By Nick Shea, MBA
An oft-overlooked yet headache-inducing retirement transition task is planning for healthcare coverage and thus navigating the Medicare system. Medicare offers a variety of enrollment options, which gives you the flexibility to choose components of the plan that you need. Unfortunately, all those choices can also be confusing to understand. The enrollment process itself can also bewilder even the most prepared retirees, so in this article, I break down the basics of your Medicare plan to help you make decisions that are right for you.
The Coverage Option Puzzle
Medicare is divided into parts: Part A, Part B, Part C, and Part D (there are more options, but we’ll start with the basics). Each retiree or married retired couple must understand and evaluate the different Parts to determine the most relevant and appropriate options for their situation.
Original Medicare is a package that includes Part A and Part B, with the optional add-on of Part D. Part A covers hospital services. If you or your spouse paid Medicare payroll taxes during your working years for at least 10 years, Part A is free for you. If you didn’t, you can still get coverage by paying a monthly premium. Part B covers doctor visits and other outpatient services. Even if you or your spouse paid Medicare payroll taxes, Part B comes with a monthly premium. Part D is an optional add-on that includes drug coverage. Not to make things even more confusing, but Part D has a late enrollment penalty. Even if you don’t need prescription coverage when you are first eligible for Medicare, enroll in the plan to avoid extra long-term costs.(1)
To help with Medicare costs such as copayments, coinsurance, and deductibles, many retirees will purchase Medigap insurance from private insurance companies to supplement their Original Medicare plan. Some Medigap plans also cover additional services not covered by Part A or Part B but typically exclude services such as dental, vision, and hearing visits.
Medicare Advantage, also known as Part C, is an alternative to Original Medicare that is offered through Medicare-approved private companies. This plan bundles Part A and Part B and often includes Part D as well. Your choice of providers is often limited to providers that are in-network for the plan you purchase. Medicare Advantage plans also often cover additional services not covered by Part A, Part B, or Part D, including vision, hearing, and dental visits. Medigap policies cannot be combined with the Medicare Advantage plan.
When to Enroll
After you’ve decided on the best coverage option, the work to enroll in your Medicare plan unfortunately doesn’t get easier. The good news is, if you’re already taking Social Security benefits, you’re automatically enrolled in Parts A and B. Because Part B comes with a monthly premium, you can choose to opt out of this coverage. Otherwise, the premiums will be deducted from your Social Security payments.
Here’s where it gets complicated. If you’re not taking Social Security but need to enroll in Medicare, you will have to sign yourself up for Parts A and B on your own. You can begin enrolling in Medicare three months before the month you turn 65. The initial enrollment period ends three months after your birthday month. To ensure coverage starts by the time you turn 65, it’s important to sign up in the first three months of the initial enrollment period.
If you’re 65 or older but still working with employer-sponsored healthcare insurance, you may be able to delay enrolling for Medicare coverage. However, there are still rules to follow, and if you don’t enroll within 8 months after losing your employer-sponsored health insurance, you could pay significant lifetime penalties when you do eventually enroll. And if you ever want to switch the type of Medicare coverage you’ve opted for, you will have to wait for specified enrollment periods each year.
Unique Life = Unique Medicare Plan
Once you’ve successfully navigated through your coverage options and your enrollment period, it’s smooth sailing. But there are other things to consider, including (but not limited to):
- Your income level
- Your travel plans
- Your future healthcare needs
Unfortunately, high-income retirees will pay extra for Medicare Parts B and D. In 2021, if your adjusted gross income is above $88,000 as a single filer or $176,000 as a married couple filing jointly, you will have to pay a surcharge on your premiums.(2)
Additionally, if you plan to travel much in retirement, it’s important to know that Medicare doesn’t offer coverage outside of the U.S. If you were to get sick or suffer an injury abroad, you would have to pay for those medical costs out of pocket unless you have purchased Medigap insurance that offers travel coverage.
Finally, Medicare does not cover long-term care needs. Long-term care can be extraordinarily expensive, so it’s important to build long-term care expenses into your overall retirement plan rather than relying on Medicare coverage to protect you.
You Don’t Have to Navigate Medicare Alone
Are you overwhelmed yet? It’s understandable. Medicare is complex, and the coverage options that are right for you may not be right for someone else. Not to mention, when life changes come your way, you may need to make changes to your health plans as well. Thankfully, at Catalyst Investment Management, we can help you weigh your options while taking into account your needs, goals, and various other components of your financial plan. You don’t have to wade through the Medicare maze alone. Call us at (617) 610-0587 or firstname.lastname@example.org to schedule a call and start the process with the support of an experienced guide.
Nick Shea is founder and financial advisor at Catalyst Investment Management, an independent firm dedicated to providing personalized financial advice and planning. Over 40 years ago, Nick started reading The Wall Street Journal, building his own portfolios, and developing a passion for the financial world. He turned this interest into a career, working for many years at the former Dean Witter, now Morgan Stanley, and Charles Schwab, where he worked as an investment consultant, branch manager, and product developer. As a learning and development director, Nick created and delivered the branch management leadership program for the entire branch network. He has a bachelor’s degree in political science from Occidental College and an MBA from the University of Notre Dame. Nick specializes in serving entrepreneurs and helping retirees navigate through the complexities of the Medicare system. He is passionate about helping his clients mitigate the risks that can derail their financial goals. He is known for championing his clients’ dreams and striving to help them find the financial peace of mind they long for.
Nick is actively involved in his community, faithfully serving in the Knights of Columbus. He is also an elected member of the Windham Zoning Board of Adjustment. When he’s not working or giving back, Nick loves to read, spend time with his family, research his family’s genealogy, and travel, both in the U.S. and abroad. To learn more about Nick, connect with him on LinkedIn.