There are few things in the world more complex than health care. This is especially true when we consider the government administered portion of our healthcare system. Medicare is the healthcare system for individuals aged 65 or older. Far from a single program, Medicare is split into four different parts. The rules, costs, and procedures surrounding these four parts are different, and often misunderstood.
Medicare is an important component to every financial plan. Too often this important variable is overlooked. The goal of this article is to arm you with the basic information you need to hopefully begin demystifying Medicare, and to empower you. Below we discuss the basics of the four parts to Medicare.
Medicare Part A
Also know as “original Medicare”, Part A is free for anyone who qualifies for Social Security and enrollment is automatic if you are already enrolled in Social Security. If you are not already enrolled in Social Security, you may need to call the Social Security Administration to enroll in Part A coverage.
Part A mainly covers hospital stays, and pays for these benefits in the following way:
- $1,408 deductiblefor each benefit period .
- Days 1–60: $0 coinsurancefor each benefit period.
- Days 61–90: $352 coinsurance per day of each benefit period.
- Days 91 and beyond: $704 coinsurance per each "lifetime reserve day" after day 90 for each benefit period (up to 60 days over your lifetime).
- Beyond lifetime reserve daysyou pay all costs.
In short, Medicare Part A covers medium to long term stays at a hospital—to a certain limit. A complete breakdown of Medicare A benefits can be found at: https://www.medicare.gov/what-medicare-covers/what-part-a-covers
Medicare Part B
This is often what people think of when they think of Medicare. This is the part of Medicare that covers things outside the hospital. Its cost change from year to year and can increase with certain salary limits. The cost for most Americans starts at 148.50 per person, per month in 2021. It is important to note that Part B enrollment is not automatic, and late enrollees must pay a premium for coverage.
Part B is complex in what it covers and what it does not, but in general Medicare Part B covers 80% of covered medical expenses. The remaining 20% (known as coinsurance) is on you. There is no maximum cap on what you pay in Medicare, so be careful. Large procedures can cost hundreds of thousands of dollars, and 20% of those costs is too much to bear for most Americans. In addition to the 20% coinsurance, Medicare Part B also does not pay for most prescriptions. For a better idea of what Medicare Part B covers and doesn’t cover, visit: https://www.medicare.gov/what-medicare-covers/what-part-b-covers
Luckily, the other two parts of Medicare are meant to make up for the 20% coinsurance and lack of a comprehensive prescription plan.
Medicare Part C and Supplemental Plans
So you have a 20% coinsurance, and you don’t wish to pay 20% of all future medical expenses? You aren’t alone, and that is why there are many, many options available to pick up the slack Medicare Part B leaves behind. These plans are known as Supplemental Plans, and they come from many different sources. Supplemental Plans are not automatic, you must enroll yourself in order to get coverage.
Any insurance plan you pay for that coordinates with Medicare is a Supplemental Plan. These plans can be provided by a previous employer as a perk, Tricare, or purchased through the ACA exchanges. But the two most popular supplemental plans are Medicare Advantage (officially known as Medicare Part C), and Medigap Policies (also known as “Letter Plans”). Plans can range from $30 to as high as several hundred dollars a month.
If you are not covered by a former employer or Tricare, you have a very important decision to make. Supplemental plans are very complicated and can take some time to understand, but that understanding is crucial to your retirement success. Do not just pick the cheapest plan, because cost is only one of the factors to consider. Believe it or not, cost is not even the most important factor for many. Find a more comprehensive breakdown at: https://www.medicare.gov/supplements-other-insurance
Some supplemental plans will come with prescription coverage bundled in, some will not. If you fall into the latter category you may need to look at a Part D coverage plan.
Medicare Part D
Part D covers drugs and prescriptions. It splits drugs into tiers, and like Part B you may have to pay more if you have a substantial income. Premiums can vary between different Part D plans, but no plan is allowed to have a deductible higher than 445 in 2021. Don’t forget: prescriptions is often one of the highest bills paid by retirees in America, make sure that you have a drug plan.
More on Part D can be found here: https://www.medicare.gov/drug-coverage-part-d
What Next
Medicare is extremely complex and difficult. If you feel you need help you are not alone, and a plan for Medicare is crucial for retirement success. Like everything in life, it pays to be prepared. A true financial plan should cover Medicare decisions, and help you feel confident in the decisions that you make.
If you feel you need help creating a plan for retirement, one that includes every aspect of your financial life from insurance to estate plans, please feel free to reach out to us. We are always happy to help.