Retirement from your full-time job can be a stressful endeavor. There are many issues to consider and the majority of people would prefer to do it once. Doing it once, however, requires proper planning. One topic that needs to be planned for is health insurance. Unfortunately, age and medical needs are usually positively correlated. As you age, your health insurance costs are bound to increase.
For the majority of people, government-sponsored health insurance plans are used to help with medical expenses. In this article, we’ll explain helpful things to know about pre-Medicare planning, Medicare filing, and ongoing concerns.
If you have any lingering questions, don’t hesitate to contact one of our team members right away. Proper retirement planning takes a proactive approach!
Pre-Medicare Planning
Medicare is federal health insurance for people ages 65 and older. Some younger people, such as those with disabilities and end-stage renal disease, may also qualify. Medicare is composed of multiple different plans, such as Part A, Part B, and Part D.
A common misconception that future retirees have is that Medicare is free. Medicare allows its participants greater access to different coverage and costs, but premiums are generally required. Most Medicare participants are also utilizing Social Security funds, with the ability to have premiums automatically deducted from monthly payments.
One of the advantages of Medicare is the ability to claim benefits even if you are still actively employed. Additionally, marital status does not impact your Medicare claiming ability. However, it can impact how much you pay for Medicare Part B premiums.
In terms of financial planning, Medicare will need to be factored into your monthly expenses. Both premiums for Medicare and supplemental insurance, along with out-of-pocket costs for noncovered services need to be accounted for in your retirement plan. The inability to accurately project your future Medicare expenses can leave you short on cash each month.
Medicare Plan Types
Medicare is broken down into a few different plans. Many retirees will utilize multiple plans to maximize their insurance coverage. Let’s break down the different Medicare parts below:
Part A and Part B
Medicare Part A is used for hospital insurance, while Part B is used for various medical services, such as lab tests, exams, and preventative care. Medicare Part A and Part B are commonly grouped together and called Original Medicare. This gives Medicare participants the chance to utilize any doctor or hospital that accepts Medicare. You may still need to pay a portion of the costs that Medicare does not cover.
Part D
Medicare Part D is for prescription drug coverage. The goal of Medicare Part D is to cover a majority of privately labeled prescription drugs, upwards of 75%.
Medigap vs Medicare Advantage (Part C)
Medigap is a supplemental insurance sold by private insurance providers to help pay for costs that Original Medicare does not cover. There are various subcategories of Medigap, from A to N. Medigap is only available to individuals who are enrolled in Medicare Part A and B.
Medicare Advantage, also known as Medicare Part C, is a privately run alternative to Original Medicare. Medicare Advantage covers the same items as Original Medicare with the exclusion of hospice care. Most Medicare Advantage plans do include drug coverage.
Medicare Filing
Applying for Medicare can be done during the Initial Enrolment Period (IEP), which spans seven months. This period includes the three months before you turn 65, the month you turn 65, and three months after you turn 65. Meeting the demands of the IEP is important to start your coverage as soon as possible.
Sometimes, life happens, and you miss the enrollment period. This doesn’t preclude you from receiving Medicare, but you may need to pay a 10% late enrollment penalty for each year you are late on Part B enrollment and a 12% penalty each year you are eligible but not enrolled in Part D. Part A late enrollment penalties can also apply, with the penalty remaining at twice the number of years you didn’t sign up plus increased monthly premiums.
For example, if you wait until you turn 67 to enroll, you may need to pay a 20% late enrollment penalty for Part B plus the regular monthly premium. The standard premium for Part B is $164.90 a month in 2023. Adding a 20% late penalty on top of the monthly premium can result in a payment of $197.88. As retirees, you most likely are trying to reduce your monthly costs, which is why it’s important to enroll on time.
Medicare Ongoing Concerns
Medicare does have ongoing concerns that need to be factored into your financial and pre-Medicare planning. First, Medicare involves different providers. This means you may need to make a provider switch. Planning ahead and finding the right provider helps with a smooth transition.
HSA contributions are also not allowed once you are enrolled in Medicare. If you plan on working while still enrolled in Medicare, you may need to adjust your benefits. The same is true for COBRA after you reach the age of 65.
High-income clients are also subject to increased premiums. If you are still working, Medicare can cost more under the Income-Related Monthly Adjustment Amount (IRMAA). You can appeal the IRMMA once you are retired or experience a drop in income.
Next Steps
Unfortunately, most HR employees do not have the time or knowledge of your individual situation to properly advise retirees on the complexities of Medicare. This can lead to coverage gaps, late enrollment fees, and high deductibles. This makes it essential to take a proactive approach before you are ready to retire. If you are interested to learn more or would like to ask some questions simply contact us.