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Medicare: Everything You Want to Know but Are Afraid to Ask
- Medicare is an important part of the American insurance landscape, and not just for those over 65. But it is not always an easy benefit to navigate.
- Eligible individuals must be thoughtful about the coverage they need, the timing of enrollment and coordination with other benefits in order to get the most out of the program.
- In this Wealth Planning Insights, Northern Trust experts answer some of the most commonly asked questions about Medicare, including:
--What Medicare covers, its costs and how to coordinate with private insurance coverage
--Insurance coverage options for retirees who are not yet eligible for Medicare
--When it is right – and how – to make the transition from private insurance to Medicare
Medicare is an important piece of the American insurance landscape, not only for people age 65 and older, but for all Americans. That said, this benefit is not easy to navigate. Eligible individuals must be thoughtful about the coverage they need, the timing of enrollment, and coordination with other healthcare benefits, if they want to make the most of the Medicare program.
This piece covers the top questions we hear from clients on Medicare.
Our hope is that you will feel empowered to take action and be well-positioned to find the coverage that is right for you. Of course, it is important to work with your advisors for customized solutions. Northern Trust’s Health Benefits Advisory Services Group is available to you.
I KNOW THAT MEDICARE IS A FEDERAL HEALTH INSURANCE PROGRAM. BUT, WHAT DOES IT COVER? DO I STILL NEED PRIVATE INSURANCE?
U.S. citizens and permanent residents who (1) are age 65 or older, (2) are disabled (regardless of age), or (3) have end-stage renal disease can get their health insurance through the Medicare program. Although many believe that Medicare is always free, premiums vary depending on eligibility, income and asset levels, and coverage, as discussed below.
Medicare has four parts. Across the four parts, you can get coverage for inpatient hospital stays, outpatient treatment, and prescription drugs. There also are Medicare supplement insurance plans. You will hear these plans referred to as "supplement insurance plans," "supps," or "medigap plans." This piece uses the term medigap or medigap plan, but all three terms are interchangeable.
Medicare Parts A and B work together, while Medicare Part C covers both inpatient and outpatient care and, in some cases, prescription drugs. As a Medicare participant, you choose between traditional Medicare and a Medicare Advantage plan. (See flow chart below.) Many people who are accustomed to private, employer-based health insurance choose Medicare Advantage because it is private insurance with a network of providers, and it resembles a familiar PPO or HMO plan.
Notably, if you choose Medicare Advantage, you still must enroll in Medicare Parts A and B.
Although Medicare Part A (Hospital) can cover up to 100 percent of services, Medicare Part B (Medical) only covers 80 percent of Medicare-approved charges. Participants in Medicare Part B generally buy medigap policies even if they traditionally have self-insured against health and financial risks. This is because medigap policies cover hospital stays that last more than 60 days. Some medigap policies also cover 80 percent of the cost of a foreign medical emergency, which is important for people who travel abroad. Finally, some medigap policies cover part or all of the cost of up to 100 days of nursing home care or home health care following a hospital stay. But, neither Medicare nor medigap are substitutes for long-term care insurance, which covers ongoing nursing home care and home health care not connected to a hospital stay. Traditional Medicare and medigap also do not cover vision care, dental care, or hearing aids, although some Medicare Advantage plans do cover these services.
In sum, Medicare covers a broad range of inpatient and outpatient treatment. You must decide whether traditional Medicare or Medicare Advantage is right for you.
HOW MUCH DOES MEDICARE COST?
For 2019, Medicare costs are as follows:1
1Assuming no late enrollment penalties. Part A and Part B costs can be fully or partially covered by a medigap plan, as detailed in the chart on the next page.
If you are enrolled in Medicare Parts A and B and you purchase a medigap plan, the chart below summarizes the supplemental coverage you can expect. Where a percentage appears, the medigap plan covers that percentage of the benefit, and you must pay the rest. Note that Medigap policies are standardized in a different way in Massachusetts, Minnesota, and Wisconsin.
Note: Medigap plans that cover the Medicare Part B deductible (Plans C and F in most states) will no longer be available if you turn 65 or become Medicare eligible after January 1, 2020, due to the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”). If you buy a medigap plan C or F before January 1, 2020, you can keep your plan and your benefits will not change. But, monitor your plan premiums closely. Premiums could increase as the number of enrollees in those plans drops over time.
I AM THINKING ABOUT EARLY RETIREMENT. BUT, I AM CONCERNED ABOUT HEALTH INSURANCE COVERAGE BECAUSE I KNOW I AM NOT ELIGIBLE FOR MEDICARE UNTIL I TURN 65. WHAT ARE MY OPTIONS?
This is a common concern. People who retire before age 65 generally have five health insurance options:1
A common pitfall for early retirees is late enrollment in Medicare. Even if you have public or private health insurance, it is imperative that you sign up for Medicare at the earliest possible date to avoid a penalty. Signing up for Medicare means that you enroll in Parts A and B, and this is true even if you want to choose a Medicare Advantage plan now or in the future. You also should enroll in Part D or have other prescription drug coverage to avoid a penalty, and should purchase your medigap policy to avoid medical underwriting. If you delay your medigap purchase, you may find yourself answering uncomfortable questions about your health history.
If you are not yet receiving Social Security payments, your Medicare initial enrollment period starts three months before the month you turn 65 and lasts for a total of seven months. For example, if you turn 65 on June 12, 2019, your initial enrollment period starts March 1, 2019 and ends September 30, 2019. That said, if you do not sign up in the three months before you turn 65 (March, April, or May, in our example), then your Medicare start date could be delayed.
If you miss the seven month initial enrollment period altogether, then you generally can sign up for Part A at any time. But, you will pay a Part B late enrollment penalty unless an exception applies. (A common exception applies to individuals who did not initially sign up for Part B because they were covered by their working spouse’s company plan.) The Part B late enrollment penalty is not a one-time payment. Instead, the penalty applies every month that you have Medicare Part B, and your monthly Part B premium could go up as much as 10 percent for each 12 month period that you could have had Part B but did not.
You will owe a Part D late enrollment penalty if, after your initial Medicare enrollment period, you go without prescription drug coverage for 63 continuous days or more. Drug coverage can be a Medicare Part D plan, a Medicare Advantage plan or private coverage that meets Medicare’s minimum coverage requirements (called “creditable prescription drug coverage”). If you exceed 62 days without coverage, your monthly Medicare Part D premium will increase. The penalty formula for 2019 is as follows:
The national base beneficiary premium can increase each year, which means your penalty amount can increase each year as well.
Medicare will not contact you to remind you of your initial enrollment period. It is imperative that you call the Social Security office, which administers Medicare enrollment, at least three months before you turn 65 to avoid late enrollment penalties. However, if you already receive Social Security payments, you will be automatically enrolled in Medicare Parts A and B and your coverage will start the first day of the month that you turn 65. Part D penalties still may apply. Make sure that the Social Security Administration has your current address on file because your Medicare identification card will come in the mail.
I AM TURNING 65 NEXT YEAR AND AM STILL WORKING. SHOULD I TRANSITION FROM PRIVATE INSURANCE TO MEDICARE AND, IF SO, HOW DO I MAKE THE TRANSITION?
If you fail to enroll in Medicare during your initial enrollment period, you may face Part B penalties, Part D penalties and medigap underwriting, as described in Question 3. The logical conclusion is that you should enroll in Medicare as soon as you are eligible, regardless of whether you are still working and are covered by your company health insurance plan. But, this is not necessarily true.
If your company has less than 20 employees, you should enroll in Medicare during the initial enrollment period that starts three months before the month you turn 65. If your company has 20 or more employees, you should be able to delay Medicare enrollment penalty-free. You will have a special Medicare enrollment period that begins one month after you stop working or, if earlier, the month after your company health insurance ends. This special enrollment period lasts eight months. Many people eligible for the special enrollment period continue company coverage until they stop working. If you decide this option is right for you, be aware that you may want to start the Medicare application process before your special enrollment period officially opens, so that your Medicare coverage can start the day that your company health insurance does end.
Nearly 60 million Americans benefit from Medicare, and it is a vital part of the health insurance landscape. That does not mean that it is easy to navigate. Every individual has a unique health, financial and family profile that will impact the decisions they make about Medicare. We encourage you to talk with your advisors about the health care coverage that is right for you.
FOR MORE INFORMATION
As a premier financial firm, Northern Trust specializes in Goals Driven Wealth Management backed by innovative technology and a strong fiduciary heritage. Our Wealth Planning Advisory Services team leverages our collective experience to provide financial planning, family education and governance, philanthropic advisory services, business owner services, tax strategy and wealth transfer services to our clients. It is our privilege to put our expertise and resources to work for you.
If you would like to learn more about these and other services offered by Northern Trust, contact a Northern Trust professional at a location near you or visit us at northerntrust.com.
Suzanne L. Shier
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