An oft-overlooked, yet headache-inducing transition to retirement is the Medicare plan. Medicare offers a variety of enrollment options. These options give you the flexibility to choose components of the plan that you need, but they can also be confusing to understand how they work together. The enrollment process itself can also bewilder even the most prepared retirees, so in this article, I break down the basics of your Medicare plan to help you make decisions that are right for you.
Your Coverage Options
Medicare is divided into parts: Part A, Part B, Part C, and Part D (there are more options, but we’ll start with the basics). Each retiree or married retired couple must understand and evaluate the different Parts to determine which options are right for them.
Original Medicare is a package that includes Part A and Part B, with the optional add-on of Part D. Part A covers hospital services. If you or your spouse paid Medicare payroll taxes during your working years for at least 10 years, Part A is free for you. If you didn’t, you can still get coverage by paying a monthly premium. Part B covers doctor visits and other outpatient services. Even if you or your spouse paid Medicare payroll taxes, Part B comes with a monthly premium. Part D is an optional add-on that includes drug coverage, so if you take prescription medication, you’ll want to consider Part D.
To help with Medicare costs such as copayments, coinsurance, and deductibles, many retirees will purchase Medigap insurance from private insurance companies to supplement their Original Medicare plan. Some Medigap plans also cover additional services not covered by Part A or Part B but typically exclude services such as dental, vision, and hearing visits.
Medicare Advantage, also known as Part C, is an alternative to Original Medicare that is offered through Medicare-approved private companies. This plan bundles Part A and Part B, and often includes Part D as well. Your choice of providers is often limited to providers that are in-network for the plan you purchase. Medicare Advantage plans also often cover additional services not covered by Part A, Part B, or Part D, including vision, hearing, and dental visits. Medigap policies cannot be combined with the Medicare Advantage plan.
When To Enroll
After you’ve decided on the best coverage option, the work to enroll in your Medicare plan unfortunately doesn’t get easier. The good news is, if you’re already taking Social Security benefits, you’re automatically enrolled in Parts A and B. Because Part B comes with a monthly premium, you can choose to opt out of this coverage. Otherwise, the premiums will be deducted from your Social Security payments.
Here’s where it gets complicated. If you’re not taking Social Security but need to enroll in Medicare, you will have to sign yourself up for Parts A and B on your own. You can begin enrolling in Medicare three months before the month you turn 65. The initial enrollment period ends three months after your birthday month. To ensure coverage starts by the time you turn 65, it’s important to sign up in the first three months of the initial enrollment period.
If you’re 65 or older but still working with employer-sponsored healthcare insurance, you may be able to delay enrolling for Medicare coverage. However, there are still rules to follow, and if you don’t enroll within 8 months after losing your employer-sponsored health insurance, you could pay significant lifetime penalties when you do eventually go to enroll. And if you ever want to switch the type of Medicare coverage you’ve opted for, you will have to abide by specified enrollment periods each year.
Once you’ve successfully navigated through your coverage options and your enrollment period, it’s smooth sailing. But there are other things to consider, including (but not limited to):
- Your income level
- Your travel plans
- Your future healthcare needs
Unfortunately, high-income retirees will pay extra for Medicare Parts B and D. In 2021, if your adjusted gross income is above $88,000 as a single filer or $176,000 as a married couple filing jointly, you will have to pay a surcharge on your premiums.
Additionally, if you plan to travel much in retirement, it’s important to know that Medicare doesn’t offer coverage outside of the U.S. If you were to get sick or suffer an injury abroad, you would have to pay for those medical costs out of pocket unless you have purchased Medigap insurance that offers travel coverage.
Finally, Medicare does not cover long-term care needs. Long-term care can be extraordinarily expensive, so it’s important to build long-term care expenses into your overall retirement plan rather than relying on Medicare coverage to protect you.
How I Can Help
Medicare is complex, and the coverage options that are right for you may not be right for someone else. At Center for Wealth Management, we can help you weigh your options while taking into account your needs, your goals, and the other components of your financial plan. To see how I can help, call (248) 220-4321 or email firstname.lastname@example.org to schedule a complimentary consultation.
Justin Williamson is a Senior Partner and Co-Owner of Center for Wealth Management, an independent, fee-based wealth management company in Troy, MI. Justin has been serving clients in the financial services industry since 2001. He spends his days helping his clients work toward their financial goals and make the best decisions for their families so they can spend time on what they love and experience financial confidence. Justin is known for his dedication, integrity, personal touch, and ability to simplify complex issues. Justin specializes in serving engineers and other professionals who are close to retirement or recently retired, helping them maximize their benefits and create a retirement plan they can rely on. He is a seasoned public speaker, presenting at numerous corporate events each year on retirement planning, Medicare, Social Security, and other financial topics. Justin has a bachelor’s degree in Business Administration majoring in Personal Financial Planning from Central Michigan University and is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional.
Outside of work, Justin enjoys spending time with his family. He lost his wife of eighteen years, Heather, to brain cancer in 2020. He and his son, Carter, and twin daughters, Jaden and Kelsey work to honor her and make her proud each day. You can often find him coaching baseball, softball, and basketball, and spending time with his family at their cabin at Higgins Lake. Learn more about Justin by connecting with him on LinkedIn.