One of the many benefits of reaching age 65 is that you become eligible for federal Medicare coverage, which provides substantial financial support for your healthcare costs in retirement. For a lot of people, that’s about all they know about Medicare. And that’s a problem!
The truth is, you must make a few important decisions when you sign up for Medicare, so it’s essential to understand how the program works and what it covers. There are a lot of misconceptions about Medicare and what it provides. The most common: Medicare is not free!
For a lot of people, healthcare is one of the biggest costs in retirement, and it’s one of the common places many pre-retirees go wrong in their retirement planning.
Medicare is an important element to most retirement plans. At Global View, we want to get ahead of the problem. Below are some important elements we think you should to know – what it covers, what it doesn’t cover and how it works! If you have a question that is not addressed here, contact us! A quick conversation can go a long way.
Anatomy of Medicare
Medicare is composed of several functional units called “parts.” Here’s a basic explanation of each.
- Part A: This is hospital insurance that covers costs incurred when you’re in the hospital.
- Part B: This is your medical insurance to cover the costs of treatment. Together, Parts A and B are known as Original Medicare.
- Part C: Known as Medicare Advantage, this is a type of alternative policy that covers at least as much as Parts A, B, and sometimes D combined. Part C plans are offered by private insurance companies. They may reduce out-of-pocket expenses and/or provide extra benefits, such as dental, vision and hearing coverage, elements that are not offered by Original Medicare.
- Part D: This is prescription drug coverage, and it is optional. Part D will pay for certain costs not covered by Original Medicare.
- Medicare Supplement Insurance: Commonly known as Medigap, these are standardized optional plans that offer additional benefits. Medigap Plans are labeled Plan A, Plan B – all the way to Plan N. Additional plans may appear over time, and some plans are no longer available to new members. Do not confuse Medigap Plan names with Medicare Part names! You cannot add Medicare Part C with Medigap plans – you can choose one, the other or neither.
Understanding Costs of Coverage
Medicare has 4 main cost components:
- Premiums: This is the monthly cost of Medicare or Medicare Advantage insurance. There is an additional monthly premium if you enroll in a Medigap plan.
- Deductible: This is the out-of-pocket expenses you must spend before your coverage kicks in.
- Coinsurance: These are a percentage of cost that you pay for the medical care you receive after meeting your deductible.
- Copay: This is a set rate you pay for doctor visits, prescriptions and other forms of care.
The rules governing each cost component vary by Medicare part and plan.
Medicare Part A covers the following:
- Inpatient care in a hospital
- Skilled nursing facility care
- Nursing home care
- Hospice care
- Home health care
For most people, Medicare Part A is free – you pay for it through your FICA payroll deductions/self-employment taxes during your working years. This won’t be free, and you may have to pay a premium for Part A (from $259 to $471 per month in 2021), if you did not pay sufficient Medicare taxes during your working years.
In 2021, Part A has a deductible of $1,484 per benefit period (the period from the day you’re admitted as an inpatient until you haven’t received inpatient hospital care for 60 consecutive days). Your coinsurance costs in each benefit period vary from $0 to $742 per day, depending on the length of the benefit period.
Part B covers both medically necessary and preventative services, including:
- Services and supplies needed for medical diagnosis and treatment according to accepted standards
- Healthcare to prevent sickness or to detect it early on
- Clinical research
- Ambulance services
- Durable Medical Equipment (DME)
- Mental health
- Limited outpatient prescription drugs
The Part B premium starts at $148.50/month but could climb if you have a high income. The deductible is $203, after which you pay 20 percent of Medicare-approved services.
Medicare Advantage Plans cover at least as much as Original Medicare Part A, Part B and optionally Part D. The premiums, deductibles, copayments and coinsurance vary per plan and where you live. Part C plans usually cover hearing, vision, dental and more. These private plans can help with out-of-pocket costs, but they do not guarantee acceptance by every doctor or hospital that accepts Medicare.
Part D covers prescription costs. You will pay a monthly premium consisting of a base amount and surcharge. In 2021, the surcharge depends on your annual income and ranges from $0 to $77.10. A late enrollment penalty applies if you go without prescription coverage for 63 days or more.
Medicare Supplement Insurance (Medigap)
Medicare Supplemental Insurance plans fill the gaps left by Original Medicare. There are a variety of private, standardized Medigap plans to choose from. Each has its own premiums, deductibles, coinsurance and copays.
You must have Medicare Parts A and B to get Medigap coverage. Renewability is guaranteed even if you have health issues.
What Original Medicare Doesn’t Cover
Arguably, what’s more important than what Medicare does cover is what Medicare doesn’t cover!
Parts A and B don’t cover every conceivable medical cost. For example, the following items are not covered by Original Medicare:
- Cosmetic surgery
- Eye exams related to prescribing glasses
- Hearing aids and exams for fitting glasses
- Long-term care
- Most dental care
- Routine foot care
In general, Medigap policies don’t cover the following items:
- Dental care
- Hearing aids
- Long-term care
- Private-duty nursing
- Vision care
If you want any of the above items included in your medical coverage, explore the various Medigap and Medicare Advantage policies with a fiduciary financial advisor to determine the best fit. Here’s why!
Some forms of healthcare, such as long-term care, require separate insurance policies. Again, discuss your options with a fiduciary financial advisor. Insurance agents may take advantage of you!
Healthcare costs are often one of the biggest expenses in retirement. Original Medicare will not cover all of your medical needs. Injuries and illnesses can strike without notice, so explore your options with a fiduciary financial advisor.
If you’re currently looking for a financial advisor in the Carolinas, schedule a no-obligation consultation with the Global View team to see if we’re a good fit!