Although most Americans are eligible for health insurance through Medicare the month they turn 65, enrolling in Medicare isn’t automatic. What if life happens and you don’t get around to it, or you need to change to a different plan?
The answer is to enroll or make changes during Medicare’s open enrollment period, which runs from October 15 – December 7. Not only is this an excellent time to sign up or make changes, but it can help you avoid penalties and higher premiums in the future .
Also, remember that you don’t have to sign up for Medicare on your birthday or even during that month. Medicare gives you a seven-month enrollment window: three months before your 65th birthday month to three months after.
The Alphabet Soup of Medicare
Medicare isn’t just a single policy. Instead, insurance through Medicare and private insurers (more on that in a minute) can have several different types of coverage. These are designated by letters, which can be confusing for even the savviest retirees.
To help sift through the alphabet soup of Medicare, here’s a breakdown of what all those letters mean:
Part A (Hospital Insurance): Helps cover inpatient care in hospitals, skilled nursing facility care, hospice care, and home health care. Everyone on Medicare gets this at no cost. When you enroll in Medicare, this is automatically included.
Part B (Medical Insurance): Helps cover:
- Services from doctors and other healthcare providers
- Out patient care
- Home health care
- Durable medical equipment (like wheelchairs, walkers, hospital beds, and other equipment)
- Many preventive services (like screenings, shots or vaccines, and yearly “Wellness” visits)
*Parts A and B are called “Original Medicare.”
Many people also sign up for Part B when enrolling in Part A, although some people with private healthcare coverage do not need to enroll in Part A . You pay the federal government for this coverage; the current cost is $170 per month. (That cost will decrease slightly in 2023.) Part B premiums will either be deducted from Social Security or billed, depending upon when you sign up for Social Security. Premiums may be lower for lower income individuals.
If you currently have private healthcare coverage through an individual or group (workplace) policy, your private insurer may require you to sign up for Medicare when you retire. Also, there may be penalties, including higher premiums on Part B, if you miss the seven-month enrollment window tied to your birthday.
Other than Parts A and B, there is no standard or default plan. Some plans have fixed costs set by the government; many do not. Some are mandatory, and some are optional. This may seem unclear, but the good news is that the government offers resources that make it easier to compare costs and coverage and choose the best plans for you.
Part D (Drug coverage): Helps cover the cost of prescription drugs (including many recommended shots or vaccines). You join a Medicare drug plan in addition to Original Medicare, or you get it by joining a Medicare Advantage Plan with drug coverage. Plans that offer Medicare drug coverage are run by private insurance companies that follow rules set by Medicare. Premiums and copays will vary.
Medicare Supplemental Insurance (Medigap):Extra insurance you can buy from a private company that helps pay your share of costs in Original Medicare. Policies are standardized and, in most states, named by letters, like Plan G or Plan K. The benefits in each lettered plan are the same, no matter which insurance company sells it. However, although the benefits are standardized, premiums and copays will vary.
Medicare Advantage (also known as Part C): These policies are sold by private insurers. Medicare Advantage is a Medicare-approved plan from a private company that offers an alternative to Original Medicare for your health and drug coverage. These “bundled” plans include Part A, Part B, and usually Part D.
Three important things to note:
- You’ll most likely need to use doctors in the plan’s network.
- Plans may have lower out-of-pocket costs than Original Medicare.
- Plans may offer some extra benefits that Original Medicare doesn’t cover—like vision, hearing, and dental services.
Where to Buy Everything Except Parts A and B
When you get closer to turning 65, chances are you’ll start to receive marketing materials from many insurers offering Part D, Medigap, and other insurance coverage. Many organizations, such as the American Association of Retired Persons (AARP), also offer plans. In addition, some employers offer insurance, and premiums may be subsidized, whether you’re working or retired.
The best place to start is Medicare’s own site. You can compare plans in your state and get unbiased information with no sales pitches.
Please note that this is general information that will not apply to everyone, especially those with certain health conditions who are already enrolled in other government health insurance plans. But one important caveat that will apply to many people is one involving owners of health savings accounts (HSAs).
If You Have a Health Savings Account (HSA)
If you have an HSA, there are tax penalties if you contribute to this account while on Medicare. Because of how Medicare eligibility is calculated, you and your employer should stop making contributions to your HSA six months before you turn 65. In addition, if your Medicare Part A coverage overlapped when you made contributions, you’ll have to pay a tax penalty .
You can withdraw from your HSA after your Medicare coverage starts to help pay your share of costs (like deductibles, premiums, coinsurance, or copayments). There are other great ways to maximize the value of your HSA as well, including using it in retirement (with significant tax advantages).
Choosing Medicare coverage can be a complex process without the help of a specialist. A CFP® Professional from Facet Wealth can help you choose the right plan for your needs.
To learn more, schedule a free introductory call today.
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