It's that time of year again - Medicare open enrollment is quickly coming to a close. Those not yet eligible for Medicare think that they can sign up for Medicare only during open enrollment but those who are eligible (or just shy of eligibility) know that open enrollment is the time to consider changing plans, not necessarily time for initial enrollment (unless, of course, they become eligible during the open enrollment time-frame).
Enrollment in Medicare Parts A and B is automatic for anyone receiving Social Security at age 65. However, if someone is 65 and is still working, they may want to delay signing up for both parts. They should contact their employer's benefits administrator to see how their employer's plan works with Medicare. If they decide to keep their employer's coverage and delay signing up for Medicare, they need to know whether they will face a late penalty.
Penalties
Part A. Since there is typically no cost to a retiree for Part A, I will not discuss it further at this time.
Part B. Part B covers physician's services, diagnostic X-rays, lab tests, and certain preventative services, is available to everyone who is eligible for Medicare. The late enrollment penalty for failing to sign up during the initial enrollment period, if required, or the special enrollment period, if eligible for one, is 10% of the Part B premium for every 12-month period you should have been enrolled in Part B but weren't. This is a permanent penalty and is paid every year for as long as you have Part B.
Part C. Part C is Medicare Advantage. Anyone who signs up for Medicare Parts A and B during their initial enrollment period (and pays the Part B monthly premium to Medicare) may also enroll in a Medicare Advantage plan at the same time. Retirees who qualify for a special enrollment period because they were covered by an employer group health plan past age 65 have just two months after their group coverage ends to enroll in a Medicare Advantage plan. NOTE: that is a shorter time than the special enrollment period for Parts A and B, which extends for a total of eight months. Medicare Advantage plans are all-inclusive plans that provide health care under Parts A and B, and most also offer prescription drug coverage under Part D. Geographic location is a key element of Medicare Advantage plans. Because services are delivered through the plan's network of local providers, clients must live in the area where those services are provided. If a retiree spends lengthy periods of time away from their primary residence, a Medicare Advantage plan may not be appropriate for them.
Part D. Part D is Medicare's prescription drug benefit. If you go longer than 63 days without "creditable" prescription drug coverage, there will be a late enrollment penalty of 1% of the national base beneficiary premium ($35.02 in 2018) multiplied by the number of months the person could have had Part D but didn't. This is a permanent penalty and must be paid for as long as you have Part D.
What's Not Covered
Notably absent from Medicare coverage is long-term care, the type of custodial care many people need as they age. Also not covered is care delivered outside of the United States (with certain exceptions). Routine dental care, vision care, and hearing aids are not covered. Neither is chiropractic care, cosmetic surgery or alternative medicine such as acupuncture.
The Cost of Medicare for the Average Retiree
I have been studying the costs of Medicare for quite some time and I keep arriving at the same number: the average retiree will pay about $500 per month (this includes Parts B & D or Part C and out-of-pocket health care related expenses not covered by insurance). Annualizing $500 per month is $6,000 per year per retiree, not per couple. If you need more of an "authoritative" calculation, Fidelity, through its annual survey, says that retirees pay about $500 per month for Medicare and related health care costs and the average 65 year old couple will need $280,000 (after tax) to pay for health insurance and health care costs throughout their retirement.
How does this fit into a retiree's overall retirement plan? According to the Social Security Administration, the average retired worker's social security check (as of September 2018) was $1,417 (annualized $17,004). If you subtract $6,000 for Medicare insurance and related health care costs, you have $11,004 left over to pay rent, eat, etc. This fact makes a great case for retirement savings beyond Social Security.
Signing up for Medicare and choosing the best plan for the retiree's situation is serious business. So is evaluating their plan every year to ensure their doctor is still in network and the prescription drugs they take are covered. If they lack adequate coverage they could end up with thousands of dollars per year in uncovered medical expenses; if their coverage is too robust, they end up paying for services they don't need. Like Goldilocks, retirees need to find a plan that is "just right".
If you need help analyzing your current Medicare plan - or will be turning 65 soon and need assistance about when to sign up and whether Medicare+Medigap or Medicare Advantage is the best choice for you, give the fee-only financial planning professionals at Irvine Wealth Planning Strategies a call. We will help you through the process of finding a plan that is "just right" for you.
