If you are close to age 65, it is time to start thinking about Medicare. Here’s how it works…
Medicare is a health insurance program run by the federal government for those aged 65 or older (though in some cases, it is possible to be covered by Medicare if you are under the age limit). There are two parts to the original program: The first part is Medicare Part A, which you can think of as hospital insurance since it would cover an inpatient stay at the hospital. Part A can cover skilled nursing in a facility (up to 100 days, with the first 20 being covered by Medicare and the next 80 being shared between the patient and Medicare) as well as hospice care. Part A can also cover some health care at home.
The second part is Medicare Part B, which you can think of as medical insurance. This would cover outpatient physician services, routine doctor visits, tests, supplies, and preventative services.
How much does original Medicare cost?
For the majority of Americans, Part A comes at no cost, because either the individual or his/her spouse paid into the Medicare system while employed (for a minimum of 10 years).
Part B premiums are based on your income level (two-years prior to the current year). For 2017, premiums range from $134 per month to $428.60 per month (per individual). You can refer to the chart below for premiums at various levels of income.
There is an alternative to original Medicare called “Medicare Advantage,” and it’s sometimes referred to as Part C. Essentially, Medicare Advantage is a combination of original Medicare Part A and B and is provided by insurance companies who have been approved by Medicare.
When should I enroll in Medicare?
Typically, individuals who are retired or no longer have health insurance coverage through their employer may consider enrolling in Medicare three months prior to their 65th birthday. If you’re approaching age 65 and still working and have health insurance coverage through an employer, you should consider enrolling in Part A. If you are contributing to a Health Savings Account, you would no longer be permitted to do so upon enrollment in Part A. For those who are approaching age 65 and still working (and have health insurance through an employer), enrollment in Part B can usually be delayed until retirement. In cases where an individual works for a smaller company (less than 20 employees), they may be required to enroll in Part B.
How do I enroll in Medicare?
You can enroll in Medicare by applying online at the Social Security Administration website or by calling them at 800-772-1213. If you prefer a face-to-face meeting, you can schedule an appointment by dialing the same toll-free number.
How do I pay for Medicare?
If you are retired, age 65 or older, and receive Social Security, premiums are automatically deducted from your current benefits. If you are currently employed and do not receive Social Security, premiums will be billed on a monthly basis until you file for Social Security benefits (and the automatic deduction begins).
Since Medicare doesn’t cover 100% of health care expenses, there are additional insurance policies—often called Medigap or Medicare Supplement Insurance policies—that can be purchased through private companies. Currently, there are 10 standard Medigap plans that offer various levels of benefits. The ultimate cost of the policy will depend on the plan chosen and the coverage that comes with it (the average cost for the highly popular Plan F is approximately $150 per month).
Additionally, original Medicare does not cover the cost of prescription drugs. In order to get drug coverage, an individual would need to add/purchase a Medicare Prescription Drug Plan (commonly referred to as Part D) or go with a Medicare Advantage Plan that offers prescription drug coverage. Again, the ultimate cost of the policy will depend on the plan chosen and the coverage that comes with it (the average cost of premiums is about $35 per month). Many drug plans have a coverage gap or limit to how much they will pay towards prescriptions. Essentially, there are 4 phases:
- Phase One: You would pay the initial deductible ($400 in 2017).
- Phase Two: The plan pays approximately 75% of the drug costs until the limit is reached ($3,700 in 2017).
- Phase Three: The plan pays a lower percentage which will be slightly different for brand-name and generic prescriptions (up to $4,950 in 2017).
- Phase Four: The plan pays approximately 95% of the costs (over $4,950 in 2017).
Avoid this mistake
Failure to enroll in Part B when eligible may result in additional fees, which continue in perpetuity. The same holds true with a Medigap policy and drug coverage (Part D). Therefore, if you’re looking for comprehensive coverage, you may be better served by implementing all of the policies at once when you’re eligible, as opposed to waiting and paying more down the road.
Making Medicare decisions can be overwhelming: There are so many complicated options and the plan that works well for your neighbor may not be the best choice for you. The good news is that we have a lot of experience in this area and would be happy to guide you through the process. If you or someone you know is finding it difficult getting started with Medicare, please contact your Pinnacle Wealth Manager for help.
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