5 Things You Need to Know About Medicare

MedicareHealthcare

Sep 3

5 things you need to know about Medicare Vision Retirement financial planning independent RIA CFP fiduciary investment advice investment management New Jersey New York Bergen county financial advisor Ridgewood NJ

Medicare plays an important role in medical costs as you age, and it’s therefore imperative you understand how it works—especially if retirement is on the horizon. While this post isn’t meant to serve as a comprehensive guide to Medicare, it does provide insight into five key things you need to know about the program. Without further ado…

Medicare consists of four parts that each cover specific services

Medicare Parts A and B (known as “Original Medicare”) call for the government to pay providers directly for patient services received, whereas Parts C and D involve other nuances. Let’s explore all four parts in more detail, keeping in mind that almost all physicians and hospitals in the United States accept Original Medicare…

Medicare Part A (hospital insurance): Part A covers patient care in a hospital or skilled nursing facility, in-home hospice, and limited home healthcare services. Those who enroll in Medicare receive Part A automatically and are typically not required to pay a monthly premium but are responsible for a $1,632 (as of 2024) deductible instead per visit—as well as a portion of daily expenses for hospital stays surpassing 60 days.

Medicare Part B (medical insurance): Part B covers medical services and supplies that are necessary to treat a health condition—including visits to doctors and other healthcare providers, medical equipment, and ambulance services. It also covers some preventive services. Those who lack “creditable coverage” from another source (e.g., an employer) are required to enroll in Part B, and a failure to do so may result in a 10% monthly premium fee for each 12-month period you could’ve had Part B but didn’t. Most patients pay a monthly premium for Part B, and all must meet a deductible before benefits kick in.

Medicare Part C (Medicare Advantage): These bundled plans, an alternative to Original Medicare (Parts A and B), are offered by private Medicare-approved companies. Most Part C plans include the same coverage provided by Parts A and B and also often loop in optional vision, dental, hearing, and prescription drug coverage and additional services including transportation to doctor’s visits—none of which are covered by Original Medicare. You can purchase a Medicare Advantage plan after you enroll in Original Medicare, and monthly premiums vary based on the types of benefits and deductibles required.

Medicare Part D (prescription drug coverage): This plan, administered by Medicare-approved private insurance companies, helps pay for both brand-name and generic drugs. While you’re automatically eligible for Medicare Part D if you qualify for Original Medicare, you’ll need to enroll in Part A and/or Part B as a prerequisite to do so.

Medigap Supplement plans fill in the gaps

Offered through various insurance companies, Medicare Supplement plans (also known as Medigap plans) cover many out-of-pocket costs Original Medicare doesn’t such as copayments and deductibles. Some policies also include medical care when you travel beyond U.S. borders, unlike Original Medicare as well.

If a Medigap policy is right for you, know that insurers who offer such policies cannot deny you coverage or charge you more for preexisting conditions when you first enroll in Medicare. However, adding a Medigap policy beyond your initial seven-month enrollment period may cost you more; even worse, insurers can deny you coverage based on your health status. Specifics vary from state to state.

Medigap policies are standardized as required by the federal government regardless of which insurance company sells them, meaning companies can only offer policies from a list of about ten standardized plans each denoted by a letter: A, B, C, D, F, G, K, L, M, and N. It also means a Medigap plan with a given letter will offer the exact same benefits no matter where you buy the policy, with the exception of Massachusetts, Minnesota, and Wisconsin (which standardize their plans in a different way). The only difference between plans boasting the same letter is price.

Finally, know that you can’t enroll in a Medigap policy if you have a Medicare Advantage Plan; in fact, it’s illegal for someone to sell you a Medigap policy if he or she knows you’re enrolled in the same.

Enroll in Medicare during the provided “window” to avoid penalties

If you’ve received Social Security or Railroad Retirement Board benefits for at least four months prior to turning 65, the government—in most cases—will automatically enroll you in Medicare Part A and Part B when you hit this age. Everyone else who is eligible should heed the aforementioned seven-month enrollment window to sign up for Medicare during this time.

Your enrollment period begins three months before you turn 65 and ends three months after your birthday month. If you miss your initial enrollment period, you can sign up during the Medicare General Enrollment Period (January 1 through March 31 of each year); your coverage will begin on July 1.

If you fail to qualify for free Part A premiums nor buy this when you’re first eligible for Medicare, your monthly premium could go up 10%. Plus, you’ll need to pay this late enrollment penalty for twice (!) the number of years you fail to sign up but could have.

Similarly, if you don’t enroll in Medicare Part B during your initial enrollment period or the Medicare General Enrollment Period, this can trigger a 10% monthly premium fee for each 12-month period you could have had coverage but didn’t—with this penalty assessed for as long as you have Part B in most cases.

While Medicare Part D is optional, you’ll need to pay a late-enrollment penalty upon signing up if you go without credible prescription drug coverage for more than 63 consecutive days after you’re first eligible. The dollar amount of this (permanent) penalty ultimately depends on the length of time spent without Part D or credible prescription coverage.

Income increases may boost your Medicare insurance premiums

Medicare Part B premiums are based on your income. For 2024, those who earn $103,000 or less ($206,000 or less if you file a joint tax return) will pay a monthly premium of $174.70. However, if you earn just $1 more than these thresholds, your monthly premium will jump to $244.60 (or even higher if your earnings far exceed this)!

You’ll also need to consider your income’s impact on Part D as well.

Starting at $12.90 in additional monthly charges—if your income exceeds $103,000 (or $206,000 if married and filing jointly)—and rising to $81 per month, these Medicare surcharges (known as “income-related monthly adjustment amount” or “IRMAA”) can be mitigated through proper tax planning or contested by filing an appeal (typically due to a life-changing event).

Note that the surcharge is calculated based on tax returns reported from two years prior: meaning your 2025 income determines your IRMAA in 2027, your 2026 income determines your IRMAA in 2028, and so on.

For those unfamiliar with IRMAA, know that the two-year lag can lead to unpleasant surprises when you first enroll in Medicare—especially if your income declines substantially after you retire.

Medicare doesn’t cover long-term care

According to the U.S. Department of Health and Human Services, there is almost a 70% chance that someone celebrating a 65th birthday today will require some type of long-term care (LTC) services in the years ahead (with an estimated 20% needing care for more than five years). Unfortunately, many people incorrectly assume Medicare covers long-term care expenses. The truth is that it doesn’t, except in very limited circumstances.

In sum: what you need to know about Medicare

With healthcare costs increasing over time, it’s important to understand your Medicare options and minimize expenses—especially during retirement. That said, if you find navigating Medicare insurance options confusing, you’re certainly not alone. Thankfully, a Medicare insurance expert or financial advisor can help you make sense of these seemingly complex options.

Questions about Medicare? Schedule a FREE Discovery call with one of our CFP® professionals.

FAQs

Beyond cost, you’ll need to consider several other factors when deciding between the two programs. One such factor is physician choice; while most Medicare Advantage plans restrict members by requiring them to stay in network and limiting international care options for travelers (which is why they’re inexpensive), they also cap out-of-pocket expenses. Check out our Medicare Advantage vs. Medigap article for more details.
In addition to long-term care, you’ll need to plan for several other coverage gaps (most of which are outlined in this article: what Medicare doesn’t cover).
Medicare will generally act as your primary insurance: meaning that whenever you incur a healthcare expense, the bill is first submitted to Medicare. Assuming a balance on your bill exists, however, your secondary insurance would cover the remaining amount.
Nevertheless, if you’re still on an employer group plan that covers 20 or more employees or is part of a multi-employer group plan (generally one jointly sponsored by two or more employers), the employer plan will act as the first payer and then Medicare will kick in secondarily; this is true whether you have coverage through your own employer’s plan or are covered through your spouse’s. Click on this link to learn more about how to transition from private insurance to Medicare.