The ABCDs of Medicare
by Michael Breen, MBA, CFP®
Medicare is a government-sponsored health insurance program that is meant to assist and provide medical coverage for the elderly (and other qualifying individuals). As it covers almost 45 million Americans, this is one of the largest entitlement programs sponsored and managed by the federal government of the United States.
There are a few qualifications to be eligible for Medicare benefits:
- You have reached age 65
- You have worked (or are the spouse of someone who worked) at least 10 years in Medicare-covered employment
- You meet certain disability standards (and are under age 65) or have end stage renal disease
Most Americans aged 65 or older rely upon Medicare for a large portion of their medical care. Coverage is composed of four parts:
- Part A: Hospital Insurance
- Part B: Medical Insurance
- Part C: Medicare Supplement (Medicare Advantage Plans)
- Part D: Prescription Drug Coverage
Medicare Part A
Medicare Part A covers the costs associated with a stay in a hospital or skilled nursing facility as well as care provided by home health care services. All those who qualify for Medicare are automatically enrolled for Part A coverage. While there is no premium for those who qualify, there is a deductible of $1,316 for each benefit period.
Medicare Part B
Medicare Part B covers the costs incurred by a doctor’s services, various outpatient care, and a litany of additional services (e.g., lab tests, flu shots, ambulance). Unlike Part A, eligible participants are not automatically enrolled in Part B. There is a monthly premium associated with this coverage, and most seniors have their Part B premiums deducted automatically from their monthly Social Security retirement income. Your premium amount is based on the last two years of your Adjusted Gross Income (AGI) You may wish to discuss ways to reduce your AGI with your Mesirow Wealth Advisor and tax professional. (See printable version for premium amounts)
There is also a Part B deductible of $183.00 per year, and then you are typically responsible for 20% of incurred expenses once that deductible is met.
Medicare Part C
Medicare Parts A and B may not provide enough protection for the medical expenses you could incur in advanced age. As such, it is critical to obtain Medicare Part C, also known as Medicare Supplement. Unlike Parts A and B, Medicare Supplement is placed through a private carrier. The premium for your Medicare Supplement is based on your age and the qualities and features of the specific plan. The premiums are billed directly by the carrier; they cannot be deducted from your Social Security income.
The largest Medicare supplement program is called Medicare Advantage (MA). For 2017, the average monthly MA premium is about $31.40; however, actual premiums could range between $0 to $200 on a monthly basis.
Medicare Part D
Part D of Medicare is for prescription drug coverage. Like Part C, this coverage is offered through competing, commercial carriers; the cost will vary based on the level of coverage and copay. However, unlike Part C, this part can be deducted from Social Security income or billed directly by the carriers.
Enrolling in Medicare
If you are eligible for Medicare when you turn 65, you can sign up during the 7-month period that:
- Begins 3 months before the month you turn 65
- Includes the month you turn 65
- Ends 3 months after the month you turn 65
To apply for Part A (if you do not qualify for automatic enrollment) and Part B, please call or visit your local Social Security office or visit medicare.gov.
Still Working at Age 65
If you are still working when you turn 65, you should discuss your Medicare enrollment options with your Mesirow wealth advisor. Generally, workers do enroll in Medicare Part A, because it is free, but it is important to understand whether your current employer coverage will change in any way if you enroll in Medicare Part A. However, if you are enrolled in your employer’s High Deductible Plan with a Health Savings Account then it may be more prudent to not enroll in Part A.
The decision whether to enroll in Medicare Part B is more complicated. If your employer has more than 20 employees, generally, you can wait until you retire. However, if your employer has fewer than 20 employees, it is generally recommended that you enroll in Medicare Part B when you are first eligible in order to avoid a premium penalty.
Medicare can be a complex program to navigate with a multitude of considerations depending on your nuanced situation. This is merely an overview. We invite you to reach out to your Mesirow wealth advisor so that we can help you understand your options and connect you with professionals with additional expertise.