If you’re approaching age 65, it’s a good idea to start preparing for Medicare coverage well in advance. The Medicare rules are complex, and there are some decisions you’ll need to make before you become eligible. Also, there are some common misconceptions about Medicare that you should be aware of.
First, let’s take a quick look at the types of Medicare coverage:
- Original Medicare includes Part A (hospital insurance) and Part B (medical insurance). Part A helps cover the cost of inpatient care, home health care, hospice care, and certain skilled nursing facility care. Part B helps cover the cost of doctor visits, preventive services (such as screenings and vaccines), lab tests, X-rays, and certain equipment (such as wheelchairs or walkers).
- Medicare Advantage (Part C) is a private all-in-one alternative to Original Medicare. These plans typically include Parts A, B, and D, and may also provide additional benefits, such as dental, vision, and hearing.
- Prescription drug coverage (Part D), which is available as an add-on if you’re enrolled in Parts A and B, or if your Part C plan doesn’t cover drugs.
Many people supplement Medicare coverage with Medigap policies. These are private insurance policies that help pay deductibles, copays, and other costs not covered by Medicare.
Now, let’s dispel some of the common misconceptions about Medicare:
Medicare is free. Contrary to popular belief, Medicare is not free. For most people, Part A coverage is free, provided you or your spouse have paid Medicare taxes (through withholding from your paycheck or payment of self-employment taxes) for a total of at least 40 quarters (10 years) over your working lives. Otherwise, you’ll have to pay monthly premiums. Current rates are $278 per month, if you have 30 to 39 quarterly work credits, and $506 per month, if you have fewer than 30 credits. Even if Part A coverage is free, you’ll still be on the hook for copays and annual deductibles.
Parts B, C, and D require you to pay premiums. Based on 2023 rates, Part B premiums range from $164.90 to $560.50 per month, depending on your income level. Part B services are also subject to copays and deductibles. Part C and D premiums vary from plan to plan.
You’re automatically enrolled in Medicare when you turn 65. This may be the case, but only if you’re already receiving Social Security or Railroad Retirement benefits. If so, you’ll receive a Medicare card in the mail a few months before your 65th birthday. But if you’re interested in Part C or Part D coverage, you’ll need to enroll in those programs separately. And if you’re not already receiving Social Security or Railroad Retirement benefits, you’ll have to enroll in Parts A and B as well. You can enroll during a seven-month, initial enrollment period, which begins three months before the month you turn 65 and ends three months after the month you turn 65. For example, if you turn 65 in December 2023, your initial enrollment period is September 1, 2023, through March 31, 2024.
You must enroll in Medicare at age 65 to avoid penalties. It’s true that enrolling in Medicare after your initial enrollment period may trigger substantial late-enrollment penalties, but you can delay coverage penalty-free if you or your spouse has qualifying group health plan coverage through an employer with at least 20 employees. Once that coverage ends, you’ll have eight months to enroll in Medicare without penalty. Absent such coverage, late enrollment will result in penalties in the form of higher premiums. The penalty for Part B, for example, is a 10 percent premium increase for each year you delay enrollment. So, if you wait until your 68th birthday to enroll, your Part B premiums will increase by 30 percent.
A common strategy for people with qualifying group coverage is to enroll in Part A (assuming it’s free) at age 65 and delay Parts B and D until group coverage is no longer available. Note, however, that if your group plan offers a health savings account (HSA), you won’t be able to continue making pre-tax contributions to the HSA if you enroll in Medicare Part A.
Review Your Options
As you approach age 65, review all the costs and benefits associated with your various health insurance options, including Original Medicare, Medicare Advantage or other private options, and continuing group health coverage, if available. Be sure to consider both financial and nonfinancial factors. For example, many Medicare Advantage plans offer lower out-of-pocket costs than Original Medicare, but to enjoy those savings you may have to use doctors in the plan’s network or comply with other restrictions.
