One of the pivotal choices that most retirees will make is what to do about Medicare, the government-sponsored healthcare program for persons age 65 and older. This decision carries significant weight for many reasons, but perhaps the most urgent one is the confidence that comes from knowing that your medical and other healthcare needs are covered during your retirement. After all, concern about healthcare costs consistently ranks among the top worries of those approaching retirement.
Perhaps a good starting point is to pose the question: What is Medicare? Basically, Medicare consists of four parts:
- Medicare Part A (“Basic Medicare”), provides coverage for the majority of hospital expenses and is typically free for most enrollees;
- Medicare Part B, covers outpatient costs, doctor visits, and a majority of diagnostic tests. Beneficiaries are required to pay a monthly premium based on their income;
- Medicare Part C (“Medicare Advantage”), which is offered by private insurers subject to government oversight and can replace many of the benefits offered by Medicare Parts A, B, and (usually) D, in addition to other coverages not offered by Medicare;
- Medicare Part D, focuses on prescription drug coverage and requires beneficiaries to pay a monthly premium that varies by plan and is provided by private companies contracted through the government.
In addition to these aspects, you will also hear a lot about “Medigap” or Medicare supplement plans. These plans, provided by private insurance companies rather than the government, combine elements of Parts A and B, and we’ll say more about them below.
It's important to enroll in Medicare during your initial enrollment window, which opens three months prior to your 65th birthday and stays open for an additional three months afterward. If you miss this enrollment period, you may face penalties when you eventually decide to sign up. However, there's an exemption for individuals aged 65 or older who possess "creditable coverage" providing benefits equivalent to or superior to those of Medicare. Typically, this coverage comes from employers with at least 20 employees or various government-sponsored plans.
Should you consider Medicare Advantage or Medigap coverage instead of Medicare? Well, the answer hinges on your specific situation and the particular plan under consideration. To be eligible for a Medigap plan, you must first be enrolled in Medicare Parts A and B. It's crucial to remember that Medigap is a program provided by private insurance companies, and while it must adhere to certain government-mandated standards, it involves a monthly premium. What most Medigap plans provide in addition to Medicare is the coverage of co-pays, deductibles, charges related to the length of your stay, and other expenses not covered by Medicare, which can quickly accumulate to several thousand dollars annually in some instances. It's important to note that Medigap typically does not include prescription drug coverage.
For any of the non-government plans above requiring a premium—Part C (Medicare Advantage), Part D, and Medigap—it is important for you to compare plans and benefits before you sign up (you don’t have a choice about your Part B premium; it is established by the government according to your income). You’ll also want to check with your primary care physician to make sure that they accept Medicare (93% of them do). If you are considering Medicare Advantage, you’ll also want to make sure your doctor is “in-network” for your particular plan; not all of them are.
As a fiduciary financial and wealth advisor, Moscaret Investment Advisory is committed to helping our clients make the best decisions possible for their unique situations, and this includes providing dependable information and sound advice about retirement healthcare choices.