Understanding Medicare for Retirement Planning

Over half of working Americans know little or nothing about Medicare costs, according to a survey by the Center for Retirement Research at Boston College. But not knowing can be expensive.

On average, people who haven’t yet retired estimate they’ll spend approximately $50,000 on health care after retirement, but it could cost up to 5x that – even with Medicare coverage.

Here’s what you need to know about Medicare to be prepared for retirement.

Signing Up for Medicare

For retirees, health insurance coverage under Medicare typically starts at age 65.

When you become eligible, you have a 7-month window to sign up, starting 3 months before the month you reach age 65 and ending 3 months after the month you turn 65.

You might also decide to purchase supplemental insurance. Americans who enroll in Original Medicare (Parts A and B) may purchase supplemental insurance, known as a Medigap policy.

A Medigap policy helps cover not paid by Original Medicare, such as copayments, coinsurance, and deductibles. These policies may also cover health care costs when traveling outside the United States.

The 4 Parts of Medicare

When you sign up for Medicare, you have to choose between Original Medicare and a Medicare Advantage Plan. In general, Medicare offers these options:

Medicare Part A: Hospital Insurance

Medicare Part A generally covers hospital care, skilled nursing facility care, hospice, and home health service. Most people don’t pay a premium for these services, because they paid Medicare taxes while working.

People who are not eligible for premium-free hospital insurance, and who don’t enroll when they’re first eligible, may see their monthly premiums increase by 10%.

They’ll pay the higher premium for twice the number of years they would have had to pay if they had signed up when they were first eligible.

Medicare Part B: Medical Insurance

Part B is also a component of Original Medicare. It pays for preventative and medically necessary services not covered by Part A, such as doctor visits, outpatient care, lab tests, physical therapy, medical equipment, and some home health care services.

The standard Part B monthly premium amount for 2017 is $134. However, many people who pay for Part B premiums through their Social Security benefit end up paying a lower premium of $109.

The Part B deductible is $183 a year for 2017. Once it has been paid, participants typically owe 20 percent of the Medicare-approved amount for most doctor services, outpatient therapy, and durable medical equipment.

If you miss the Part B enrollment period, you may have to wait until the next general enrollment period to get coverage, which occurs from January to March. However, if you’re working at age 65 and have health insurance through an employer or a spouse’s employer, you can delay Part B enrollment.

Finally, if you missed the enrollment period and don’t have insurance through an employer or spouse’s employer, you may owe a late enrollment penalty. This could cause your monthly premium to increase by 10% for each 12-month period you didn’t enroll.

Medicare Part C: Medicare Advantage Plans

Medicare Advantage Plans are offered by private insurers that contract with Medicare to provide Part A and Part B benefits (and sometimes Part D benefits) to people with Medicare. Most plans require you to use plan doctors, hospitals, and other approved providers.

Usually, Medicare Advantage Plans charge monthly premiums. You may also owe copayments or coinsurance for covered services.

Medicare Part D: Prescription Drug Coverage

Part D provides Original Medicare participants with prescription drug coverage. The cost of premiums and the cost of drugs will vary by plan and income.9

Part D coverage has a gap, known as the “doughnut hole.” That means you’ll be responsible for co-payments up until your total drug costs reach $3,700 after you pay a deductible of up to $400. Afterwards, you’ll have to pay 40% of the cost of brand-name drugs and 51% of the cost of generic drugs.

However, once your out-of-pocket expenses reach $4,950, you’ll pay a maximum of 5% of the cost of each drug for the rest of the year.

Plan Ahead for Retirement with Brett Pittsenbargar in Austin TX

Even with Medicare coverage, health care costs in retirement may be difficult to plan for. Medicare is an important benefit for retirees, but it may not cover all health care costs in retirement.

Talk with Brett Pittsenbargar of BP Financial today to learn more about Medicare and how you can plan today to be ready for retirement.