Question: I’m at the qualifying age for Medicare and confused as to whether to take it now, or later, or not at all. The available literature only confuses me more. What should I factor in to make this decision?
The question of when to begin Medicare coverage doesn’t have a simple answer and is not the same for everyone. The federal government administers the Medicare insurance program to help seniors afford health care. To fully benefit from the program, you need a grasp of its complexities. Let’s take this time to discuss Medicare in general and the main features.
Medicare consists of:
- Hospital insurance (Part A)
- Medical insurance (Part B)
- Medicare Advantage (Part C)
- Prescription drug plan (Part D)
Medicare starts at age 65.
Virtually all U.S. residents who are age 65 or older qualify for Medicare. Unless you are disabled, your coverage cannot begin until age 65. Even if you take Social Security benefits at 62, you must wait until 65 for Medicare. Although Social Security’s full-retirement age is gradually increasing from 65 to 67, the age for Medicare will remain 65.
Medicare and Medicaid: What’s the difference?
Don’t confuse Medicare with Medicaid. Medicare is a health insurance program. Medicaid is a medical assistance program. Each state has its own Medicaid rules — within broad federal guidelines — but every state requires Medicaid applicants to meet low-income and low-asset eligibility requirements.
Part A: Hospital insurance
Medicare Part A helps pay for:
• Inpatient hospital care
• Hospice care
• Skilled home-health services for homebound patients
Part A also helps with short-term inpatient care in Medicare-certified skilled nursing facilities, but only if the patient is there for rehabilitation — not for long-term or custodial care.
Once you reach age 65, the question becomes whether you will have to pay a monthly premium for Part A or get it free of charge. Almost everyone qualifies for Part A without paying a monthly premium.
In general, you need at least 40 quarters of coverage to get premium-free Part A. You can get 40 quarters by working and paying the Medicare payroll tax in as few as 10 years.
You can also qualify for premium-free Part A based on your spouse’s work history. If your spouse has at least 40 quarters, and he or she is at least 62 years old or deceased, you get Part A for free at age 65. This also works for ex-spouses if you are now unmarried and your marriage lasted for 10 years.
Part B: Medical insurance
Part B helps pay for:
• Doctors’ services
• Outpatient hospital care
• Medical equipment and supplies
• Some preventive services
All U.S. citizens and all legal aliens who have lived in the United States for at least five years qualify for Part B at age 65. No work history is required, but everyone who wants Part B must pay a monthly premium.
Although it is optional, you will almost certainly need Part B, even if your employer lets you carry health insurance into retirement. Generally, if you turn down Part B, you can change that decision only during a general enrollment period (GEP) or a special enrollment period (SEP), discussed below.
Most enrollees pay $121.80 per month for Part B in 2016. Higher-income retirees pay more. Normally, Medicare deducts this premium from Social Security benefits, Railroad Retirement Board benefits or Civil Service annuity checks. If you don’t receive any of those payments, Medicare will bill you.
Initial enrollment period. Your first opportunity to enroll in Part B is a seven-month period around your 65th birthday: from three months before until three months after the month of your birth. Assuming you want Part B, and to ensure you get all the coverage you are entitled to, you should enroll at least 32 days before your 65th birthday. If you decline Part B during the initial enrollment period, you can change your mind only during a GEP or SEP.
GEP. The annual GEP is Jan. 1 through March 31. There are penalties if you enroll during a GEP: Your coverage is delayed until the following July 1, and you pay higher premiums for the rest of your life.
SEP. A SEP lets you make a late enrollment without incurring any penalties. A SEP, unlike the GEP, lets you pick up Part B without unwanted delays in coverage or higher premiums. Either of these situations allow you a SEP:
1. You are still working and have health insurance from your current employer.
2. Your spouse is still working, and you have health insurance from your spouse’s job.
In general, if you qualify for a SEP because of your employment, you should enroll in Part B as soon as you stop working. Likewise, if you qualify for a SEP because of your spouse’s employment, in general, you should enroll in Part B as soon as your spouse stops working. Health insurance you carry into retirement from a former employer does not entitle you to a SEP (even if it’s COBRA).
Part C: Medicare Advantage
You will have the option of buying health insurance from the private sector as an alternative to joining the “traditional Medicare” program that comes from the government. These alternative plans are called Medicare Advantage plans or Medicare Part C. Depending on where you live, your Part C options can include health maintenance organizations, preferred provider organizations, private fee-for-service plans and Medicare medical savings accounts.
Part C is a private-sector alternative to the traditional Medicare coverage that comes directly from the government. If you choose a Part C plan, you will generally get all of your Medicare-covered services, including all services, supplies and drugs that are otherwise covered by Parts A, B and D, from your Part C plan instead.
Patients who have Part C usually have lower deductibles and copayments than patients who have the traditional fee-for-service Medicare, and they usually get more health care benefits. However, Part C plans typically restrict your choices of health care providers.
If you enroll in a Part C plan, Medicare will pay the plan a monthly fee. You might have to pay an additional monthly premium, depending on the plan.
You may find that a Part C plan is less expensive than buying a Medicare supplement, especially if the Part C plan also includes prescription drug coverage (so that you can avoid paying the separate premium for Part D).
Note: Medicare enrollees who choose Part C must continue to pay their Part B premiums.
Part D: Prescription drug coverage
Medicare’s optional Part D covers prescription drugs. If you have Part A, Part B or both, you will qualify for Part D.
Unlike Parts A and B — but like Part C — Part D comes from a private company, not directly from the government. When you turn 65, you will have the right to enroll in one of several Medicare-approved Part D prescription drug plans.
Most of the cost of Part D is paid by Medicare. However, if you choose Part D, you will pay a monthly premium to the Part D company you select. The average plan premium is about $41 per month. Higher-income retirees pay an additional income-based monthly premium to Medicare. You can ask the Social Security Administration to deduct this premium from your Social Security check, or you can arrange to pay your Part D plan directly.
Part D covers both generic and brand-name drugs. Each Part D plan has a formulary: a list of medications that it covers. It’s best if you pick a plan that lists all of your drugs in its formulary. However, if no plan covers every medicine that you need, join one that covers most of them. Your doctor, pharmacist and Part D plan will work together to find drugs that are safe and effective for you. If it is determined that there is only one drug that is effective in treating your condition, your plan must cover that drug, even if it is not listed in its formulary.
In general, you should enroll in Part D as soon as you can. However, if you delay enrolling because you have comparable prescription drug coverage (also called “creditable” coverage) from a current or former employer and that creditable coverage ends, Medicare lets you change your decision later without penalties or lapses in coverage.
As you near 65, if you have not yet applied for Social Security, you should contact the Social Security Administration about enrolling in Medicare a couple of months before your 65th birthday.
Click here to view the complete PDF created by Wells Fargo Advisors covering this and more Medicare facts. In addition, I am available to discuss this and any other topic relating to your financial future.
This article was written and provided by Michael Grau, CFP®, RICP®, Vice President– Investment Officer with Axiom Financial Strategies Group in New Albany, IN. He can be reached via email at [email protected].com or phone at (812) 948-8475. Visit our website www.AxiomFSG.com.