We’ve all heard about Medicare and have a general understanding that it goes hand-in-hand with retirement. If you’re on the journey of figuring it all out, it’s best to start at the basics. When you are working, your health insurance is often provided by your employer. Once you retire you need to get your own health insurance and to help with this there is Medicare.
Medicare is a federal health insurance program for individuals 65+ and younger people with disabilities. But, like many other federal programs, the nuances are a bit complex. To get the most out of the program there are some important things you need to know about the options you have available and enrollment dates.
1. Medicare Comes in Parts
Part of the complexity of Medicare comes from the fact that it consists of four different parts that each cover a different aspect of care. The different parts of Medicare are:
- Part A. Also known as hospital insurance, Part A covers inpatient hospital stays, skilled nursing facility stays, some home health aide visits, and hospice.
- Part B. While Part A covers hospitals, Part B covers preventative services including outpatient services, doctors visits, ambulance services, etc.
- Part C. More commonly known as Medicare Advantage, Part C is optional and is intended to fill gaps in the coverage offered by Part A & B such as dental, hearing, and vision coverage. You’ll enroll in Part C through a Medicare-approved private insurer.
- Part D. In order to have the cost of prescriptions covered you’ll need to enroll in Part D, which again is optional. Like Part C, Part D is offered through private insurers. Always be sure to select your Part D plan carefully to ensure the prescriptions you take are covered.
When most people refer to Medicare, they are actually referring to Original Medicare which is Part A & Part B. This will give most people the basic coverage that is needed for hospital visits and doctors appointments. For extra coverage and prescriptions, additional plans (Part C & Part D) will need to be purchased through a private insurer.
2. Not All Medicare Is Free
A common misconception about Medicare is that it is free of cost. However, Medicare premiums largely depend on the amount of Medicare taxes you or your spouse has paid a certain amount of time. For many people, they have contributed to Medicare via their taxes for the required 40 quarters, qualifying them for premium-free Part A. Even if you don’t qualify, you can pay for Part A. The rate you will pay depends on how much you have contributed.
- Paid Medicare taxes for less than 30 quarters: $471 monthly
- Paid Medicare taxes for 30-39 quarters: $259 monthly
Note that with Social Security it is mandatory to be enrolled in Medicare Part A. You do have the option to opt out of Part B. Likewise, both Part C and Part D are optional.
While some people are eligible for premium-free Part A, everyone must pay for Part B. The standard premium for Part B is $148.50 per month. Some individuals will also be required to pay an Income Related Monthly Adjusted Amount (IRMAA) if their individual tax return from 2 years ago shows a modified adjusted gross income of $88,000+ or $176,000+ for couples. If your income is more than this, monthly premiums can range from $148.50- $504.90 per month for Part B. If you decide to delay enrollment to Part B (whether you originally opt out or just sign up late) you’ll have to pay late penalties. Depending on how much time has passed from your enrollment window, these penalties can be substantial.
Part C and Part D are through private insurers. The monthly premiums for these plans will vary depending on the insurer and the coverage each plan offers. It is especially important that you double check that your medications are covered by the Part D plan that you select. While the premiums will vary based on coverage, as of 2020, under Medicare Part D you won’t pay more than 25% of the cost of your prescriptions.
3. You Get A 7-Month Enrollment Window
Perhaps the most important thing you need to know about Medicare is when to sign up. Medicare Part A is mandatory with Social Security. If you are collecting Social Security benefits at 65, then you’ll automatically be enrolled in Part A and Part B. However, if you are not collecting benefits, then you will need to sign up on your own. If you need to sign up on your own, you are given a 7-month enrollment window that includes:
- 3 months before your 65th birthday
- The month of your 65th birthday
- 3 months after your 65th birthday
Currently the late enrollment penalty for Part A is 10% of the Part A premium to be paid for twice the number of years you didn’t sign up. Failing to sign up for Part B on time means a late penalty of 10% of the Part B premium for every month for as long as you have Medicare. The longer you wait to sign up for Part B, the higher the penalty that will be added to your premium. As you can see, failing to sign up in your enrollment window can be a costly mistake.
Quick Recap
Even if you know nothing else about Medicare, it is important to understand that it is a mult-faceted program, with mandatory enrollment for Part A, which is not always automatic. Additionally, it is essential that you know when you need to enroll. Missing your enrollment window can have a long-lasting impact on your retirement planning thanks to severe late penalties. To learn more about the ins and outs of Medicare, download my free book on the 10 Steps To Getting What You Deserve: A Guide To Your Social Security And Medicare Decisions. .