Medicare 101: Avoid Costly Mistakes
Medicare and medical expenses may be your biggest expense in retirement. Choosing the correct plan when you turn 65 can affect your medical expenses and medical choices for the rest of your life. Since this is such a critical topic and so confusing, I will be writing a series of articles on Medicare and using myself and my family as a case study. I will highlight the gotchas to help you avoid costly mistakes.
I personally made many Medicare mistakes when choosing a policy for my elderly mother. Unbiased information on Medicare is hard to find and don’t bother calling Medicare directly to get straight answers. AARP is not an unbiased source and earns money by recommending a Medicare Advantage plan that may not be in the best interest of their members. Only by educating myself and working with a trusted Medicare advisor (Gene Ranney: 941-716-4348, eranneyy@gmail.com) was I able to help my brother choose the appropriate Medicare plan for him and avoid the mistakes I made with my mother.
This first article will cover what Medicare is and what Medicare covers.
Medicare is a federal health insurance program for U.S. adults age 65 or older and younger people who receive disability benefits.
What is Medicare?
Medicare has four parts — Part A, Part B, Part C, and Part D. Each part offers specific coverage and varies in cost:
Part A covers hospital care and related services.
Part B covers doctor appointments and outpatient medical care.
Part C covers the same benefits of Parts A and B but is offered by private insurers (such as Cigna, Aetna).
Part D covers prescription drugs.
Here’s what you should know about Medicare coverage and some of the expenses that come with it.
Medicare at a Glance
Medicare Part A (Hospital Insurance)
Medicare Part A covers inpatient care in a hospital or skilled nursing facility, although not custodial or long-term care. Part A also helps pay for hospice care and some home health care.
Medicare Part A has a deductible of $1,600 in 2023 and coinsurance, which means patients pay a portion of the bill. There's no coinsurance for the first 60 days of inpatient hospital care, for example, but patients typically pay $400 per day in 2023 for the 61st through 90th day of hospitalization, and more after that.
Most people don't pay premiums for Medicare Part A if they or their spouse paid Medicare taxes for at least 10 years
Medicare Part B (Medical Insurance)
Medicare Part B covers doctor visits and other medically necessary services and supplies. That includes preventive services or health care to prevent illness, as well as ambulance services, durable medical equipment, mental health coverage and a few types of outpatient prescription drugs.
Medicare Part B requires a monthly premium that starts at $164.90 per month in 2023. Single people with adjusted gross incomes over $97,000 and married couples filing jointly with AGIs over $194,000 pay higher premiums called IRMAA (watch for a future article). Medicare Part B has a deductible of $226 in 2023. After that, you typically pay 20% of the Medicare-approved amount for services and supplies.
The Medicare Part B Penalty
If you don’t have group health insurance from a large employer and fail to sign up for Medicare Part B at 65, then later decide you need it, you’ll likely pay a penalty of 10% of the standard premium for each 12-month period that you delayed.
You will pay this late enrollment penalty for life.
You can avoid the penalty if you had health insurance through your job or your spouse’s or partner's job when you first became eligible. You must sign up within eight months of when that coverage ends and show proof of group insurance after you turned 65.
Medicare Advantage (Medicare Part C)
Medicare Advantage, also known as Medicare Part C, is a type of health plan offered by private insurance companies that provides the benefits of Part A and Part B and often Part D (prescription drug coverage) as well. You must continue to pay your Part B premium, and there may be a separate premium you pay to the insurer. However, many Medicare Advantage plans are offered at $0 premiums to the insured. If you choose a Medicare Advantage plan you are no longer receiving Medicare from the federal government. You now get your insurance solely from a private insurance company. Insurers receive a monthly payment from the federal government for each enrollee, regardless of how much care they need. According to the Department of Health and Human Services’ inspector general, the arrangement raises “the potential incentive for insurers to deny access to services and payment in an attempt to increase profits.”
These bundled plans may have additional coverage, such as providing some cost benefits for vision, hearing, and dental care. Unlike Original Medicare, Medicare Advantage plans have an annual limit on out-of-pocket costs.
You could pay as much as $8,300 out of pocket in 2023. Medicare Advantage plans are typically HMOs or PPOs. They provide coverage only in certain local areas, generally require pre-authorization and referrals, and charge copays and coinsurance for most health care services.
Medicare Part D (Prescription Drugs)
Medicare Part D helps cover the cost of prescription drugs, both generic and brand name. Plans are offered by private insurers and require a monthly premium that averages $31.50 per month in 2023.
Higher income beneficiaries pay more.
There is a surcharge that people with income above a certain amount must pay in addition to their Medicare Part B and Part D premiums. Read my article on this additional tax.
Don’t miss the initial enrollment period of you’ll pay a penalty.
As with Part B, there is typically a late penalty premium if you don’t sign up when you're first eligible. The Part D penalty is 1% of the national base beneficiary premium, which is $32.74 per month in 2023 ($34.70 in 2024), multiplied by the number of months you're late enrolling after you go without creditable drug coverage for 63 days.
Medigap (Medicare Supplement Insurance)
Medigap, or Medicare Supplement Insurance, is an additional health insurance policy you can buy from a private insurer to help pay your share of the costs not covered by Medicare Part A and Part B. This includes deductibles, coinsurance, and some health care if you travel outside the U.S. Medigap plans can't cover long-term care, prescription drugs, dental, vision, hearing aids or private nursing care.
If you choose Original Medicare, almost everyone also chooses a Medigap plan because the “gap” of what Original Medicare doesn’t pay for is too large. It doesn’t make financial sense not to choose a Medigap plan if you choose Original Medicare instead of a Medical Advantage plan. If a medical expense is approved by Medicare, the private insurance company that you purchase your Medigap plan from cannot deny payment. This is big. Remember this.
There are 10 types of Medigap plans available in most states. You must have Medicare Part A and Part B to purchase a Medigap policy. Medigap isn't compatible with Medicare Advantage — you may purchase one or the other.
There are two ways to get Medicare coverage:
Original Medicare: Part A and Part B. Original Medicare is run by the federal government. It covers inpatient and outpatient care at any health care provider that accepts Medicare (almost all do). Most people also buy a Medicare Part D plan to add prescription drug coverage in addition to a Medigap plan. You can choose a Medigap plan from one company and a drug plan from a different company.
Medicare Advantage: Part C. Medicare Advantage is a bundled alternative to Original Medicare sold by private for profit insurance companies. Medicare Advantage plans must cover at least as much as Part A and Part B, but most add some benefits. Most Medicare Advantage plans also include prescription drug coverage
What Medicare Doesn't Cover
Common expenses that Medicare doesn’t cover (and that are excluded in the Medicare law) include:
Most dental care
Most foot care, unless related to diabetes or medically necessary due to injury or disease
Cosmetic surgery
Massage therapy
The biggest potential expense that’s not covered is long-term care, also known as custodial care. The federal health program Medicaid pays custodial costs, but is typically reserved for those with low income and little savings.
Medicare Enrollment Periods
You’ll be enrolled automatically in Medicare Part A and Part B when you turn 65 if you've already claimed Social Security or qualify due to disability. Otherwise, it's up to you to proactively enroll yourself. Here are the times to do so:
Initial enrollment period: If you’re not automatically enrolled in Medicare, there will be an initial enrollment period that lasts for seven months around your 65th birthday: the three months before and after your birthday month, plus your birthday month. (If your birthday is the first day of the month, this period will include the four months before and two months after your birthday month.) DON’T MISS THIS INITIAL ENROLLMENT PERIOD.
General enrollment period: If you don’t apply for Medicare during your initial enrollment period, you’ll have to wait for Medicare’s general enrollment period, which runs from Jan. 1 to March 31 each year. Coverage starts the month after you sign up, and you may owe late penalties.
Special enrollment period: This is a period when you’re allowed to join Medicare or make changes to your coverage based on a few specific life events, such as leaving a job or moving out of your plan’s coverage area.
If you want to change your coverage at a later date, there's an annual Medicare open enrollment period that allows you to do this; it's from Oct. 15 to Dec. 7 each year. (If you have Medicare Advantage, you can also make a change during Medicare Advantage open enrollment from Jan. 1 to March 31 each year.)
What they don’t tell you is depending on your state, Medicare beneficiaries who miss the initial enrollment period when they are 65 may unwittingly forgo the chance to purchase a Medigap policy later in life if their needs or priorities change, or if they choose to switch to traditional Medicare after several years of being in a Medicare Advantage plan. More on this in future articles. It is critical that you make the right decision when you turn 65 because this can affect your medical coverage for life.
Summary of Gotchas from This Article
Don’t miss the initial Medicare enrollment period or you’ll pay a penalty for the rest of your life
After the initial enrollment period when you turn 65, a Medigap private insurer can turn you down or charge you a higher premium for preexisting conditions.
If you choose Original Medicare from the Federal Government and a private insurance Medigap plan, the private insurance plan cannot deny payment for a medical expense approved by Medicare.
In a Medicare Advantage plan, the private insurer can deny authorizations for procedures. Insurers receive a monthly payment from the federal government for each enrollee, regardless of how much care they need. According to the Department of Health and Human Services’ Inspector General, the arrangement raises “the potential incentive for insurers to deny access to services and payment in an attempt to increase profits.”
I’m sure your head is spinning from this information. This is why I personally would recommend scheduling an appointment with Gene Ranney at 941-716-4348 or eranneyy@gmail.com to help you pick the Medicare plan that is best for you. He is the only Medicare consultant that I’ve found who will help you pick the Medicare plan that is best for you — not the plan that earns him the most commission. I’d like to add that I do not receive any fees or commission from anyone for recommending Gene.
NOT FINANCIAL ADVICE
The information contained in this article is for informational purposes only and shall not be understood or construed as financial advice. I am not an attorney, accountant, or financial advisor, nor am I holding myself out to be. I do not accept any fees or commissions from anyone or any financial institution.
I’d love any feedback on these articles.
