CWG Insight Series: Understanding the Basics of Medicare

As a comprehensive planning firm, we manage retirement plans for each of our clients. One component of everyone’s retirement plan is health insurance. This is also one of the more confusing and frustrating components because it includes the government program, Medicare. I’m going to do my best to demystify the Medicare basics, but as you approach the age milestones, your Crown Personal CFO will navigate this system with you.
 
 Traditional Medicare
 First, let’s get some jargon out of the way. Traditional Medicare, which is offered by the government, has three parts: A, B, and D. Part A covers care for inpatient hospital services, among other things, while Part B covers physician services. Part D is for prescription drugs.
 
 The big appeal of traditional Medicare is that you can visit any hospital or doctor without a referral or prior authorization of services. This can be very attractive if, for instance, you have doctors you trust, travel a lot within the U.S. and might need care in different places, or think that you might benefit from a treatment that a private insurer may deny.
 
 Traditional Medicare Premiums
 Part A (hospital) premiums are often $0 for those who have worked for at least 10 years during their lifetime.
 
 Part B (physician) premiums start at $165 per month for those reporting $97,000 or less of annual income as an individual or $194,000 as a married couple. The premium increases as you work through the income chart and maxes out at $561 per month for those reporting $500,000 or more of annual income as an individual or $750,000 as a married couple.
 
 Part D (prescription) premiums average about $33 per month.
 In addition to premium costs, you'll also be subject to co-payments, deductibles, and other out-of-pocket costs.
 
 Additional Coverage Options
 For some families, this 3-part structure will suffice for their needs. Others will look to add a Medicare Supplement Insurance (Medigap) plan or a Medicare Advantage plan.
 
 Medicare Supplement Insurance (Medigap) is a plan sold by private companies to help pay some of the health care costs Original Medicare doesn't cover, like copayments, coinsurance, and deductibles. Some Medigap plans also offer coverage for services that Original Medicare doesn't cover, like medical care when you travel outside the U.S. If you have Original Medicare and you buy a Medigap plan, Medicare will pay its share of the Medicare-approved amount for covered health care costs, then your Medigap plan pays its share.
 
 All Medigap policies are standardized and are named Plans F, G, K, L, and N. The various letters provide different levels of coverage and cost sharing. Being standardized means they offer the same basic benefits no matter where you live or which insurance company you buy the policy from. Price is the only difference between plans with the same letter that are sold by different insurance companies. Some companies include additional benefits on top of the standardized benefits to make their policies more attractive.
 
 Generally, Medicare Supplement plans don’t cover long-term care (like care in a nursing home), vision or dental care, hearing aids, private duty nursing, or prescription drugs.
 
 Medicare Advantage (Part C) plans provide Medicare coverage through private health insurance companies approved to participate in the Medicare program. These plans can be HMOs, PPOs, Regional PPOs, or Private Fee-for-Service plans.
 
 Medicare Advantage plans provide all Part A and B services while generally including some additional services, such as prescription drug coverage, wellness programs, hearing aids, and vision services. These plans also tend to have lower cost sharing overall and a maximum that you would have to pay for out-of-pocket costs each calendar year – a feature not available through Original Medicare.
 
 Medicare Advantage plans have defined geographic service areas, and most have networks of physicians and hospitals where you can receive care. You’ll need to ask your physicians if they participate in a health insurance plan’s Medicare Advantage network before your purchase it.
 
 When to Sign Up for Medicare
 If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B. You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from Social Security payments.
 
 For those who have not started Social Security, you will have to sign yourself up for Parts A and B. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. To ensure coverage starts by the time you turn 65, sign up in the first three months.
 
 If you are still working and have health insurance through your employer (or if you’re covered by your working spouse’s employer coverage), you may be able to delay signing up for Medicare. But you will need to follow the rules and must sign up for Medicare within eight months of losing your employer’s coverage to avoid significant penalties when you do eventually enroll.
 
 Medicare Enrollment Periods
 There are several enrollment periods in addition to the seven-month initial enrollment period. If you missed signing up for Part B during that initial enrollment period and you aren't working (or aren't covered by your spouse's employer coverage), you can sign up for Part B during the general enrollment period that runs annually from Jan. 1 to March 31 and coverage will begin on July 1. You will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B. Those who are covered by a current employer's plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer’s coverage. If you miss your special enrollment period, you will need to wait until the general enrollment period to sign up.
 
 Open enrollment runs from Oct. 15 to Dec. 7 every year during which you can change Part D plans or Medicare Advantage plans for the following year, or switch between Medicare Advantage and original Medicare. Advantage enrollees also can switch to a new Advantage plan or original Medicare between Jan. 1 and March 31. If a Medicare Advantage plan or Part D plan available in your area has a five-star quality rating, you can switch to that plan outside of the open enrollment period.