You are on the verge of age 65 and you are not sure what to do with Medicare? Ask yourself these four questions and you will be better off. Just a quick reminder — Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD). This post focuses on the vast majority of those eligible – people 65 and older.
There are four major parts to Medicare:
- Part A is hospital insurance. There is no monthly premium for this coverage.
- Part B is medical insurance, which covers physician services and outpatient care. You pay a premium for this insurance. Parts A and B are often referred to as “Original Medicare.”
- Part D is prescription drug insurance. You choose a plan from competing insurers and pay a premium.
- Part C is Medicare Advantage plans that combine all three parts (A, B, and D). It is an alternative to Original Medicare. You shop for these plans from competing insurers and pay a premium.
1. Are You Working After Age 65?
Do you have health care that will continue once you turn 65 because you are an active employee (or are your covered under your spouse’s group health insurance plan and he/she is an active employee)? If so, your employer is likely to continue to provide your health care coverage. Should you need medical care, your employer’s coverage will pay for services. All you need to do is to sign up for Medicare Part A (hospitalization) once you turn 65. You don’t pay a premium for this coverage. It will only kick in as the secondary payer should you be hospitalized and your employer-provided coverage does not pay the full cost. Check with your employer to see how they coordinate their health coverage with Medicare.
2. Are You Already Retired and Receiving Retiree Health Benefits?
Are you retired and receiving health benefits from your former employer? If so, you are likely to be required to sign up for Medicare Part A once you turn 65. Check with your former employer for what you have to do.
In other cases, you may be able to switch to Part B (medical insurance) from your former employer’s coverage and/or you may have the option to keep your former coverage but have it become secondary to Medicare. Many former federal employees who retire with health benefits prior to 65 face this situation. They have to decide whether to sign up for Part B and make their prior federal coverage secondary (or supplemental). If they do so, they often dial back their former federal plan to the cheapest plan because it is now secondary and it will pick up the costs that are not covered by Medicare Part B.
3. Are You Retiring without Employer-Provided Health Benefits?
If you don’t have health coverage from an employer during retirement, you must choose either to sign up for Medicare Parts A, B, and D (Option 1) or for a Part C Medicare Advantage Plan (Option 2).
Original Medicare (Option 1): Parts A and B are fee-for-service plans. Medicare fee-for-service means you can receive services from any physician, hospital, or clinic that accepts Medicare (which most do).
There is no premium for Part A. The 2015 Part B premium is $104.90/month if your 2013 income was less than $85,000 ($170,000 if married filing jointly). Part B premiums are higher for seniors making more money. The 2015 Part B premium can be as high as $335.70 if your income in 2013 was above $214,000 (above $428,000 if married filing jointly).
You also must shop for a Part D plan to obtain prescription drug coverage. You can use this Medicare website to shop for plans in your area: https://www.medicare.gov/find-a-plan/questions/home.aspx Premiums can range from $15 to $68/month depending upon the plan’s features, such as the amount of the co-pay, drugs included in the plan, and the participating pharmacies. High income persons over 65 also pay a Part D surcharge. The surcharges begin for seniors who had income in 2013 greater than $85,000 ($170,000 if married filing jointly). For example, seniors that made more than $214,000 (more than $428,000 if married filing jointly) will pay $70.80 more per month more in addition to the Part D plan premium.
If you choose Option 1, you may also wish to obtain a Medicare Supplement plan. These plans pay some or all of the costs that Medicare does not cover. Insurers are required to offer the same benefits in each plan. There are 10 versions of Medicare Supplemental plans, which also are identified by letters (A through N). This blog provides tips on how to make sense of Medicare supplement policies.
Medicare Advantage (Option 2): The other option is a Part C Medicare Advantage plan in which you choose among competing insurers. You pay one premium and it combines hospital, medical, and prescription drug coverage in one plan. You can use the link below to find plans with and without prescription drug coverage: https://www.medicare.gov/find-a-plan/questions/home.aspx High income persons will also have to pay the additional surcharges discussed above, even if you choose a Medicare Advantage Plan.
Pros and Cons of Original Medicare and Medicare Advantage
Original Medicare allows you to see any provider that accepts Medicare. There are no network restrictions. Approximately seventy (70) percent of Medicare enrollees choose this fee-for-service model. The downside is that most folks also need to obtain a supplemental policy that helps pay for the coverage that Medicare does not cover. Moreover, you often are left with coordinating your care among your providers.
Medicare Advantage may be great if you are comfortable with restrictions on the providers you can use. For example, if you were in a Kaiser network with your former employer, you could obtain a Kaiser Medicare Part C plan and it would work similar to the coverage that you previously had. It is always best to review the network of providers – not only the physicians but the hospitals too – to make sure you use in-network providers. You do not need a supplemental plan if you choose a Medicare Advantage plan.
One other point about a Medicare Advantage plan is that there may be limits on care outside your home area. So it is best to check to see whether and how medical care outside of your home region is covered by a Medicare Advantage Plan.
4. When do I Sign Up?
Watch when you sign up – if you miss a deadline, you could pay a surcharge permanently. You need to make sure you sign up when you are first eligible for Parts A and B. Most persons are eligible at age 65. You can sign up during the seven-month period that begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65. So if your 65th birthday is June 29, you can sign up as early as March 1 and as late as September 30.
If you do not enroll in Medicare Part B during your initial enrollment period, you must wait for the general enrollment period (January 1 – March 31 of each year) to enroll, and Part B coverage will begin the following July 1 of that year. If you wait 12 months or more, after first becoming eligible, your Part B premium will go up 10 percent for each 12 months that you could have had Part B but don’t take it. You will pay the extra 10 percent for as long as you have Part B. So this penalty is a big deal!
If you don’t take Part B at age 65, because you are covered under a health plan as an active employee (or you are covered under your spouse’s group health insurance plan and he/she is an active employee), you may sign up for Part B (generally without an increased premium) within 8 months from the time you or your spouse stop working or are no longer covered by the group plan. This period is called a “special enrollment” period. You also can sign up at any time while you are covered by the group plan. It is crucial to know that retiree health benefits do not make you or your spouse an “active” employee eligible for a special enrollment period.
Likewise, you must join a Medicare Prescription Drug Plan when you’re first eligible. You won’t have to pay a penalty, even if you’ve never had prescription drug coverage before. You don’t want to go 63 days or more in a row without a Medicare drug plan or other creditable coverage. Creditable prescription drug coverage could include drug coverage from a current or former employer or union, TRICARE, Indian Health Service, the Department of Veterans Affairs, or health insurance coverage. Your existing plan must tell you each year if your drug coverage is creditable coverage. They may send you this information in a letter, or draw your attention to it in a newsletter or other piece of correspondence. Keep this information because you may need it if you join a Medicare drug plan later.
Remember whichever route you take – Original Medicare (Option 1) or Medicare Advantage (Option 2) – you can change your mind each year during open season (the fall of each year). These choices are not forever.