It is easy to confuse the different assistance programs offered by the government: Social Security, Medicare, Medicaid, etc. They all are designed to provide a base level of financial stability and protection in some manner, but each program has a different way of doing so. Both Medicare and Social Security aim to assist senior citizens, but we’ll solely focus on the intricacies of Medicare in this article; for more information surrounding Social Security, check out our article on Social Security.
Medicare is a national health insurance program for people aged 65 or older (Medicare, unlike Medicaid, does not consider income or assets when determining eligibility. In a nutshell, Medicare helps with the cost of healthcare, but doesn’t cover every health expense that arises or long-term care expenses.
When Should I Apply for Medicare?
You are eligible to receive Medicare benefits on the first day of the month in which you turn 65. However, you can apply for benefits any time during the “initial enrollment period”: this includes the 3 months prior to the month you turn 65, as well as the 3 months after the month you turn 65. This enrollment window is rather important, as failing to apply for benefits inside the window can result in a monthly late enrollment penalty that is in place for the entire time you have those benefits- for most people that equates to a lifetimepenalty. You have the option to apply online, via phone, or in person at a Social Security office near you.
What are the Medicare Plan options?
Medicare is comprised of three parts:
- Part A is referred to as Hospital Insurance because- you guessed it- it covers inpatient care in hospitals, skilled nursing facility care, hospice care and home health care.
- Part B is referred to as Medical Insurance and helps cover services from doctors and other healthcare providers, outpatient care, home health care, medical equipment and many preventative services: think screenings, shots or vaccines, yearly “wellness” visits, etc.
- Part D is referred to as Drug Coverage, and helps cover the cost of prescription drugs, as well as many recommended shots and vaccines.
You’re probably asking, “what happened to Part C?” Part C is technically referred to as Medicare Advantage and is actually a Medicare-approved plan from a private company that offers an alternative to Original Medicare for your health and drug coverage. Part C includes Parts A, B and usually D.
Original Medicare only includes Part A and Part B coverage, but Part D coverage can be joined with a separate drug plan; under Original Medicare, you can use any doctor or hospital in the U.S. that accepts Medicare. Most people qualify for a $0 monthly premium for Part A coverage, as that amount is covered by Medicare taxes paid while working, while part B has a premium of $169.40/month in 2023, an amount that can be higher if you have a higher income level. Both Part A and Part B have deductibles that apply in addition to the monthly premium. Part A Hospital coverage does have coinsurance but varies depending on the type of service being offered, and Part B typically has a 20% coinsurance payment required after reaching the deductible.
The main concern around Part A and Part B plans is that neither has an out-of-pocket maximum. This means that if you only have Original Medicare coverage, the amount you could be required to pay once your deductible has been met does not have a limit.
This is where Part C, Medicare Advantage, coverage has its benefits. Part C involves a private insurer who follows rules set by Medicare but offers the insurance coverage through their own program. This allows for an increased amount of coverage options (think vision, hearing and dental services) but, more importantly, all Medicare Advantage plans arerequired to set an out-of-pocket maximum. This is a major improvement over original plans, which do not have an out-of-pocket maximum. This could result in serious financial hardship if costly medical interventions are required in a given year and exposes the insured to a decent amount of risk- that’s why Medicare Supplement Insurance (Medigap) is offered in conjunction with Original Medicare plans.
Medicare Plan Costs
Medicare Advantage does have a few drawbacks when compared with Original Medicare. Whereas those who have enough work history (you can qualify by having paid Medicare taxes throughout your work history) have no monthly premiums for part A, most everyone will have to pay a monthly premium of at least $164.90 (in 2023) for Part B coverage. This amount can increase if income is above certain thresholds, starting at $194,000 for those who are married, filing jointly. Medicare Advantage does typically have a monthly premium, but the amount can vary depending on the specific plan chosen.
Which Medicare Plan is Best for Me?
Choosing a Medicare plan involves financial as well as health-related factors, so there is not a one-size-fits-all answer to the question of which Medicare plan is best. The maximum out-of-pocket limit is certainly a consideration to be made when deciding between plans. If Original Medicare is chosen, it might make sense to look into a supplemental (Medigap) program that can help pay costs after the deductible has been met. Medicare Advantage offers the protection of maximum out-of-pocket, though that protection is paid for through monthly premiums which can be higher than Original Medicare alone. Fortunately, there are options for lower-income individuals to have monthly premiums reduced- even eliminated in some cases- to a level that is financially bearable.
Medicare can be a complex subject, as health-related, personal, and financial factors must all be taken into account when determining what type of plan or coverage is best for your unique situation. This is where a comprehensive financial plan truly proves its worth and helps ensure the decisions made are in your best interests on both a short- and long-term basis. As always, we are here to help navigate the complicated financial decisions as retirement begins- reach out to us with any questions you may have