In a recent article - you may find it by clicking here - I discussed some of the complexities of health insurance, but space did not permit addressing the special concerns of retirees. While Medicare certainly simplifies some aspects of health care for older Americans, it has its own complications. Chief among these are decisions about supplemental policies, Medicare Advantage plans, and the Part D prescription plans.
Since it was enacted in 1965, Medicare has been the federal government’s single-payer system that covers health care for people 65 and older. While the eligibility age for Social Security has risen as life expectancies rise, that has not been true for Medicare. This means that you very likely will need to apply for Medicare coverage as you approach your 65th birthday, unless you are already collecting Social Security, either through early retirement or because of disability.
The enrollment period for Medicare begins three months before you turn 65 and runs for three months after that birthday.
Here’s the simple version — with the understanding that you have plenty of more complicated options, too. Original Medicare, as created in the sixties, has two components. Part A, which covers hospitalization and related institutional care, has been paid for by payroll deductions during your working life. Part B, which covers doctor visits and other outpatient services, carries a premium, which is deducted from your monthly Social Security benefit. If you’re not collecting Social Security yet, you pay that premium directly.
Here’s where it starts to get complicated. Part A is universal. Everybody gets it if they have paid into the system long enough. But Part B is optional! You can decline Part B coverage, and some do because they have good insurance coverage through their employer’s or union’s retirement system. Others may still be covered under a spouse’s policy. You can sign up for Part B later, but it will cost you more than if you did so immediately at age 65. Normally, you have only a three-month window every year, from January through March, to add Part B. That new coverage won’t begin until July.
Like most private health insurance, Medicare doesn’t cover everything. The same familiar co-pay, coinsurance and deductible situations apply, which means you may have to pay some costs out of pocket. That’s where so-called “Medigap” or supplemental policies come in. These are private plans, offered by the same companies that insure younger people. Benefits and premiums vary, so it’s necessary to shop around just as many working people have to do when navigating Healthcare.gov or the private insurance market.
Now that we are talking about private insurance, let’s get to Part D. (I’m skipping over Part C for the moment but will get back to it.) This is optional coverage for prescriptions. Like Medigap policies, Part D insurance is provided on the open marketplace, and you can expect premiums to increase from year to year. Like Part B and supplemental policies, you’ll get the best premium rates if you sign up immediately at age 65. Waiting until later means you’ll pay more each month.
One additional level of government insurance may come into play. Low-income retirees, or certain people who are covered by Medicare because of disabilities, may be eligible for Medicaid. This health-care program is largely funded by federal dollars but administered by the states. For people who have both Medicare and Medicaid coverage, Medicaid can take the place of a supplemental or Medigap policy, paying for most if not all of the co-pays or coinsurance that Medicare doesn’t cover.
So those are the basics of standard Medicare, plus two levels of additional private coverage. But retirees have an alternative, the Medicare Advantage program. (That’s what was originally called Part C.) This gives you the option of buying a plan that bundles the hospitalization and medical insurance coverage of Parts A and B, plus prescription coverage, and often other benefits such as vision, hearing and dental care that aren’t part of standard Medicare. Part of the cost is paid from the government’s Medicare trust fund; the rest of the premiums are your responsibility. So of course, it’s important to understand the pros and cons of coverage and cost compared with other alternatives.
In simple terms, anyone eligible for (or already covered by) Parts A and B can enroll in a Medicare Advantage plan during the enrollment period each year. Note that if you also have coverage through an employer’s or union’s plan, you may lose some of those benefits when you enroll in Medicare Advantage. Also note that because they are administered by private insurance companies, these plans are offered in specific geographical areas. A plan sold in one state may not be available to residents of another state.
One of the options is a Medicare Medical Savings Account (MSA) plan. Like Health Savings Accounts for working people, these combine a high-deductible insurance policy with a special savings account. Your Medicare MSA plan deposits money into that account, which can be used to pay health-care costs before you reach your policy’s deductible.
The complexity of Medicare and its many options has many similarities to the complexities of other private insurance. It results in part from the preference by some in Congress to involve the private insurance industry in retirement health coverage. The rationale includes the idea that consumers should have the freedom and flexibility to tailor a coverage plan that best suits their preferences and circumstances.
That means, of course, that prospective retirees have to do a lot of homework and make numerous decisions, often without expertise or complete information. One basic source of guidance is the Medicare system’s website, www.medicare.gov
Beyond that starting point, it’s an excellent idea, before committing yourself to a particular combination of coverage options, to consult with experts on both insurance and retirement planning. That’s where our specialists can be helpful. Old North State Trust’s experienced advisors can help you with all your investment and retirement planning needs, including providing resources that may assist you find the combination of retirement health-care plans that are best for you.
As Marketing Director, Alyce works to develop, budget, and implement marketing plans, which include advertising, coordination of conferences, special events, and development and maintenance of marketing materials. She also oversees the company’s website, in-house articles, and fostering community initiatives within the organization. Alyce received a BS degree in Interior Design from East Carolina University with a concentration in Business Administration and obtained her teaching certification from UNCW. Old North State Trust professionals have many years of experience and for over a decade have assisted clients in identifying and reaching their financial goals. For more information, visit www.oldnorthstatetrust.com or call 910-399-5470.
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