Medicare is celebrating its 50th anniversary this year as the nation’s federal health insurance program, playing a vital role in the lives of most people age 65 and over. In fact, Medicare currently covers 49 million Americans. Many people, however, do not know the very basic but important facts about the program. Here are five things you need to know about Medicare (and a few that will save you from the glitches that can cost expensive lifetime penalties!):
1. Medicare is not a “one size fits all” program.
While collectively referred to as Medicare, the program is actually made up of different parts: Part A covers inpatient hospital care, skilled nursing facilities and some home health care. Part B covers doctor visits (but not all routine exams), medically necessary supplies and equipment, physical and occupational therapy, outpatient mental health services and other outpatient hospital services. Part D is an optional program, but you need to enroll in Part D if you want to receive coverage for prescription drugs.
Important decisions are involved as you enroll in each of these Parts, including whether or not you need or want supplemental insurance. Many people will buy supplemental insurance to cover health expenses not covered by Medicare Part A and B. Medigap Supplemental Insurance and Medicare Advantage Plans (sometimes referred to as Part C) are two options, but you need to do your homework and learn how these plans differ as lower out-of-pocket costs may also place more restrictions on physician and hospital choice.
2. Medicare is not free!
Medicare is not a fully subsidized program; much like with private insurance, you have to pay premiums, deductibles and co-pays. The amounts can vary depending on income.
• Part A does not have a premium, but it does have an annual deductible and co-payments. The deductible in 2015 is $1,260.
• Part B has a premium and the amount you pay is based on income. In 2015, the monthly premium for Part B for those whose income is $85,000 or less is $104.90. Higher income seniors pay a higher premium. There is also an annual deductible, which in 2015 is $147.00. Co-payments apply to most Part B services.
• Part D also has a monthly charge that varies depending on which plan you choose. The average Part D premium is $31 a month, and you usually also have to pay out-of-pocket for a percentage of your prescription drug costs.
It is also important to know that your Part B premium is automatically deducted from your Social Security benefit! Many people do not realize this and are surprised when their monthly Social Security benefit payment is less than they expected.
3. Medicare does not cover all of your possible health care needs.
The recent healthcare reform increased the number of free preventive services available to Medicare beneficiaries such as the annual free “wellness” visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers.
But Medicare does not cover routine dental care, eye care, or hearing aids, and perhaps most importantly: Medicare does not cover most long-term care, and covers only limited home health care and nursing home costs (usually following a hospital stay). So even if you are eligible for Medicare, you need to also be thinking about and planning for your possible long-term care needs.
4. You risk a possible penalty if you do not sign up for Medicare once you are eligible.
You are eligible for Medicare when you turn 65.
• If you are already receiving Social Security benefits, you will be automatically enrolled in Parts A and B (and you can choose to turn down Part B if you’d like).
• If you have not started taking Social Security, you will have to sign up for Parts A and B (or Medicare Advantage) during your initial enrollment period. The initial enrollment period to apply for Medicare is 3 months prior to your 65th birthday, the month of your 65th birthday, and 3 months after your 65th birthday (for a total enrollment period of 7 months). To ensure coverage starts by the time you turn 65, sign up in the first three months you are eligible.
If you miss signing up during that initial enrollment period, you can sign up during the general enrollment period (that runs from January 1 to March 31, and coverage will begin on July 1), but you will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B! The penalty does not apply if you delayed enrollment because you were actively employed and covered in a workplace plan or covered by an employed spouse’s workplace plan (but read this next point carefully!)
5. There are special rules you need to know if you have health insurance through your employer at the time you are eligible for Medicare.
If you are still working and have insurance through your employer when you become eligible for Medicare, you may want to delay signing up for Medicare. If this is the case, you also have an 8-month Special Enrollment Period to sign up for Part A and Part B that starts the month after the employment ends or the group health plan insurance based on current employment ends, whichever happens first. Usually, you don’t pay a late enrollment penalty if you sign up during a Special Enrollment Period.
This is another important item to note: COBRA and retiree health plans are NOT considered coverage based on current employment. That means you are not eligible for a Special Enrollment Period when that coverage ends. So it is important to also understand how COBRA and Medicare work together:
• If you have Medicare first and then become eligible for COBRA upon leaving your employer plan, you can have both. But remember that Medicare pays first and COBRA pays second, so you do not want to drop Medicare to take COBRA—without it you have no primary insurance, which is like having no insurance at all.
• If you have COBRA first and then become eligible for Medicare, your COBRA coverage may end. Since you will not be fully covered with COBRA, you should enroll in Medicare Part A and Part B when you are first eligible to avoid a late enrollment penalty.
To learn more about Medicare and other resources available, check out WISER’s Medicare Basics fact sheet, and visit www.medicare.gov and www.medicarerights.org. The website, www.mymedicarematters.org also provides an easy online guide for exploring coverage options, costs, and the enrollment process.
This blog is part of an ongoing series for the “Campaign for a Secure Retirement: Helping Millions of Americans Plan and Save for Retirement;” the Campaign is a joint educational retirement campaign to encourage retirement planning and saving and to promote the online Social Security Statement, available through my Social Security, as an important retirement planning tool.