Mastering Medicare for a Smooth Retirement

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As financial planners, we know how important it is for retirees and those nearing retirement to navigate Medicare effectively. While Medicare certainly provides invaluable healthcare, enrolling in Medicare can be extremely overwhelming and daunting. Understanding your options and making informed decisions while signing up for Medicare can significantly impact your health and financial well-being. This article will discuss the differences between original Medicare and Medicare Advantage, as well as other details and important information about what Medicare includes and how to sign up for it.

Medicare Advantage

On the surface, Medicare Advantage plans look better. They are cheaper, and there are no Medigap or Part D premiums. Some of the main reasons people may choose Medicare Advantage over original Medicare is that it comes with dental and vision coverage and hearing coverage, is less complicated than original Medicare, and is one sign up. However, there are some disadvantages to Medicare Advantage. They limit your provider choices, and everything must be approved before you can use the coverage. The way the Medicare Advantage companies make money is by paying out the least amount in claims as possible. These are very similar to HMO plans, basically being a managed form of care, and all doctors must be in-network. You cannot go to any specialists or doctors that are out of network. For many people, this is not the best plan for them, because they want more flexibility and input in their health care choices.

 Original Medicare

Original Medicare is more expensive than Medicare Advantage. There are four main parts of Medicare that you will need to be aware of, including Part A, B, D, and Medigap policies.

Part A is for hospital bills. It is “free.” You’ve paid into this throughout your entire working career; however, there is no premium for Part A.

Part B is for doctors. There is a monthly premium, and your premiums are dependent upon what your income is. For 2024, the lowest Part B premium is $175 per month. In 2025, this will increase to $185 per month.

Part D is for prescription drug coverage. This is purchased through a private company. These prices vary depending on what prescriptions and medicines you are taking. You can go onto the Medicare.gov website and plug in your prescriptions, and it will help you decide what plan is best for you. You can also work with an agent, and they can help you decide the best plan.  Ordinarily, the coverage is relatively inexpensive.

Medigap comes into play to cover what Parts A, B, and D do not cover. These parts cover about 60-80% of your health insurance coverage. There are various Medicare Supplemental Insurance Plans that can be privately purchased or provided Medicare supplemental through your employer. If your Medicare supplemental is through your employer, you have little choice about the coverage. There are different types of private Medigap plans that cover different things. This chart below details the different Medigap plans and what each one covers. Your eyes may be drawn immediately to Plan F because it covers just about all the additional coverage needed. However, Plan F is no longer available. The next best plan is Plan G. Most times we recommend Plan G, except if you live in a state like Pennsylvania, that that does not allow excess Part B charges. In these kinds of states, we recommend Plan N.

Original Medicare Average Total Cost

The total costs of all the parts of original Medicare (Parts A, B, and D and Medigap Coverage) are about $355/month. There’s Part A, which is free (no premium), Part B, which is $175/month (2024), Part D, which is on average $30 (varies depending on your prescriptions), and the Medigap Plans are on average about $150/month. Keep in mind this is under normal circumstances. Your Part B premiums are based upon what your income is.

Income-Related Monthly Adjusted Amount (IRMAA)

IRMAA means that your income will determine your premiums for Parts B and D. There are income tiers for IRMAA that affect your premiums. For example, Part B premium is $175/month, per person, for a married couple whose Modified Adjusted Gross Income (MAGI) is below $206,000 for 2024. However, those whose income is higher will pay more. For example, if your income even goes a single dollar above $206,000, you pay an additional $70/month in Part B premiums and an additional $13/month for Part D premiums per person.  There are four more tiers above this amount.

This is why proper tax planning can be extremely important because even one dollar more above a certain income can increase your premiums. Please consult with your advisor about creating a tax projection to see if there are any planning strategies that you can use to lower your income and therefore lower your Medicare premiums.

Form SSA-44

Another thing to keep in mind about your Medicare premiums is that they are based upon your tax return from two years prior. For example, your 2024 Medicare premiums are based upon what your income was in 2022. You may be thinking, “What if I retired in 2023, and my income will be much lower going forward? What can I do to lower my Medicare premiums for those years?” Well, you can fill out a form called Form SSA-44. This form allows you to notify Medicare that your income will be different because of a certain qualifying event. These qualifying events include marriage, divorce, death of a spouse, work stoppage, work reduction, loss of income-producing property, loss of pension income, and employer settlement payment. The two most common events are work stoppage and work reduction.

It is important that you keep this form in mind if you are around or at Medicare age and have one of these qualifying events that could reduce your income and in turn reduce your Medicare premiums. If you think this applies to you, reach out to your advisor to discuss.

What Medicare Doesn’t Cover

Many people have dental and vision insurance coverage while they are working. It’s important to note that Medicare does not cover dental and vision insurance (except as state above for Medicare Advantage). Talk with your advisor to see if it makes sense for you to purchase additional coverage for dental and vision insurance or if you can afford to self-insure.

One common misconception about Medicare is the belief that it covers long-term care. However, it does not. Medicare and Medigap only cover up to 100 days in the hospital for rehabilitation needs. Beyond that, it does not cover long-term care. If you want to cover long-term care with insurance, you need a whole separate policy to cover any long-term care expenses and needs. Consult with your advisor to discuss your long-term care plan and the possible need for insurance.

Enrollment Timing

Many people are unaware of the timing of when you are first eligible to sign up for Medicare. You essentially have a seven-month window. You are eligible to sign up the three months before your 65^th birthday, the month of your 65^th birthday, and the three months after. For example, if your birthday is in May, your enrollment period is from February 1 to July 31. The earlier you start the process of enrolling, the more time you have to choose the best plan and coverage for you.

If you do not sign up for Medicare during this period and you are not working and still on a qualified employer provided plan, you can incur a penalty every month and pay more for Medicare every month for the rest of your life. Because of this, it is imperative to sign up on time.

Another thing to note is that if you are still working and you have qualified coverage through your employer, you do not have to sign up for Medicare when you turn 65. You can remain on your employer’s qualified plan. However, qualifying coverage is very specific. An easy way to look at this is that if you have an employer that has less than 20 employees, most of the time the coverage you have does not count as qualifying coverage. If you work for an employer who has more than 20 employees, most of the time this coverage would count as qualifying coverage. Consult with your advisor if you think this may apply to you.

How to Get Started and Sign Up

The first thing you want to do when enrolling is to apply for Part A and Part B. You can sign up for these one of two ways: either sign up online at SSA.gov or go in-person to your local Social Security Administration office. If you are comfortable with doing this online, we recommend this option over going in-person. You can ask your advisor to assist you with signing up online. It is important that you have a SSA.com login ahead of time, as it makes the process much smoother.

After you sign up for Parts A and B and once you’ve received your Medicare number, you can then apply for Medigap coverage and Part D. You can work with an agent to sign up for these, and there is no cost for you to work with them.

If you are already a client, please reach out to your advisor to discuss these Medicare specifics and how they relate to you. If you are not a client and have any questions about Medicare or retirement planning over, please visit our website (www.financialconsulate.com) and schedule an introductory meeting with one of our advisors.

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