Posted in Triplett & Carothers on April 3, 2024
If you’re in your mid-60s, you might find yourself contemplating a myriad of important life decisions. From when you should retire to whether or not you should downsize, there are many questions that you need to answer.
Another very vital decision that must be made concerns how you will access Medicare. Not only do you need to choose which Medicare option to take, but you also have to do so in a timely fashion.
What is Medicare?
Medicare is a federal health insurance program created for individuals who are 65 or older. It’s also designed to assist younger people who live with certain medical conditions or disabilities.
In order to qualify for Medicare, you must apply during the Initial Enrollment Period, which lasts for seven months, beginning three months before you turn 65 years old and ending three months after your birthday month.
Unfortunately, people who do not sign up for Medicare or a Medicare Advantage Plan during the Initial Enrollment Period might find themselves facing substantial penalties. The same is true for people who fail to enroll during the Part B Special Enrollment Period when applicable.
To qualify for the Part B Special Enrollment Period, the enrollee must have health insurance through a creditable employer or a union as a stipulation of their current employment status. The Special Enrollment Period starts eight months after the employer-based coverage ends or the person leaves their job; it depends on whichever factor comes into play first.
The four parts of Medicare
Let’s take a look at the components that make up Medicare.
Part A: Hospital Insurance
Part A refers to hospital insurance for inpatient hospital care coverage as well as short-term nursing facilities, hospice care and various other health care services provided in the individual’s home.
There is a premium associated with Part A, but it’s uncommon to have to pay this premium out of pocket. You can thank the Medicare taxes you paid while working over the course of your lifetime for this lack of an out-of-pocket payment. However, please note that you may face a penalty if you do not sign up for Part A when you turn 65 years old.
Part B: Medical Insurance
Part B functions as medical insurance, providing coverage for physician visits, ambulance services and durable medical equipment. Individuals enrolled in Part B, commonly referred to as “Original Medicare” or “traditional Medicare,” have the flexibility to seek medical care from any provider or facility in the country that accepts Medicare.
It’s important to note that Part B excludes certain services like vision, hearing, dental and prescription drugs. Furthermore, Part B covers only 80% of the associated costs. Those opting for Original Medicare are responsible for either (1) covering the remaining 20% out of pocket or (2) acquiring a supplemental Medigap plan to offset this expense.
Medigap plans, offered by private insurance companies and subject to federal regulation, involve a monthly fee influenced by factors such as age, gender, geographic location and tobacco use. These rates experience annual increases, and there is no cap on out-of-pocket expenses for Original Medicare Parts A and B.
For most enrollees, the monthly premium for Part B, subject to annual adjustments, is automatically deducted from their monthly Social Security or Railroad Retirement benefit. As of 2023, the monthly premium stands at $164.90, with expectations of a rise to $174.80 in 2024, although the precise rate remains undisclosed.
Beneficiaries with incomes exceeding a specific threshold incur a higher Part B premium. Referred to as the Medicare Income-Related Monthly Adjustment Amount (IRMAA), this payment is determined by the beneficiary’s adjusted gross income, along with other forms of tax-exempt income reported on their IRS tax return from two years prior to the commencement of IRMAA payments.
The Medigap Initial Enrollment Period spans the six months after the enrollee turns 65. During this period, individuals can enroll in Medicare Part B and acquire a Medigap plan. Also, most importantly, individuals seeking a Medigap policy during this period cannot be denied coverage or charged a higher premium based on their health or medical history.
Part C: Medicare Advantage
Medicare Advantage Plans differ from Original Medicare in that the former offer additional benefits. These benefits may include coverage for fees associated with vision, dental or hearing care as well as prescription drugs. The monthly premiums for Medicare Advantage Plans will vary in accordance with your particular plan, but in many situations, the premium will be as low as $0.
If you are a Medicare beneficiary, you can opt to enroll in a Medicare Advantage Plan instead of the Original Medicare option. If you choose to enroll in a Medicare Advantage Plan, you still have to enroll in Original Medicare (Parts A and B) and pay the premiums for those parts before selecting a Medicare Advantage Plan. Note that some Medicare Advantage Plans have a Part B giveback benefit that covers part or all of the Part B premium.
For instance, let’s say the mean monthly expenditure for an AARP or United Healthcare Medicare Advantage Plan stands at $14.07 in 2023. Also, let’s say it comes with an average out-of-pocket expense of $5,299.47. It’s essential to note that this is separate from the premium associated with Medicare Part B, which amounts to $164.90 per month — or $1,978.80 annually — in the same year.
Part D: Prescription drugs
Part D plans are prescription drug plans offered by private health insurance companies and regulated by the federal government. Under Part D, each plan has a formulary according to which drugs are priced. Both the formulary and the pricing change annually.
Beneficiaries who elect Original Medicare must also select a Part D plan to avoid a penalty. As with Part B, the penalty lasts a lifetime.
Penalties for not enrolling on time
Unless the beneficiary possesses alternative coverage of comparable value to Medicare, such as through an employer, failing to enroll in Medicare during the Initial Enrollment Period or the applicable Special Enrollment Period incurs a substantial penalty.
This late enrollment penalty is not a one-time charge. Instead, it is calculated by multiplying the number of months an individual lacked coverage by a predetermined percentage, which undergoes annual adjustments. The resulting sum is then added to the individual’s premium each month. Importantly, there is no limit on this penalty, making it essentially a lifelong consequence.
A comparable penalty may be levied for delayed enrollment in a Part D plan. Exceptions exist if the beneficiary has other credible drug coverage or qualifies for additional assistance.
The differences between Original Medicare and Medicare Advantage Plans
Here are some basic differences between Original Medicare and Medicare Advantage Plans.
For starters, Original Medicare imposes no ceiling on out-of-pocket expenses. Meanwhile, Medicare Advantage Plans annually place a limit on these costs. Under Original Medicare, 80% of medical expenses are covered, leaving enrollees responsible for the remaining 20% unless they opt for a supplemental Medigap policy to cover this portion.
Medicare Advantage Plan enrollees are mandated to maintain both Medicare Parts A and B. Consequently, they typically incur Original Medicare premiums in addition to any associated Medicare Advantage premiums. Furthermore, those enrolled in a Medicare Advantage Plan are ineligible to purchase a Medigap plan, necessitating them to cover co-pays and similar expenses.
In the world of Medicare Advantage Plans, a general correlation exists between lower monthly premiums and higher co-payments. HMO Medicare Advantage Plans, with their lower premiums, often require that subscribers utilize only in-network providers, facilities and pharmacies. On the other hand, PPO Medicare Advantage Plans, associated with higher premiums, may offer some out-of-network benefits.
Finally, Medicare Advantage Plans might necessitate (1) obtaining a referral from a primary care doctor to consult with a specialist and (2) securing prior authorization for specific treatments and drugs before the plan covers them.
When is the annual Open Enrollment Period?
From Oct. 15 to Dec. 7, Medicare beneficiaries can adjust their preferences on an annual basis. From there, each plan goes into effect on Jan. 1 of the following year.
When it comes to changing Part D plans and Medicare Advantage Plans, the process is simple. Similarly, it is also possible for Medicare recipients to jump between Original Medicare, a Medigap plan and a Medicare Advantage Plan.
However, just because it’s possible to do this doesn’t mean it’s practical let alone simple. For example, in most states, insurers of Medigap plans can either deny you coverage or choose to charge higher premiums based on factors like your health status or your medical history. If you are someone whose health history could result in denial of coverage, you could end up having to pay the 20% of insurance that Part B does not cover.
Do not confuse Medicare for Medicaid
In short, Medicare is a federal health insurance option for people who are 65 and older. That said, some people who are under the age of 65 may be eligible for Medicare due to certain disabilities or conditions that they live with.
On the other hand, Medicaid is a joint federal and state program designed to provide health coverage for those who have limited income and resources.
When making the decision to opt for either Original Medicare or a Medicare Advantage Plan, think about your circumstances. Consider factors like your current and potential future health care needs as well as your financial situation. For an unbiased and well-rounded approach to making this decision, consult a financial professional who can point you in the right direction.