When you first try to understand Medicare, it could seem like a maze.
After all, the federal health insurance scheme, which covers around 56.5 million people aged 65 and over, has various “components.” And there are several crucial things to take into account that have an impact on your wallet, whether you are 65 or older and transitioning from employer-provided insurance to Medicare.
But first, it’s important to understand the fundamentals: Part A (hospital coverage) and Part B make up Original Medicare (outpatient care).
Some recipients select an Advantage Plan (Part C), which normally offers prescription drug coverage, to deliver those benefits (Part D). Some people continue to use original Medicare, also known as basic Medicare, and may combine it with a stand-alone Part D plan and a so-called Medigap coverage.
Here are three important considerations as you get ready to enroll.
You’ll have to pay for it
Medicare is a paid service.
“This comes as a surprise to so many beneficiaries who have paid [payroll] taxes throughout their working lifetimes and assumed this would mean Medicare would be ‘paid up’ by the time they turn 65,” co-founder of the insurance company Boomer Benefits, Danielle Roberts.
“Those taxes will mean no premiums for Part A, but Parts B and D have premiums that beneficiaries pay monthly throughout their retirement years,” Roberts said.
If you have at least a 10-year employment history of paying payroll taxes into the system, you are eligible for premium-free Part A. If not, your monthly payments in 2022 might reach $499, depending on whether you’ve contributed any taxes to the Medicare system.
Even spouses without a history of employment may be eligible for Part A without paying a premium.
Additionally, Part A has a $1,566 deductible that is applied to the initial 60 days of inpatient hospital treatment during a benefit period. Beneficiaries pay $389 per day for the 61st through 90th days, and then $778 per day for the final 60 “lifetime reserve” days.
The regular monthly premium for Part B is $170.10 this year. However, income-adjusted fees make certain beneficiaries pay more.
As an independent broker and general agent for Medicare plans and the founder of Lewin & Gavino, Elizabeth Gavino remarked, “Many of my high-income earners are shocked at how much Medicare premiums will cost them in retirement.”
To determine whether you will have to pay more, the government will look at your tax return from the previous two years. The Social Security Administration has a form you can use to ask for a decrease in that income-related amount because of a significant life event, such retirement.
The deductible for Part B is $233 in 2022. Once that is achieved, recipients typically pay 20% of the cost of covered services.
The particulars of the plan determine the Part D premiums, deductibles, and copays. The Centers for Medicare & Medicaid Services estimate that the average premium this year is roughly $32. Additionally, just like with Part B, IRMAAs add an additional fee for higher earnings.
Missing certain deadlines may result in additional fees
If you intend to join in Medicare as soon as you turn 65 and become eligible, you have a seven-month “initial enrollment period” that begins three months before and ends three months after your birthday.
When your employer’s plan expires, you have eight months to enroll if you put off enrolling in Medicare at age 65 because you continued to work and your coverage met Medicare’s requirements.
Regardless of the enrollment regulations you are subject to, failing to enroll in Part B by the deadline could result in a permanent late enrollment penalty. You will be required to pay 10% of the standard Part B monthly premium for each full year that you should have been registered but weren’t.
If you miss the deadline, there is a late registration fee for Part D as well. You get the same seven months for Part D as you do for Part B if you enroll within your original enrollment window at age 65. In contrast, if you miss that deadline and your employer-provided coverage is about to expire, you have two months to sign up for Part D, whether as a stand-alone policy or through an Advantage Plan.
For each month you should have had Part D coverage or other creditable coverage but didn’t, you will be penalized 1% of the national base cost.
Additional insurance might be sensible
If you have additional insurance, the expenses connected with basic Medicare can be different.
Enrolling in an Advantage Plan is one possibility. However, many plans feature low or no rates, even though you would typically continue to pay your Part B payments. Additionally, Advantage Plans may provide extras like dental, eye, and hearing care in addition to their standard prescription drug coverage.
Unlike traditional Medicare, Advantage Plans have a cap on out-of-pocket expenses. Their cost-sharing arrangements, like as deductibles, copays, or coinsurance, also varied from one plan to the next.
However, the yearly maximum out-of-pocket spending might be substantial; in 2021, the Kaiser Family Foundation found that it averaged $5,091. You can also be forced to visit specific medical facilities, hospitals, and pharmacies.
“These plans have networks of providers and some plans will require you to choose a primary care physician and get referrals to see certain providers and prior authorizations for many of the more expensive procedures, tests and surgeries,” Roberts said.
The other choice you have is Medigap, which covers some of the fundamental Medicare cost-sharing expenses like the Part A deductible and Part B copays. Private insurance companies also provide these policies, but they are typically standardized; similar-named plans provide the same benefits regardless of the insurer that sells them. A, B, C, D, F, G, K, L, M, and N are the available Medigap policy designations, and each one offers a different level of coverage.
Nevertheless, depending on the insurer and where you live, they may be expensive. According to the American Association for Medicare Supplement Insurance, a 65-year-old woman in Dallas might spend less than $100 monthly for Plan G, but the same person would cost $278 in New York. Additionally, those premiums typically increase over time.
Depending on the particulars of your circumstance, choosing between an Advantage Plan and Medigap (or neither) may involve considerations that go beyond cost. This makes it worthwhile to seek advice from a knowledgeable Medicare representative or your neighborhood SHIP, or State Health Insurance Assistance Program; neither would incur any fees.
“There are many factors to consider when choosing between these two options,” Gavino said.