Monday, April 8, 2013

Medicare 101… The Basics

Pathways Advisory Group, Inc.
Michelle Carter, CFP®

Lately, I have been noticing an increase in Medicare questions among clients.  While many situations are situation-specific and require individual research, I thought a brief overview of Medicare basics would be interesting to those about to embark on this healthcare journey.  What are the “Parts” of Medicare?  When do I enroll?  What if I am still working?  What is Medigap?

Part A:  Hospital Services.  Premium-free as long as you paid Medicare taxes through payroll for 10 years or more.  Also premium-free if you did not work for Medicare-covered employment, but your spouse did.  If either of you paid in for more than 7.5 years (but less than 10) there is a premium of $243/month (2013) or if you participated for less than 7.5 years, this carries a premium of $441.

Part B: Physician’s Services.  Monthly premium required of $104.90 for most people (2013).  Those with a higher income will pay more.  See the variations in premium by income level HERE.  It should be noted that adjustments in premium levels usually lag by about two years because of the delays in reporting income.  For example, if 2011 was a dramatically higher year in income, you may see your Medicare Part B premium adjust in 2013.

Part C: Medicare Advantage.  A Medicare Advantage Plan is offered through a private company.  I think of it as a ‘package deal’.  It provides Part A, Part B, often prescription drug coverage and some other benefits as well.  You are subject to enrollment periods, such as your initial enrollment period (see below).  The general enrollment period for Medicare Advantage is October 15th to December 7th.

Part D: Prescriptions.  Adds prescription drug coverage to regular Medicare, as well as some other types of Medicare cost plans.  A penalty can incur for late enrollment.

Initial Enrollment:  If you initiated your Social Security benefits early, your enrollment in both Parts A & B will be automatic at age 65.  You can decline Part B (although this should be done with caution – see below).

If you are not receiving Social Security benefits, you will need to sign up during your initial enrollment period.  This begins three months before the month you turn 65 and ends three months after your birthday month.  For example, if you turn 65 on April 15th, your initial enrollment period would begin January 1st and end July 31st, a seven-month time period.

General Enrollment:  If you miss your initial enrollment period, you will need to wait for general enrollment, which occurs each year from January 1st – March 31st, with coverage beginning on July 1st.  In the example above, this means waiting until the next calendar year to enroll.  You will also be subject to a 10% penalty for life for each 12-month time period you delayed enrollment in Part B (unless you are still working, see below).

Special Enrollment:  If you are still working at age 65 and your company has 20 or more employees, you can delay enrollment in Part B without penalty.  (You should still enroll in Part A since it’s free.)  At any time, you can drop your employer’s coverage and enroll in Part B.  However, once you stop working, you have 8 months to enroll penalty-free, your special enrollment period.  It should be noted that this exception does NOT apply for companies with less than 20 employees.  In this situation, Medicare automatically becomes your primary provider and you must enroll during your initial enrollment period.

Medigap:  If you are enrolled in both Part A and Part B, you are eligible to also purchase a Medigap plan.  This is supplemental coverage that pays for things Medicare does not, such as co-pays.  You must enroll within six months of enrolling in Part B coverage for guaranteed acceptance.  If you miss this Medigap enrollment period, you can be denied Medigap coverage or charged a higher premium because of pre-existing health conditions.

Resources:  The above information is summarized.  For more details, visit the official government Medicare website.  Another great resource is the Medicare Rights Center, which also has a telephone hotline (#800-333-4114).

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