copayments, coinsurance, and deductibles, many retirees will purchase Medigap insurance from private insurance companies to supplement their Original Medicare plan. Some Medigap plans also cover additional services not covered by Part A or Part B but typically exclude services such as dental, vision, and hearing visits.
Medicare Advantage, also known as Part C, is an alternative to Original Medicare that is offered through Medicare-approved private companies. This plan bundles Part A and Part B and often includes Part D as well. Your choice of providers is often limited to providers that are in-network for the plan you purchase. Medicare Advantage plans also often cover additional services not covered by Part A, Part B, or Part D, including vision, hearing, and dental visits. Medigap policies cannot be combined with the Medicare Advantage plan.
When to Enroll
After you’ve decided on the best coverage option, the work to enroll in your Medicare plan unfortunately doesn’t get easier. The good news is, if you’re already taking Social Security benefits, you’re automatically enrolled in Parts A and B. Because Part B comes with a monthly premium, you can choose to opt out of this coverage. Otherwise, the premiums will be deducted from your Social Security payments.
Here’s where it gets complicated. If you’re not taking Social Security but need to enroll in Medicare, you will have to sign yourself up for Parts A and B on your own. You can begin enrolling in Medicare three months before the month you turn 65. The initial enrollment period ends three months after your birthday month. To ensure coverage starts by the time you turn 65, it’s important to sign up in the first three months of the initial enrollment period.
If you’re 65 or older but still working with employer-sponsored healthcare insurance, you may be able to delay enrolling for Medicare coverage. However, there are still rules to follow, and if you don’t enroll within 8 months after losing your employer-sponsored health insurance, you could pay significant lifetime penalties when you do eventually enroll. And if you ever want to switch the type of Medicare coverage you’ve opted for, you will have to wait for specified enrollment periods each year.
Unique Life = Unique Medicare Plan
Once you’ve successfully navigated through your coverage options and your enrollment period, it’s smooth sailing. But there are other things to consider, including (but not limited to):
- Your income level
- Your travel plans
- Your future healthcare needs
Unfortunately, high-income retirees will pay extra for Medicare Parts B and D. In 2021, if your adjusted gross income is above $88,000 as a single filer or $176,000 as a married couple filing jointly, you will have to pay a surcharge on your premiums. (2)
Additionally, if you plan to travel much in retirement, it’s important to know that Medicare doesn’t offer coverage outside of the U.S. If you were to get sick or suffer an injury abroad, you would have to pay for those medical costs out of pocket unless you have purchased Medigap insurance that offers travel coverage.
Finally, Medicare does not cover long-term care needs. Long-term care can be extraordinarily expensive, so it’s important to build long-term care expenses into your overall retirement plan rather than relying on Medicare coverage to protect you.
You Don’t Have to Navigate Medicare Alone
Are you overwhelmed yet? It’s understandable. Medicare is complex, and the coverage options that are right for you may not be right for someone else. Thankfully, at Pathway Financial Planning, we can help you weigh your options while taking into account your needs, goals, and various other components of your financial plan. You don’t have to wade through the Medicare maze alone. Call us at 765-698-5121 or info@pathwayplanners.com to start the process with the support of an experienced guide.
About Ben
Ben Harvey is president and senior financial planner at Pathway Financial Planning, Inc., an independent, comprehensive financial planning firm that prioritizes the client, each and every time. He is recognized as a Retirement Income Certified Professional (RICP®) by The American College of Financial Services.
Ben spends his days staying on top of what’s going on in his clients lives, coordinating the financial planning process, helping people identify their goals, and evaluating whether they are on track. He designs and implements customized strategies all as part of the proprietary process, The Path to Purpose FORMula™. Ben has 15 years of experience in the financial industry, including years as a loan officer, trust officer, and financial advisor. He has industry experience in business management, retail lending, financial estate planning, comprehensive financial planning, and wealth management.
Outside of work, Ben enjoys spending time with his wife, Mandy, and their children, Cooper and Claire. They are active in their church, and especially love traveling, hosting friends and family, going to amateur sporting events (especially high school basketball and swimming), and experiencing different cultures. On occasion, you can find Ben playing golf, sometimes in amateur tournaments, which he credits for teaching him patience. He will also tackle the occasional home improvement project, read non-fiction, and watch documentaries. Through experience and “honey-do lists,” Ben has learned to never start a project he’s not ready to finish. To learn more about Ben, connect with him on LinkedIn. You can also register for his recent webinar, Retire with Purpose: An Easy Strategy to Simplify Your Distributions.
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(2) https://www.medicare.gov/Pubs/pdf/11579-medicare-costs.pdf