The one universally known thing about Medicare is that it’s complicated. Part A, Part B, Medicare Advantage (Part C), Part D, Medigap – What exactly are each of these options and which ones are right for me? In this article, we outline the basics of Medicare and the steps you need to take prior to reaching age 65.
Unless you are already receiving Social Security benefits, you will need to enroll in Medicare. You have a six-month window in which to do this, beginning three months prior to your 65th birthday and ending three months afterwards. This is called your “initial enrollment period.” The general enrollment period for Medicare runs from January 1st to March 31st each year. Coverage will begin on July 1st of the year you enroll. If you are already receiving Social Security benefits, you will be automatically enrolled and receive a welcome packet approximately three months prior to your 65th birthday. If you are not yet receiving Social Security benefits, you will need to complete the enrollment process.
Applying for Medicare can be done online through the Social Security Administration’s website or by visiting your local Social Security office. You can sign up for Part A (hospital insurance) during the 6-month enrollment period surrounding your 65th birthday or will be automatically enrolled in Part A when you file for Social Security benefits. Note that if you do not have other medical coverage in place and do not enroll in Part A upon turning 65, you will be subject to a penalty. For most people, there is no premium for Part A coverage.
Part B (medical insurance) requires a premium and therefore is an optional coverage. It is important to note, however, that if you do not enroll in Part B upon turning 65 and choose to do so later, you will pay a permanently increased premium amount of 10% per 12-month period you were eligible but not enrolled. The exception to this is if you qualify for a “Special Enrollment Period,” which typically applies to individuals who are still covered under a creditable employer group plan (your or your spouse’s). “Creditable” plans are those whose coverage is equal to or greater than that of Medicare.
Part A – Hospital Insurance
Medicare Part A is hospital insurance. It covers inpatient care in a hospital, care in a skilled nursing facility, hospice care and home health care. Although these services are covered, deductible and coinsurance costs do apply, and certain conditions must be met to be eligible for coverage. Premiums are not charged for Part A, for most individuals.
Part B – Medical Insurance
Medicare Part B covers both medically necessary services and preventative care. These include things such as ambulance services, durable medical equipment, mental health care, screening services (e.g., cardiovascular disease, various cancer screenings, glaucoma tests, etc.) as well as annual wellness visits.
Part B premiums will be due every three months unless you are receiving Social Security benefits, in which case your premiums will be deducted automatically from your benefit before it is dispersed. The standard premium is reviewed annually and will typically be adjusted for inflation. Above a certain income level, you may also pay an additional charge called an Income Related Monthly Adjustment Amount (IRMAA). IRMAA charges increase in tiers based on tax filing status and modified adjusted gross income from your tax return two years ago.
When using Part B coverage, you will typically pay a small deductible and 20% coinsurance for the services you receive.
Part D – Prescription Drug Plan
Medicare Part D covers prescription drugs and is entirely optional. Similar to Part B, you will be charged a late enrollment penalty that increases the longer you wait if you do not sign up when you first enroll in Medicare. Even if you do not currently take any prescription drugs, enrolling will ensure coverage, if and when you need it, at the lowest possible cost.
Part D plans are offered through Medicare-approved insurance companies. Your monthly premium will depend on the specific plan you choose. Each plan has its own list of covered drugs, but all will offer both generic and brand-name drugs and will include at least two drugs in each of the most commonly prescribed categories. Categories of drugs include antidepressants, immunosuppressants, cancer drugs, and anticonvulsants.
IRMAA charges apply to Part D coverage as well, and follow the same structure as with Part B. In addition to the monthly premium, you will also have a deductible, copayments and coinsurance costs. The amounts will depend on the plan you choose.
Original Medicare vs Medicare Advantage
The primary options for Medicare coverage are Original Medicare and Medicare Advantage. Original Medicare includes both Part A and Part B. You also have the option of adding Part D coverage and/or a supplemental insurance policy to help pay out-of-pocket costs. With this option, you can visit any doctor or hospital within the United States that accepts Medicare.
The Medicare Advantage option, also called Part C, is considered a bundled plan and includes Part A, Part B and Part D. The cost of these plans varies but some may have lower out-of-pocket costs and additional benefits that are not covered under Original Medicare, such as vision and dental. This option may charge an additional premium on top of your Part B premiums as well. With Medicare Advantage you will typically need to use doctors that are in-network for non-emergency care. You are not able to purchase Supplemental Insurance policies if you choose this option.
Medigap, or Supplemental Insurance policies, are sold by private companies to mitigate the out-of-pocket costs of Medicare. In order to buy a Medigap policy, you must be enrolled in both Part A and Part B. These policies may help with the costs of copays, coinsurance and deductibles, and may offer coverage that Original Medicare does not (such as care while traveling outside of the United States). Medigap policies may be purchased during a six-month open enrollment period beginning on the first day of the month in which you are age 65 or older and are enrolled in Part B. If you do not purchase a Medigap policy during this timeframe, you may not be able to purchase one in the future or the cost could be higher.
When it comes to Medicare, there are numerous choices to be made. For each choice, there are multiple options available. This can easily become overwhelming, but there are resources available to help. All states have agencies with independent Medicare specialists available to help you choose the right options for your unique situation and assist you with the enrollment process. These individuals are not affiliated with any one insurance carrier. They are paid by the carriers once policies are in place, and therefore are available at minimal or no cost to you. Your Freestone Client Advisor can help you locate a specialist in your area and can provide support and advocacy throughout this process.
Your Freestone Client Advisor can help you locate a specialist in your area and can provide support and advocacy throughout this process.
Important Disclosures: Nothing in this document is intended to provide, and you should not rely upon it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific benefits or insurance recommendations and you should not make any decisions regarding your benefits or insurance based on the information in this document. The intention of this document is educational, and it is intended only to discuss limited aspects of benefits and insurance coverage, including Medicare. This document is not a comprehensive or complete summary of considerations regarding Medicare. Each individual is in a different situation and has different items to address, and the options in this document are not appropriate for everyone. Please consult your Freestone client advisor regarding options specific to your needs.