Navigating the Medicare Maze

What Does the Government Provide?

Medicare is a government-run healthcare insurance program available to all U.S. citizens age 65 and older as well as those with disabilities. This program provides coverage for many (though, importantly, not all) healthcare expenses, including hospitalization, outpatient healthcare and prescription drugs, and like many insurance programs, it has premiums and deductibles the consumer is responsible for. Let’s discuss Medicare’s many “parts” and how you can make the most of them.

Medicare Part A

Medicare Part A covers most hospitalization expenses – that is, those expenses incurred once you’ve been officially admitted to a hospital (as opposed to simply under observation). These expenses include hospital stays, skilled nursing care, rehabilitation, behavioral and mental health services and hospice care.

What You’re Responsible For: The good news is that if you or your spouse are thinking about Medicare after a career of working, you’ve probably already prepaid your Part A premium – that’s because 1.45% of the 7.65% FICA tax you’ve paid every paycheck is applied to this expense. The deductible is $1,632 for up to 60 days of care per medical event; after 60 days, you are responsible for $408 per day of care, and after 90 days, you are responsible for $816 per day. (After 90 days, you begin using your 60 “lifetime reserve” days – once those days are exhausted, you are responsible for all costs.)

Importantly, these expenses are per medical event: In 2024, if you sustain an injury that requires hospitalization, you will be responsible for $1,632 for treatment; if three days later you sustain another injury requiring hospitalization, you will be responsible for another $1,632.

Medicare Part B

Medicare Part B covers outpatient expenses, such as doctor’s visits to treat ongoing medical conditions and general preventative care. For example, yearly wellness visits, lab tests, screenings, annual shots like flu and COVID, and vaccines all fall under Part B. If you have an ongoing medical condition that requires services and supplies for treatment (like oxygen or durable medical equipment), that will usually fall under Part B.

What You’re Responsible For: In 2024, Part B had a monthly premium of $174.40. This amount is adjusted for inflation annually, and you will pay the premium even if you don’t use the services. The greater your income while you were working, the greater your premium.

Medicare Part D

Medicare Part D covers prescription drug expenses. There are several Medicare drug plans to choose from, and each plan covers a wide range of prescription drugs. Drug prices break down into four tiers: Specialty (the most expensive tier), Tier 3, Tier 2 and Tier 1 (the least expensive tier).

What You’re Responsible For: The cost for Part D will vary depending on the plan, the tier of prescription drugs needed, your level of income prior to retirement and the pharmacy network you’re in. In 2024, the cost for Part D averages $48 a month. 

Are There Options To Obtain Additional Coverage?

For additional coverage, there are two options: Medicare Advantage (also known as Medicare Part C) and a Medicare Supplement (also known as Medigap).

Medicare Advantage

Medicare Advantage bundles all your Medicare “parts” (that is, Parts A, B and usually D) into a single policy, making it easier to navigate. Much like an employer, it provides a network of doctors for you to choose from. It may also provide for vision, dental, alternative care and even a gym membership. Medicare Advantage premiums usually cost between $0 and $45 a month, and when you use the system, you can expect deductibles, coinsurance and co-pays.

Medicare Supplement

This includes hospital and outpatient coverage (Parts A and B) but has a separate drug plan. With a Medicare Supplement, you can use any doctor or hospital nationwide that takes Medicare. The coverage is mandated by the state you live in. The premium in 2024 is an additional $1,000 to $4,000 per person, per year.

When and How Should I Sign Up?

There are specified enrollment periods for initial enrollment (once you turn 65) and special enrollment (if you or your spouse continue to work and retain coverage through your employer). Importantly, your expenses can increase significantly if you miss these enrollment periods. 

Initial Enrollment Period

Initial enrollment refers to when you are first eligible to enroll in Medicare. This window opens three months before your 65th birthday and lasts for seven months. If you miss your initial enrollment, you will have to wait for either a special enrollment period (if you’re eligible) or general enrollment period. Enrolling in Medicare during the general enrollment period will incur a Part B premium penalty (see below), so don’t miss your initial enrollment period. 

Special Enrollment Period

If you or your spouse are still working past age 65 and want to maintain the coverage received from your employer, you can delay your enrollment. This can only happen if the coverage provided by your employer is credible, meaning the employer has more than twenty employees. If there are special circumstances why you couldn’t enroll in the initial enrollment period, you might be able to enroll in the special enrollment period without penalty.

Open Enrollment for Medicare

Open enrollment occurs each year between October 15 and December 7. During open enrollment, you can review features of plans that are offered and make any changes to your own plan. Common changes include switching from traditional Medicare to Medicare Advantage, switching between different Advantage plans and electing or switching between prescription drug plans. Those changes would then into effect the following January 1.

Signing Up

The easiest and fastest way to enroll in Medicare is by creating an account online. Visit ssa.gov to get started.

Are There Penalties for Not Enrolling Into Medicare?

Medicare is an optional healthcare program, and you are not required to enroll. However, should you decide to enroll later in life or when you become ill, expect to pay penalties and higher premiums.

If you haven’t earned 40 quarters (roughly equivalent to 10 years) of work or are not married to a qualified spouse, you can purchase Part A coverage but will pay a monthly premium. If you don’t enroll in Part A when you’re first eligible (either when you turn 65 or during a special enrollment period), you will pay an extra 10% of your monthly premium for twice the number of years you waited to sign up. For example, if you delay enrolling in Part A for one year, then you will pay the higher rate for two years before your rate returns to the standard amount.

If you don’t enroll in Part B when you’re first eligible (either when you turn 65 or during a special enrollment period), you’ll pay an extra 10% of the monthly premium for each year you could have signed up. For example, if you waited one year to sign up, you would pay your monthly premium ($174.70 in 2024) plus a penalty of 10% (roughly $17), making your monthly payment just over $190. You would pay this penalty for the entire time you have Part B.

You will pay a 1% penalty on Part D premiums for each month you could have signed up for a Medicare drug plan but didn’t. Just as with the Part B penalty, this penalty lasts as long as you have Part D.

What Else Should I Be Aware Of?

 When deciding to enroll into Medicare, be sure to keep the following in mind:

• Most long-term care is not covered by Medicare. This includes assisted living facilities (like custodial care) and in-home services (like daily caretakers). This is why it is so important to have a plan for this kind of care. Read more about what Medicare doesn’t cover here.
• You can use any remaining Health Savings Account (HSA) funds for deductibles, copays and premiums. However, you cannot use your HSA funds for any Medicare Supplement coverage (Medigap).
• You cannot contribute to a Health Savings Account after you have enrolled into Medicare or started to collect your Social Security.
• Wealth and wellness are linked. Healthcare is a major expense in retirement, one that tends to increase as you age. Taking steps to live a more healthful lifestyle now can have a dramatic impact on your healthcare expenses later in life.