If you work in the United States, you pay a Medicare tax on your earned income which helps fund the program. Medicare is a federal health insurance entity for people 65 years or older, younger individuals with disabilities, and those with end-stage renal disease. So how does Medicare work?
Original Medicare: Basic Benefits
Original Medicare is made up of two parts: Part A and Part B. Part A covers inpatient care at hospitals and certain skilled nursing facilities. Part B covers services considered necessary to treat a disease or condition. This includes outpatient care and preventative services.
Enrolling in Original Medicare is easy. If you are turning 65 and are receiving social security benefits, you’ll automatically be enrolled in Part A and Part B starting the first day of the month you turn 65. If you aren’t getting social security benefits when turning 65, you’ll need to sign up with the Social Security office to get Part A and Part B.
Should you enroll? Most people should get Part A when they are first eligible. Some who are still working and have group health coverage through their employer may choose to delay Part B. However, those without special situations will have to pay a late enrollment penalty if choosing to sign up for Part B later.
If you worked long enough (40 quarters), the Medicare taxes you paid means you won’t have to pay a monthly premium for Part A. The monthly premium for Part B is based on your income. For 2017, the standard amount is $134 per month.
Part C and Part D: Additional Benefits
Part C, commonly known as Medicare Advantage, is a plan offered by private companies that are approved by Medicare. With a Medicare Advantage Plan, you’ll get Part A and Part B coverage.
Part D includes prescription drug benefits, something not included in parts A and B. Also, many Medicare Advantage Plans offer additional benefits (i.e. an annual out-of-pocket maximum). Most plans do not charge a monthly premium. With Part D, you will typically pay a premium, copayment or coinsurance, and an annual deductible. These plans are offered by an insurance company.
Most people enroll in Medicare Advantage when they are first eligible for Original Medicare. If you are eligible when turning 65, you can enroll during a seven-month period of time – the three months prior to turning 65, the month you turn 65, or the three months after. Otherwise, an annual election period occurs each fall from October 15 to December 7. During this time, you can enroll or unenroll from a Medicare Advantage plan. Special election periods (i.e. moving outside of your plan’s service area) also allow you to enroll in a new plan.
Medicare Supplement Insurance: Comprehensive Benefits
Medicare Supplement Insurance, also known as Medigap, are plans sold by private companies that work in conjunction with Original Medicare to fill the gaps that Medicare doesn’t cover. Supplement plans come in different options, called Plans, and offer various benefits. The two most popular options, Plan F and Plan G, are the most comprehensive and cover almost all the gaps Medicare doesn’t cover. Monthly premiums for supplement plans depend on age, gender, zip code, and tobacco use.
The best time to buy a Medicare Supplement plan is during your Medigap Open Enrollment Period. This begins the first day of the month in which you are 65 or older and are enrolled in Medicare Part B. This open enrollment period lasts six months. During this period, you can enroll in a Medicare supplement plan without health underwriting. This means the insurance company cannot decline your application or charge you a higher premium due to health issues. It’s important to realize that enrolling at a later date means you can be subject to underwriting.
Choosing the right Medicare option can be confusing. Our Medicare experts can help you find the right option. Simply schedule time with us below!
Jake is a co-founder and Director of Investing at Stewardship Financial. In his role he gets to help people make smarter decisions on how to invest in the capital markets.