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Navigating the Maze of Medicare

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Finding and paying for health care is one of the toughest financial challenges that people will face in retirement.  Medicare coverage, for which most people become eligible at age 65, is the key for many retirees to affording health care costs that could otherwise quickly drain retirement savings.

Over the years, Medicare has become increasingly complicated and Americans are struggling to understand exactly how to get health care covered.  To help you get a handle on Medicare, let’s run through some of the basics.

Medicare Alphabet Soup- What Does it All Mean?

  • Medicare Part A focuses on the costs of health care at medical facilities, providing coverage for medically necessary care at hospitals while you are receiving inpatient care. Under some circumstances, it also covers costs for home health services, hospice care, and skilled nursing facilities for limited purposes and time periods.
  • Medicare Part B covers the costs of health care outside of medical facilities, such as doctor visits, outpatient procedures, and lab tests. It also helps cover preventive services like screening tests. Part A and B are commonly referred to as “Original Medicare.”
  • Medicare Part C is more commonly known as a Medicare Advantage Plan. These are managed care plans provided by private companies, and are optional plans that Medicare patients may choose to purchase separately from parts A and B.  Medicare Advantage Plans vary greatly both in cost and in scope of coverage, so you have to look closely at all your options to make sure the plan you choose fits your specific needs.
  • Medicare Part D provides prescription drug coverage. Like Medicare Advantage Plans, Part D plans are offered through private insurance companies and coverage between different companies and policies offer can vary widely.

What is the cost of coverage?

Each part of Medicare has different costs associated with it. For Part A, those who have had Medicare taxes withheld from their pay for at least 40 calendar quarters during their working lifetime are eligible for free coverage.

Part B coverage requires a monthly premium that varies depending on your income level. Individuals with annual income in 2015 of $85,000 or less, or joint tax-return filers with $170,000 or less in income, pay $104.90 in monthly premiums for Part B. These premiums rise as household income increases.  The highest premium is $335.70 per month for income above $214,000 for singles and $428,000 for joint filers. In addition to premiums, you may also be responsible for deductibles, copayments, and other costs.

Private insurance for Medicare Advantage and prescription drug coverage involves paying monthly premiums to the insurers that provide your policy. What you’ll pay in premiums depends in large part on the extent of the coverage the policy provides, with more all-inclusive policies charging higher monthly premiums.

Who is eligible?

Most Americans become eligible for Medicare when they turn 65. If you are 65 and receiving Social Security retirement benefits or railroad retirement benefits, you will be automatically enrolled in both Medicare Part A and Part B.  You will receive a package in the mail three months before your 65th birthday with your new Medicare card and a letter explaining how Medicare works and that you have been automatically enrolled in Medicare Part A and Part B.  The letter will also explain that the monthly Part B premium will be automatically deducted from your Social Security check or railroad retirement check beginning the month your coverage begins, and you will be given the option to opt out of Part B.

When to apply

If you are 65 and not receiving Social Security retirement benefits or railroad retirement benefits, you can enroll in Medicare through the Social Security website, by phone at 800-772-1213, or in person at your nearest local office.

The Initial Enrollment Period (IEP) is your first chance to sign up for Medicare. It starts 3 months before your 65th birthday, includes the month you turn 65, and ends 3 months after the month you turn 65. If you do not sign up for Part B during your enrollment period, you will only be able sign up during the general enrollment period, which is January 1st – March 31st each year. Your Part B coverage will start July 1 of that year, and you may have to pay a late enrollment penalty for not enrolling in Part B when you were first eligible.  You do have the opportunity to decline Part B coverage, but should generally only consider declining Part B if you have other health insurance from a current job that is primary to Medicare.

Medicare is a complex system that has many interlocking parts. By understanding the details and the important timelines, you will be able to make an educated and informed decision regarding the future of your health care benefits.

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