Medicare A, B, C and D. Medigap A-D, F, G, K-N. In the words of Chandler Bing of the Friends sitcom, “Could there BE any more letters?” Deciphering the alphabet soup is one thing, but it still doesn’t answer the other big Medicare questions. What does each part do? Which do I need? When should I sign up? What if I’m still working when I turn 65? How much does it all cost?
All reasonable questions that flood into the minds of those in their early 60s. We have smart and capable clients. They are astute in their professional areas and each have a depth of personal wisdom. Yet even among our physician clients, when we start to discuss Medicare, their interest is piqued, as they do not know how the parts and enrollment requirements of Medicare affect them personally. Understandably, this is new territory for them and for most people in their early 60s. Depending on individual situations, there may be more or fewer layers of complexity. But, a grasp of the basics can take you a long way. Ready?
- Medicare is not free. This is a common (and reasonable) misunderstanding. If you or your spouse have worked for at least ten years and are 65, Part A is free to you, but the other parts are not—and you need them. Some parts of Medicare are means-tested (meaning if you make above a certain level, you pay extra). Some parts are also subject to late enrollment penalties. That’s too complex to get into here, but it makes enrollment periods (see point 4 below) of utmost importance!
- The Parts of Medicare. When you hear the word “Medicare” the term could be referring to any one, or all, of Medicare’s parts. So what are they?
- Part A: Hospitalization/Skilled Nursing
- Part B: Doctor Visits and Diagnostics
- Part D: Prescription Drugs
- Supplemental policies: As there are gaps in coverage created by Medicare Parts A and B, the purchase of a supplemental policy (either a Medigap plan or a Medicare Advantage plan) is highly recommended, though not required. These plans do just as their category suggests—they supplement the coverage you have through Parts A and B, providing you with more comprehensive benefits.
- The Paths to Medicare. I’d like to slap whoever coined the term “Medicare Part C.” Adding another letter to the lingo muddies the waters further. Let’s clear it up. Medicare Advantage is “Part C”! If we break this down into the two paths to Medicare, it will clear up some of the alphabet soup muddiness. The common thread between the two paths is that you must apply for Parts A and B first through Medicare. How you receive your prescription drug coverage and supplemental coverage is what makes the paths divert.
- Original Medicare: Parts A, B, D and a Medigap supplement plan. Medigap plans are standardized (meaning a Humana Plan F and an AARP Plan F will offer the same benefits) and titled by a corresponding letter (A-D, F, G, K-N, with “F” being the most comprehensive). Under Original Medicare, a Medigap plan is chosen along with a Prescription Drug (D) plan to supplement Medicare parts A and B.
- Medicare Advantage:Parts A, B, and Medicare Advantage (with prescription coverage or a separate Part D plan). Medicare Advantage plans often include drug coverage. You’ll likely pay a lower premium than you would if you went with the “Original Medicare” path, but you’ll probably pay more out of pocket for care.
- When to enroll? General enrollment starts 3 months before the month you turn 65 and extends until 3 months past the month you turn 65. Say all of that 3 times fast! Bottom line—if you won’t be covered by a workplace retirement plan on your 65th birthday, enroll in Medicare 3 months before you turn 65.
But what if you’re still working? If you are, it may not be as simple. Check with your company’s HR several months before your 65th birthday to make sure you understand the ins and outs of how your employer coverage interacts with Medicare. This can get dicey. Generally, if your employer coverage is “creditable,” you will qualify for a special enrollment period upon retirement, which will treat your first month of retirement like your 65th birthday month (in this example, we’re assuming you’ve already turned 65). Meaning, apply for benefits 3 months before you retire to avoid lapses in coverage. Often, it’s advisable to enroll in Part A even if you’re working.
- The costs of Medicare. Here is the point we’ve all been waiting for. As I’m sure you’ve guessed, the answer is: it varies. As we’ve established, Part A is free for most 65-year olds. Part B is $121.80/month for 2016. If you choose the Original Medicare path, the national average for Parts D and Medigap together total about $220/month. For Medicare Advantage, the national average is $53/month. Thus, you’re looking at about $175-$345/month per person for all parts, depending upon which route you take. That is a big pill to swallow.
These pointers will help you get started. But, depending on your personal situation, there may still be additional complexities. While Medicare is not rocket science, when combined with Social Security and other retirement transition steps, it can quickly become overwhelming. To help during this confusing period, we offer our financial planning clients Medicare education and action items based on their personal situation to equip them for their next steps. If you’re wondering what your next steps are, we can help. Contact us today for a free consultation.