It’s important to understand the facts about Medicare before heading into retirement. Here is a basic overview of seven things you should be aware of when it comes to this important federal health insurance benefit. But keep in mind that certain parts of the Medicare program vary by state, so you will want to get more in-depth information before you turn 65 based on your primary retirement residence.
- It’s not free.
Even though studies have shown that Medicare is cheaper than most health plans offered by private insurers, it still does not cover all health costs when a person retires. In some cases, Medicare is one of the largest expenses for retired individuals. A retired couple aged 65 in 2018 may need an average of $280,000 to cover Medicare expenses (not including over-the-counter medications, most dental services, or long-term care) according to Fidelity Investments.1
- There is no out-of-pocket annual or lifetime limit.
When it comes to Medicare, there is no yearly or lifetime out-of-pocket maximum. In addition to deductibles, for Medicare Part B retirees usually pay at least 20% coinsurance for approved costs, regardless of how high the costs may be.
- The four parts of Medicare.
The “alphabet soup” of Medicare consists of four separate parts: A, B, C, and D.
Part A: This part is sometimes called “original” Medicare, and is basically hospitalization insurance. It covers inpatient care, short stays at skilled nursing facilities, hospice stays, lab tests, surgery, doctor visits and home health care related to a hospital stay. Part A is usually free.
Part B: Part B is the medical insurance portion of “original” Medicare coverage. It covers outpatient care, doctor’s office visits, lab work, preventative services, ambulance services, and medical equipment. The standard premium for 2018 is $134 per person, per month, but premiums are higher for people in higher income brackets.
Part C: This optional part refers to Medicare Advantage plans. Medicare Advantage is not a separate benefit, but is used for private health insurers that provide Medicare benefits. Part C plans replace Parts A and B, and usually replace Part D (optional).
Medigap: Sometimes called Medicare supplement insurance, Medigap is not a Part C plan. Medigap policies do not replace Parts A and B, in fact, Parts A and B are required in order to have it. Medigap is private insurance that helps supplement or pay some of the costs not covered by Parts A and B, which may include copayments, coinsurance, and deductibles. There are many rules which apply to Medigap, and plans are standardized by state.
Part D: This optional part provides prescription drug coverage. A person is eligible for Part D if they are enrolled in Part A and B, or Part C replacement coverage (which may include Part D coverage.) Part D coverage varies by plan and types of prescription drugs.
- Medicare does not cover everything.
The question in regard to Medicare is not what is covered, but what is not covered. Parts A and B of Medicare do not cover the following:
- Amounts not covered by deductibles and coinsurance (20%), with no limits
- Care outside of the U.S.
- Eye exams (except for diabetics), vision care or eyeglasses
- Hearing exams or hearing aids
- Most dental care services or dentures
- Routine foot care (except for diabetics)
- Limited physical therapy, occupational therapy, speech pathology services
- Long-term care (LTC) or custodial care
Some Part C or Medigap plans may offer some coverage for these, depending on the policy or plan.
- Medicare is mandatory.
Once you are 65 and receive Social Security there is no way to opt out of Medicare.
- When to sign up for Medicare.
An individual must sign up for Medicare within three months after they turn 65 years old, unless they are covered by an employer plan (subject to certain rules.) If a person is already receiving Social Security benefits when they turn 65, they will automatically be enrolled in the original Medicare plan Parts A and B.
- How Medicare is deducted.
Medicare Parts A and B are automatically deducted from a Social Security check if the individual is 65 and receiving Social Security benefits. Coverage begins the first month that an individual turns 65-years-old. Medicare Part B premiums must be deducted from Social Security if the monthly benefit amount covers the deduction. If deduction exceeds the benefit amount then the individual will be billed quarterly. Optional plans like Part C, Medigap or Part D may have other payment options, or may also be deducted from Social Security.
For more information about Medicare, as well as many other retirement issues, please call Eric Scott Financial at 435.773.9444.
Be sure to request your free copy of our Medicare whitepaper, which goes into more detail about the Medicare program.