One of the most confusing aspects of retirement surrounds Medicare. When and how to sign up, what’s covered and not covered and what it will cost are just a few of the many questions retirees have. Let’s take a look at these and some other Medicare basics you need to understand.
When Are You Eligible?
For most of us Medicare eligibility occurs at age 65. Generally, you need to be a U.S. citizen or legal resident and have lived here for at least five years and:
- You or your spouse has worked long enough to be eligible for Social Security or railroad retirement benefits. In most cases this means you earned 40 quarters of credit, which equates to 10 years of work. You can receive Medicare even if you are not yet receiving Social Security or railroad retirement benefits; or
- You or your spouse is a government employee or retiree who did not pay into Social Security long enough to accrue the 40 quarters but has paid Medicare payroll taxes while working.
Under certain conditions you may be eligible prior to age 65. These circumstances include:
- You have been entitled to Social Security disability benefits for at least 24 months.
- You have Lou Gehrig’s disease, which qualifies you immediately.
- You have kidney failure or require regular dialysis or a kidney transplant, under certain conditions.
When to Enroll
If you’re already receiving Social Security (SSI) benefits, you’ll automatically be enrolled and will receive your Medicare card in the mail three months before your 65th birthday.
If you’re not receiving SSI benefits, the initial enrollment period for Medicare starts three months prior to the month in which you turn age 65 and extends for three months after that month, a seven-month window.
Medicare coverage is voluntary, but if you miss your enrollment deadlines, you could face stiff penalties if you decide to enroll later on. For example, any penalties pertaining to Medicare Part B will remain in effect as long as you are enrolled in Part B.
For those with existing Medicare coverage, there is an annual open enrollment period in which you will be able to change your coverage options for the coming year. This period runs from October 15 to December 7 each year.
What if I’m Still Working at Age 65?
If you are still working past age 65 and are covered by your employer’s health insurance, there are a couple of options.
- If your employer has fewer than 20 employees, Medicare becomes your primary coverage once you reach age 65. Your employer’s plan is the secondary payer, but they are not required to cover anything that would normally be covered by Medicare.
- If your employer has 20 or more employees, they have to offer you the same health insurance benefits as all other employees. You do not need to enroll in Medicare until you leave this employer or do not have eligible coverage from an employer.
What Isn’t Covered by Medicare?
Medicare Parts A and B cover most normal medical costs, but there are items that are not covered, including:
- Long-term care
- Most dental care
- Eye examinations related to prescribing glasses
- Cosmetic surgery
- Hearing aids and exams for fitting them
- Routine foot care
- Medical care provided outside of the United States
This is not a comprehensive list.
What Are the Various Components of Medicare?
Medicare has a number of “moving parts.” This chart looks at the major parts of Medicare. Note neither the list of items typically covered nor the costs are meant to be comprehensive; you will need to check with Medicare or your provider, depending upon your coverage choices.
|What It Covers||What It Costs|
|Part A||Services and supplies deemed medically necessary, such as lab tests, surgery, doctor’s visits, wheelchairs and walkers. Other services covered include:
||For most people Part A is free, assuming you or your spouse paid Medicare premiums while working.
A deductible of $1,288 for each benefit period applies, as do various levels of coinsurance based on the duration of a hospital stay. There is also a lifetime reserve above which you will be responsible for all costs.
|Part B||Services and supplies needed to diagnose or treat your medical condition.
Health care services to prevent illnesses, such as the flu, or to detect an illness at an early stage when treatment is more likely to be effective.
Examples of services covered by Part B include:
|Most people pay a premium of $121.80 per month.
High income retirees (AGI over $85,000 or $170,000 or more for a married couple) pay more.
|Part D: Drug Coverage)||Medicare Part D is a Medicare prescription drug plan (PDP). When you first become eligible to enroll in Medicare, you also become eligible to join a PDP.
Medicare drug plans are offered by private insurers approved by Medicare.
Some people can wait to enroll in Medicare Part D or another PDP if they have prescription drug coverage from their employer that qualifies as “creditable” prescription coverage. This term means your prescription drug coverage is as good as or better than what is offered by Medicare Part D.
If you fail to enroll in a drug plan once you are eligible and no longer have creditable coverage, you will be subject to steep and permanent financial penalties if you later decide to enroll.
|Each provider determines their own monthly premium.
For those with AGI above $85,000 ($170,000 for joint filers), there is an additional monthly premium paid to Medicare, ranging from $12.70 to $72.90 depending upon income.
You will also be subject to:
The “Donut Hole”
In any one year there is a gap in coverage once you reach a certain level. After this there is a gap in coverage nicknamed the “donut hole.” Above a certain level of prescription drug expense, the donut hole closes and coverage kicks in again.
Once the amount paid by the plan plus your deductibles and copays reach $3,310 for 2016 or $3,700 for 2017, you are in the donut hole.
While in the gap, for 2016, you pay 45% of the cost of brand name drugs and 58% of the cost of generics. For 2017 these numbers are 40% and 51%, respectively.
These costs will continue to decline until 2020, at which time you will pay a maximum of 25% while in the gap.
You emerge from the gap when your costs (out-of-pocket, deductible and copays) reaches a certain limit, which is $4,850 in 2016 and $4,950 in 2017. If you hit this point, your drug plan will pay 95% of your costs for the rest of the calendar year.
Medicare Advantage and Other Plans
Medicare Advantage plans are offered by private insurers and will cover your Medicare parts A and B and usually offer a drug plan as well. Many offer options such as an HMO. If this is of interest, be sure to understand all coverages, limitations and what you will pay out of pocket.
Medicare provides retirees with much needed medical coverage. However, it is very complicated, and costs and plans can vary. The information above is a starting point, but those approaching Medicare eligibility would be wise to learn as much as they can about all of the options available to them.
You can find out more at Medicare’s website.