One important area of planning for a successful retirement is to have adequate health care coverage. Health care costs have been escalating at over twice the rate of inflation for a number of years. For those wanting to retire prior to age 65, health care is typically one of the largest “bridge” expenses to cover until Medicare eligibility.
For most people, their health insurance is provided through their employer. Or, if self-employed, they likely own a private health insurance policy. But once you reach age 65, you have the opportunity to transition to the federal government’s Medicare health care system.
If you want to enroll in Medicare, you need to understand the basics. This article will provide a quick overview of some of the options available, answer some frequently asked questions, and provide some resources to help you navigate the system.
Medicare consists of four main parts:
Medicare Part A
Medicare Part A is hospital insurance. It provides coverage for:
- inpatient hospital services,
- care received in skilled nursing facilities,
- hospice care, and
- some home health care.
There is no premium cost for this coverage. However, there are co-pays, deductibles, and co-insurance when seeking medical care.
Medicare Part B
Medicare Part B is medical insurance. It provides coverage for outpatient care such as:
- doctors visits
- laboratory and imaging tests
- medical supplies, and
- preventative services
There is a monthly premium for Medicare Part B. This is automatically deducted from your monthly Social Security check.
If you are not receiving Social Security benefits, your premium will be billed to you once a quarter. In 2016 the base premium is $121.80/month.
You may pay a larger premium if your annual income is higher. You can learn more about your potential premium costs by reading the article I wrote titled “How Much Will I Pay For Medicare Premiums?”. Your Medicare Part B coverage generally covers 80% of your covered care expenses after a deductible has been met.
Medicare Part C
Medicare Part C is Medicare Advantage Plans. These are Medicare approved private insurer plans. They typically provide medical coverage for Part A, Part B, and often include prescription drug coverage. Many of these plans provide extra coverage and may lower out of pocket costs.
Medicare Part D
Medicare Part D is prescription drug coverage. This particular coverage is optional, and has a monthly premium that varies depending on the plan you choose.
Similar to Part B coverage, those with higher levels of income may pay higher premiums. The link to my article above provides a chart of premium surcharges for Parts B and D based on your income level.
Do you need Medigap insurance?
In addition to the options mentioned above, there are approximately 12 different private insurance plans which vary by state. These extra coverage plans are often referred to as Medicare supplemental insurance, or “Medigap”.
Medigap policies are designed to fill in the coverage gaps found in original Medicare Parts A and B. A large percentage of those receiving Medicare are also enrolled in one of these policies.
When do you need to enroll in Medicare?
If you are already receiving Social Security benefits prior to turning age 65, you will automatically be enrolled in Medicare Parts A and B. If you’re not receiving Social Security benefits, you have a seven month window to apply for Medicare.
You can apply:
- 3 months prior to turning age 65
- the month you turn 65, and
- up to 3 months after you turn 65
Your Medicare benefits will generally begin approximately one month after you enroll. Make sure you enroll in Medicare promptly when required, there is a steep penalty if you fail to do so (see below).
How do you apply for Medicare?
You can enroll in Medicare Part A and Part B in the following ways:
• Online at www.SocialSecurity.gov.
• By calling Social Security at 1-800-772-1212, Mon to Fri from 7am to 7pm.
• In person at your local Social Security office. It is recommended that you call first for an appointment.
Should you choose a coverage plan for Part C, Part D, or a Medigap policy?
Because each person has a unique healthy history with specific health coverage needs, you may want to consult with a local resource to help you compare and contrast your options. Every state offers a free health benefits counseling service for Medicare beneficiaries.
You can click on this link and search by your state for the local SHIP office (State Health Insurance Assistance Program). This is a valuable service available to answer all of your Medicare questions. You can also seek a private, independent health insurance broker that specializes in Medicare plans.
What if I don’t enroll on time? Is there a penalty?
If you don’t sign up for Medicare Part B (medical insurance) when you are first eligible at age 65, there is a 10% penalty for every 12 months you are not enrolled on time. The current base premium for part B is $121.80. Thus you would pay an extra 10% every month for this premium going forward. If you didn’t sign up for 2 years you would pay 20% extra every month for as long as you are enrolled in Part B.
What if I didn’t enroll in Medicare because I had health coverage provided by an employer?
Medicare does provide an exception if you are covered under group health care via an employer. You need to provide a “letter of credible coverage” from your employer when you sign up. They will usually waive the penalty.
Additional resources for your Medicare questions.
Besides the SHIP link above, or an independent health insurance broker, another option is to call Medicare directly at 1-800-Medicare or 1-800-633-4227. If you prefer searching for your answer online, you can go directly to www.Medicare.gov.
About The Author
Dave Fernandez, CFP® is a native of Arizona and has over 20 years of experience in the financial services industry. He started his financial services career in 1995. As a NAPFA Registered Financial Advisor, Dave owns a fee only financial planning and wealth management firm, in Scottsdale, Arizona called “Wealth Engineering.”