Medicare: Things to Know to Help You Plan for the Future

    Medicare, the government health care program for those 65 and over (and disabled persons who have been collecting Social Security for at least two years, and selected others), has features important to understand as you plan for your retirement health care needs. A recent study by Fidelity Investments indicated that a 65-year-old couple retiring in 2021 without employer provided health insurance would need approximately $300,000 ($157,000 for women and $143,000 for men) at retirement to pay for their health care costs during retirement. The Employee Benefit Research Institute’s research concluded that Fidelity’s figure is probably a little low. These studies exclude the cost of long-term care. Rather, they include premiums, deductibles and co-pays associated with Medicare, as well as the cost of insurance to “fill the gaps” Medicare coverage leaves. Therefore, today’s retirees must not only know how Medicare works, but must also know their options to supplement Medicare’s core benefits.

     Original Medicare has two parts, Part A and Part B. In recent years, Medicare has added a Part C, known as Medicare Advantage (formerly called Medicare + Choice), and a Prescription Drug Benefit Program (Part D). The rest of this article reviews each of these parts of Medicare.

     Part A, or “Hospital Insurance” generally covers room charges and services associated with an inpatient hospitalization, including stays in acute care hospitals, psychiatric hospitals, and limited coverage for care in skilled nursing facilities. Part A also covers hospice care and limited amounts of home health care. In 2022, the Part A deductible is $1,556 for each hospitalization up to 60 days. Hospital stays exceeding 60 have co-insurance charges may kick in. Likewise, skilled nursing facility coverage levies co-insurance charges for days beyond the first 20 up to 100 days (with 80 life-time reserve days available). Part A will not pay for private rooms, TV, a telephone or private duty nurses, but nevertheless provides good coverage for acute hospital care, including coverage for medical tests, blood work, and drugs administered in the Hospital. There’s no premium for Part A for most people, as payroll taxes levied during their working lives establish eligibility for Part A.

     Part B (or medical insurance) covers physician care whether received in the hospital, at the doctor’s office, or as an outpatient at a health care facility. Part B also pays for ambulance services, lab tests, physical therapy, and rehabilitations services as well as coverage for x-rays, medical services, and durable medical equipment. The 2022 annual deductible for Part B is $233. After meeting your deductible, Part B pays for 80% of the “Medicare allowable” charges. Services not covered by Part B, include: eyeglasses, routine podiatric care, hearing aids, dental care, homemaker services, care received outside the country, and custodial care. In 2022, the monthly Premium for Part B is $170.10 per month per person. Married couples with Adjusted Gross Income over $192,000, and single beneficiaries with AGI over $91,000, pay higher Part B premiums.

     The Part D prescription drug program (PDP) covers prescription drugs through Medicare authorized, private insurance plans that must meet minimum standards, and they’re available nationwide. Minimum coverage for a Part Plan in 2022, includes an annual deductible of $480. PDPs then cover 75% of the cost of prescriptions up to $4,130 (including premiums). Then you’ll only may a small co-pay or co-insurance on prescriptions exceeding. Many private Part D insurance plans exceed this minimum coverage.

     If you are collecting Social Security benefits and you’re under 65, upon reaching age 65 you will be automatically enrolled in Medicare Part A. Part B coverage is voluntary. However, unless you are covered under a group health plan (or have dependent coverage under your spouse’s group health plan), it’s important to enroll in Part B immediately. If you delay and want to sign up for coverage later, you must generally wait until the next annual enrollment period (between January and March of the following year), and your coverage will not begin until the following July. Furthermore, Medicare will charge you a permanently higher Part B premium for each month you were eligible to sign up but failed to. Likewise, Plan D Prescription drug plans charge a permanently higher premium for those who don’t sign up when they’re first eligible (and then want to enroll later).

     Part C (Medicare Advantage Plan) works differently. Original Medicare allows beneficiaries to choose any physician who accepts Medicare, and it’s available anywhere in the country. Under Part C, insurance companies contract with the federal government to offer Medicare benefits through their own insurance plans. These plans can include: managed care plans (e.g., HMOs), preferred provider plans (PPOs), private fee-for-service plans (PFFS), and others. Generally, Part C Plans provide beneficiaries with all Medicare-covered services, and most cover prescription drug coverage and other services. Part C plans may restrict which doctors or health care facilities their participants may use, while plan benefits and cost-sharing arrangements may differ significantly from Original Medicare.

     Part C is available only to those who are in Medicare Part A and have enrolled in Part B. Also, participants must generally live in the plan’s service area. You become eligible to join a Part C plan when you first become eligible for Medicare (generally, at age 65). After your initial enrollment in a Plan C plan, you may change plans once a year during an “annual election period.” If special situations arise, (e.g., you move out of the plan’s service area, or the plan leaves Medicare), you’re also allowed to switch plans during the year.

     If you join a Part C Medicare Advantage Plan, you are subject to the rights and restrictions of each plan. It’s important to understand that you have alternatives to joining a Medicare Advantage Plan to supplement Original Medicare’s coverage. These alternatives include Medicare Supplemental Insurance (aka, Medi-gap) plans designed to cover the co-pays and deductibles not covered by Medicare. Medicare Supplemental Plans do not provide prescription drug coverage. So, if you buy a Medi-gap Plan you must buy a Prescription Drug Plan discussed above to cover your prescription drugs. Comparing Medi-gap coverage (along with a PDP) with Medicare Advantage plans, will be the subject of another article.

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