Making Sense of Medicare

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Nov 01, 2017

Medicare is a complex program that is essential to medical coverage for retirees. However, if you do not enroll at the right time, or buy sufficient insurance to cover the out of pocket costs, you (or your parents) may be faced with heavy costs. Here are some key issues to consider.

Make sure you enroll on time and pay the premiums if you are not yet collecting Social Security. Eligibility for Medicare begins at age 65, even though full retirement age for Social Security benefits is now between age 66 and 67. Medicare premiums for Part B coverage are deducted from Social Security monthly payments. This means, if you have not yet begun receiving Social Security, you will have to make the premium payments on your own.

Do not miss your enrollment window. If you are receiving Social Security benefits prior to age 65, you will be automatically enrolled in Medicare Part A on your 65th birthday. You do not pay for it if you have accumulated at least 40 work credits during your career (roughly 10 years of work). Medicare Part A is hospital coverage.

Medicare Part B is medical (physician) coverage. Part B pays 80% of outpatient services such as doctor's visits, lab work, durable medical equipment, and ambulance services. The cost is based on a beneficiary's income, so you generally pay for this. As a result, Medicare gives you the option of not enrolling in this coverage. But, there is a catch.

When you first become eligible for hospital insurance (Part A), you have a seven-month period (your initial enrollment period) in which to sign up for medical insurance (Part B). A delay on your part will cause a delay in coverage and result in higher premiums. If you are eligible at age 65, your initial enrollment period begins three months before your 65th birthday, includes the month you turn age 65 and ends three months after that birthday. One exception to the initial enrollment period is if you or your spouse are still working and have a group insurance plan through your employer. You have 8 months following the end of your employment (not the end of COBRA coverage) to sign up for Medicare Part B to avoid the penalty.

If you sign up for Part B in this period, you pay the going rate (currently, $134/month if you make less than $85,000, incrementally increasing up to $428.60 for retirees earning $214,000 or more). If you do not enroll in Medicare Part B during your initial enrollment period, you have another chance each year to sign up during a “general enrollment period” from January 1 through March 31, but you are subject to a 10% penalty for every 12-month period you were eligible for, but did not enroll in, Medicare Part B. This penalty applies to your Medicare Part B premiums for as long as you continue to get Medicare

What about prescription drug coverage? In addition to Medicare Part A and B, you can also purchase a prescription drug plan (Part D). This coverage is available through private insurers that contract with the Centers for Medicare and Medicaid Services. As with the Part B coverage discussed above, there is a penalty for not signing up when you are first eligible. In this case, the late enrollment penalty is 1% of the national base premium for each month you went without coverage. This penalty remains in effect for the rest of your life. If you currently are not taking any prescriptions, purchase a no-frills Part D plan. You can always upgrade to a more robust plan in a future year during the annual enrollment period (October 15 – December 7).

Coverage for Medicare’s gaps. To cover Medicare's many gaps (deductibles, copayments, coinsurance, and limits), you may choose to purchase a supplemental plan. There are 10 standard types of Medicare Supplement Insurance (Medigap) plans. Each provides a different level of coverage. Plan F, available through private insurers, is the most popular option, though it is the most expensive. These plans pay for most things Medicare does not, including coinsurance and deductibles. Each Medigap policy's coverage is standardized, so one insurance company's Plan F plan covers the same benefits as another company's. The key is your geographic area and the providers that are part of the plan’s network. You can compare plans at Starting in 2020, new enrollees will no longer be able to sign up for Plan C or Plan F. However, people who enroll in Plan F or C before 2020 will be "grandfathered in" and still be allowed to use the plans in the future.

Medigap plans do not have a premium penalty, as discussed above, for not purchasing coverage within a certain period. However, you do still need to apply for them in a timely manner. If you apply beyond the six-month 'guaranteed issue' window for supplementary plans, you may not be eligible for this type of plan due to your medical history. One tip regarding Medigap coverage is when you move from independent living to a nursing home. There is not medical exam required to elect a different Medigap plan at that time.

Careful planning of Medicare coverage is complicated, but very important. Please reach out to the professionals at Terry Lockridge & Dunn or World Trend Financial to discuss your specific situation. We can be reached at 319.364.2945 in Cedar Rapids, or 319.339.4884 in Iowa City.