Medicare is a valuable source of health insurance for people 65 and older, and making the transition from private health insurance involves some important decisions. These six steps can guide you through the process:
1. Enroll in Medicare Part B.
Medicare’s Initial Enrollment Period lasts for seven months, beginning three months before you turn age 65. Most people automatically qualify for Medicare Part A (Hospital insurance) if they or their spouse paid Medicare taxes while working for ten years or more. However, Part B (Medical insurance) is voluntary and requires enrollment.
Although there are special enrollment periods, delayed enrollment may result in a late fee with increased premiums and a gap in your health coverage. For 2016, the standard monthly premium for Part B is $121.80. While the “hold harmless rule” protects 70 percent of recipients from having their Social Security check lowered from one year to the next, Part B premium may increase to $149 in 2017 for wealthy individuals. Those who do not qualify for Part A pay a monthly premium up to $411. A possible increase for Part A in 2017 has not yet been announced. You can either sign up online or visit your local Social Security office.
2. Choose your Medicare Plan.
Medicare includes two plan options:
- Original Medicare (Parts A and B) provides coverage of Medicare-approved doctors, hospitals, and other services. If you want prescription drug coverage, you must also purchase Part D through a private insurance company, and should do so during the Initial Enrollment Period to eliminate a possible late penalty. Costs and coverage vary from plan to plan. The estimated annual cost for Part D in 2017 is $238. Make sure that your prescription drugs are covered by the plan selected.
- Sold by private insurance companies, the Medicare Advantage Plan (Part C) provides coverage through traditional channels, such as the Preferred Provider Organization (PPO), and usually offers broader services than Original Medicare with vision, dental, and hearing coverage. Many plans also cover prescription drugs, which eliminates the need for Part D. The Medicare Advantage Plan does not require Medicare Supplement Insurance, but you must pay the Part B premium in addition to the plan’s monthly premium.
Compare the two plan options to determine which best fits your medical circumstances.
3. Select your Medicare Supplement Insurance (Medigap) policy.
Medigap policies are sold by private insurance companies and help cover expenses not covered by Medicare, such as co-payments, co-insurance, and deductibles. For example, Part A requires the patient to pay a $1,288 deductible for each hospital stay. Medigap policies cover this cost partially or completely. In addition, Medigap policies pay Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up. Unlike Medicare, a Medigap policy may also cover medical expenses when you travel outside the U.S.
Since coverage and costs vary, review your options carefully to determine what policy fits your financial resources and medical circumstances.
4. Plan for out-of-pocket expenses.
A recent Consumer Expenditure Survey conducted by the U.S. Bureau of Labor Statistics estimates that a married couple will incur approximately $2,000 a year in out-of-pocket expenses while on Medicare. Examples of expenses not covered by Medicare include most dental care, eye exams related to prescribing glasses, dentures, and hearing aids.
In addition to your insurance costs, make sure to include your out-of-pocket medical expenses as part of your retirement budget. Projections indicate that these expenses will increase 6.50 percent per year.
5. Review your Medicare Plan.
Review your “Annual Notice of Change” letter. You may find opportunities for additional savings and newly provided services. During the Open Enrollment Period (October 15 - December 7), you can change your Medicare health plan and prescription drug plan. If you have a Medicare Advantage Plan, you can even switch back to traditional Medicare coverage.
6. Coordinate your long-term care coverage.
Recognize that additional insurance is needed to provide custodial care. Review long-term care coverage to determine what type of policy is suitable for your financial position.
As always, consider working with a CFP® professional to assist you with Medicare options as part of your overall financial plan.