Managing health insurance costs is a key component of retirement planning. Medicare eligibility generally starts at age 65. But given the number of decisions you will need to make about the timing and scope of coverage, it is a good idea to start preparing well in advance. Medicare is complex and navigating the many options can be challenging.
DO YOU NEED TO ENROLL?
If you are already receiving Social Security or Railroad Retirement benefits, you will be automatically enrolled in "Original Medicare" (Parts A and B, discussed below). Your Medicare card will arrive in the mail around three months before your 65th birthday. Coverage will begin on the first day of the month you turn 65. So whether your birthday is March 1 or March 31, Medicare coverage will begin on March 1.
If you are not receiving government retirement benefits and wish to obtain Medicare coverage, you will need to enroll. Also, even if you are automatically enrolled in Parts A and B, you will have to enroll to obtain additional benefits, such as a Medicare Advantage plan (Part C) or prescription drug coverage (Part D).
The initial seven-month enrollment period begins the third month preceding the month you turn 65 and runs through the third month following your birthday month. Unless you are covered by a comparable employer plan, it is critical to sign up during the initial enrollment period. If you do not, and decide to enroll later, you will be subject to late enrollment penalties in the form of substantially higher premiums. If you are covered by a qualifying employer plan, you can delay Medicare enrollment without penalty.
WHAT ARE THE COVERAGE OPTIONS?
The Medicare components include:
Part A — Hospital Insurance. This helps cover the cost of services such as inpatient care, home health care, hospice care and certain skilled nursing facility care. Part A is premium-free for most people (See Sidebar: How Much Does Part A Coverage Cost?), but there are annual deductibles and copays.
Part B — Medical Insurance. Part B helps cover expenses related to:
- Doctor visits;
- Outpatient care;
- Preventive services (including screenings and vaccines);
- Lab tests; and
- Certain equipment (including wheelchairs and walkers).
In addition to annual deductibles and copays, there are monthly premiums, currently ranging from $170 to $578 ($165 to $561 in 2023), depending on your income level reported on previous tax returns.
Part C — Medicare Advantage. A private, all-in-one alternative to Original Medicare, Medicare Advantage "bundled" plans include Parts A, B and usually D. Many also offer extra benefits, such as dental, vision and hearing. Advantage plans often feature lower out-of-pocket costs than Original Medicare, but they may require you to use in-network doctors and follow other rules.
Part D — Drug Coverage. This add-on prescription drug coverage is available to those enrolled in Parts A and B, or in a Medicare Advantage plan that does not cover prescription drugs.
CAN YOU DELAY MEDICARE BENEFITS?
If you or your spouse has qualifying group health plan coverage through an employer with at least 20 employees, you can delay Medicare enrollment without penalty. However, you must have documentation from the insurance company showing that you are covered by a qualified group plan.
Once employer coverage ends, you will have eight months to enroll in Medicare before penalties kick in. Many people with group coverage enroll in Part A — since it is usually free — and delay Parts B and D. However, keep in mind that if you sign up for Part A, you cannot continue making pre-tax contributions to a health savings account. If you elect not to delay Medicare, then it serves as secondary insurance to your group coverage.
Those not covered by a qualified group plan should sign up for Medicare during the initial enrollment period or risk harsh penalties. The late enrollment penalty for Part B is a permanent 10% premium increase for each 12-month period of delay. In other words, if you delay enrollment for five years, your Part B premiums will be 50% higher.
DO YOUR HOMEWORK
As you approach age 65, research the costs and benefits associated with various coverage options, including delaying enrollment while you are covered by a group plan. Depending on your anticipated health care costs, it may be wise to supplement Medicare with a Medigap policy. These private insurance policies help pay for costs not covered by Original Medicare, such as deductibles, copays and coinsurance. Your financial advisor can help you weigh Medicare decisions.
SIDEBAR: HOW MUCH DOES PART A COVERAGE COST?
Most people think Medicare Part A is free, but that is not always the case. The cost depends on how long you (or your spouse) have paid Medicare taxes out of your paychecks or through self-employment taxes. If you or your spouse paid Medicare taxes for at least 40 quarters (10 years) over your working lives, Part A is free. If you have fewer than 40 quarterly work credits, you will be required to pay a premium.
The current premium is $274 per month ($278 in 2023) if you have 30 to 39 quarterly work credits. If you have less than 30 credits, the premium is $499 per month ($506 in 2023).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.