3 Things You Should Know About Medicare
Medicare has many nuances, but it’s important to know the basics before you retire.
#1 Plan Options
Medicare comes in two general packages:(1) Original Medicare (also known as Traditional Medicare) and (2) Medicare Advantage (confusingly labeled Part C).
Original Medicare refers to the health insurance program offered directly through the government and is comprised of two parts: Part A and Part B. Part A covers inpatient care whereas Part B cover outpatient care and doctor visits. In addition to Original Medicare, you can enroll in Part D for prescription drug coverage and Medigap policies to provide other additional coverage like dental and vision care.
On the flip side, Medicare Advantage is the private sector alternative to Original Medicare. These plans are entirely through private insurers and vary in scope and pricing depending on coverage. Baby boomers are finding these plans increasingly attractive as they typically come at a lower cost than traditional Medicare with a supplement.
# 2 Costs
Part A is premium free as long as you or your spouse paid medicare taxes for 40 quarters (10 years). Part B has a premium that typically ranges from $109 to $134 per month, but can go as high as $428 for high income earners. The average premium for Part D is $34 per month and can be as much as $76 per month for high income earners. Medigap policies typically range from $100 to $200 per month, varying widely depending on your specific needs. The alternative Medicare Advantage plans typically have lower premiums compared to their Original Medicare counterparts, but may have higher cost-sharing components.
# 3 Enrollment Periods
Once you get a handle on the plan types and general costs involved, the next hurdle is figuring out when you have to sign up to avoid late enrollment penalties.
You become eligible for Medicare Part A, B, C, and D when you reach age 65, but may apply earlier if you are disabled. If you are already receiving social security benefits by age 65 then you will automatically be enrolled in Original Medicare unless you choose otherwise. Assuming you are not collecting social security benefits and want to enroll as soon as possible, your Initial Enrollment Period begins 3 months prior to turning 65 and continues for 3 months after the month you were born (effectively giving you a 7 month window). However, if you are still working, you may delay enrollment without penalty as long as your employer provides creditable coverage. Assuming this is the case, you have 8 months after you leave your job (or lose your employer’s coverage) to obtain Original Medicare without penalty, but only 2 months to sign up for Part D. This window is also known as the Special Enrollment Period.
It’s important to note that you need to have coverage by the time the window closes to avoid the penalty and it typically takes time to process your application and actually obtain coverage. Therefore, you should enroll as soon as your enrollment window opens just to be safe.
If you miss the Initial or Special Enrollment Period then you may sign up during the General Enrollment Window from January to March, and your coverage will begin in July. There is also an Open Enrollment Window from October 15 to December 7 that allows you to change plans.
If this wasn’t confusing enough, the Medigap policy enrollment window differs (for some reason) from the other Parts. Generally, the open enrollment window for Medigap policies is 6 months from when you obtain Part B coverage and this enrollment period cannot be delayed.
As you can see, Medicare is a complex subject that should be understood long before you retire. For more information on Medicare in Massachusetts, check out the state’s guide.
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