If your 65th birthday is approaching it’s time to start thinking about Medicare. As planners, we get lots of questions regarding health care in retirement and rightfully so! There is a lot to know. Below you will find an introduction to the many intricacies of Medicare. And keep reading to find out how you can bridge the gap to Medicare if your goal is to retire early!
What is Medicare?
Medicare is a federal health insurance program for adults aged 65 or older. You may choose to have this be your sole health care coverage, or use it in combination with health insurance you have through an employer or spouse.
Medicare is made up of many “parts” and trying to understand coverage options could be a full-time job; turn to your family and trusted professionals for help to advocate on your behalf if you find yourself in need of care. You can also authorize someone else to speak to Medicare on your behalf by calling customer service or filling out an “Authorization to Disclose Information” form.
Medicare Part A:
Part A, also known as hospital insurance, covers inpatient hospital care, skilled nursing, hospice and limited home health services. Generally, you will have paid the premiums for Part A through your payroll taxes while working and are eligible at age 65. Some of these benefits are only covered in limited situations and upon meeting certain conditions. It is important to understand how your Part A coverage works as it relates to your own health conditions.
Medicare Part B:
Part B will help to pay for doctor visits and other medical services and supplies necessary to treat your health condition. This often includes outpatient care, preventative services, ambulance services, and medical equipment. If home health and rehabilitation services (physical therapy) are ordered by a doctor, it is covered under Part B. A one-time “Welcome to Medicare” preventative visit is also included as well as penetrative cardiovascular, cancer and diabetes screenings.
Medicare Part B does include a premium cost that can change from year to year depending on income. The premium is calculated based on income reported from your two years prior tax return. If you are receiving Social Security the premium is deducted directly from your benefit, if not, you will receive a bill every three months.
Medicare Part C:
Medicare Part C is administered by private insurance companies and more widely known as Medicare Advantage. These plans are an alternative to Traditional Medicare and covers everything that Part A and Part B cover plus extra benefits (i.e. coverage for prescription drugs, dental, and/or vision). It is important to note that Medicare Advantage plans vary by state as well as in costs, coverage amounts, and additional benefits. If you are unsatisfied with your existing Medicare Advantage plan, you can switch plans during Open Enrollment which begins October 15th.
Medicare Part D:
Part D is a private plan that is purchased to help pay for prescription drugs. If you have signed up for Original/Traditional Medicare Parts A & B, it is recommended that you also purchase a Medicare Prescription Drug Plan. Even if you aren’t currently taking prescription drugs you should still consider a Part D plan. If you choose to delay enrolling and do not have other creditable coverage, your premium could be up to 20% higher due to the late-enrollment penalty (which is applied for the rest of your life).
Medicare Supplement Insurance (Medigap):
Individuals may choose to purchase Medigap policies to help cover costs that Traditional Medicare does not. These costs may be copayments, coinsurance, or deductibles. Medigap policies are offered by private insurance companies. If you choose to purchase Medigap policies, your Traditional Medicare will be the primary payer, and the Medigap coverage will be the secondary payer. Therefore, you must have enrolled in Parts A and B in order to purchase Medigap coverage.
It is important to be aware that routine dental and vision care are not covered by Medicare.
When to enroll:
If you started receiving Social Security benefits before your 65th birthday you will be automatically enrolled in Parts A and B. If you are not yet taking Social Security Benefits, you will need to enroll during the 7-month Initial Enrollment Period. This period begins 3 months before the month you turn age 65, and ends 3 months after the month you turn 65. If you do not sign up for Part B during this period and then later would like to have Part B coverage, there is a late enrollment penalty that will be assessed. If you are automatically enrolled in Part B and do not wish to be, you need to opt out.
Income-Related Monthly Adjustment Amount (IRMAA)
Paying higher than the standard part B 2019 premium of $135.50? If so, you may be a higher income retiree and paying an income-related monthly adjustment amount (IRMAA). Contact our office to discuss if you should appeal your Medicare premium. A reason to appeal would be a life changing event such as death of a spouse, divorce, retirement, reduced hours, or loss of income. If you have a one-time increase of income due to sale of an investment property, Roth conversion or other portfolio distribution, then you should expect to pay a higher Medicare premium for at least a year. It is important to consider this with your advisor when making financial decisions.
Retiring before age 65 – impact on Medicare
As stated above, Medicare is only available to individuals age 65 and older. However, there may be circumstances that require you to leave your employer health plan prior to age 65. Below are three of the most common options for obtaining health insurance during the retirement to Medicare gap:
1. If available, a continuation of coverage provided by your employer called “Group Retiree Coverage” is your first option. Most often this is the least expensive health care option since premium payments are generally subsidized, which therefore results in little to no additional cost to the participant (from what they were paying as an active employee). Additionally, spousal group medical coverage may be available if a spouse is still working.
2. The second option is to purchase health insurance through the Federal Exchange. There is a window of 60 days before and after your retirement date that you can sign up for coverage through the health insurance marketplace. This marketplace gives everyone the option to purchase health care with no health questions asked (a more desirable option than individually rated policies).
3. The final option is to purchase health insurance through the Consolidated Omnibus Budget Reconciliation Act (COBRA). This act directed employers to offer identical coverage to their terminated employees that they previously had prior to leaving the company. Participants are generally responsible for the full value of the premium (that was once paid by the employer). Additionally, employers may charge a fee on top of the premium being paid. It is important to note that COBRA benefits due to termination of service only last 18 months. If you retire before age 63.5 you will need to find additional coverage after the 18 months has been exhausted.
Please feel free to call us or schedule an appointment if you want to dive deeper on this discussion.