Medicare has officially been around for 54 years, but there are still some facts Americans may not know about the health insurance program.
There are now more than 60 million beneficiaries of the program enrolled for Parts A and B, according to the Centers for Medicare and Medicaid Services. By 2030, that figure is expected to rise to 79 million, according to AARP. President Lyndon B. Johnson signed Medicare into law on July 30, 1965, with 19 million entering the program the year after.
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Some politicians want to expand the program. Sen. Bernie Sanders, a Democrat from Vermont running for president, proposed “Medicare for All,” which would replace the current public-and-private mixed health insurance system with a single-payer program funded by the government (and taxes). The bill has 14 other Democratic co-sponsors, including 2020 presidential candidates Elizabeth Warren, Kamala Harris, Cory Booker and Kirsten Gillibrand. (Not all lawmakers are on board with Medicare for All, however).
The plan, if passed as proposed, could drastically decrease the price of prescriptions and hospital care. But critics argue it could also deepen problems with fraud, negatively impact the stockholders of insurance companies and cut payments to doctors and medical staffs — on top of requiring Americans to pay more in taxes and place the government and its regulations above the sector.
Until legislators and voters decide what they want to see of Medicare, here are a few things you may not know about the program:
Medicare doesn’t start just because you claim Social Security
Retirees can begin using Medicare after their 65th birthday, but some Americans think it starts whenever they receive Social Security benefits. (Social Security is a bit more flexible in its start date — although there is the Full Retirement Age, when retirees would get 100% of the benefits they’re owed, Americans can claim early starting at 62 to get a fraction of their benefit or delay until 70, when they’d get all of their benefit and more.)
The first enrollment period starts three months before the month of the participant’s 65th birthday and ends three months after. There is also a general enrollment for those who missed that deadline, which begins on Jan. 1 and ends on March 31 every year. But be warned: missing the right enrollment period can be expensive. The penalty for missing certain deadlines follows a person for the rest of their life. The penalty for missing the initial enrollment is 10% of that retiree’s premium for every 12-month period without Medicare coverage, which is permanently tacked on to the amount owed every year. It’s an additional 10% for every year missed. And there’s an additional fee for missing prescription coverage.
Missing the enrollment deadline can also be dangerous. Seniors who sign up for Medicare during general enrollment won’t be covered until July 1, and only for Medicare Part A and B, which covers hospital insurance and medical insurance, respectively. Part D, which is for prescription coverage, doesn’t have its annual enrollment until the fall, and even then, those who sign up won’t begin coverage for Part D until the following January. That means retirees who don’t sign up in time can go months, if not a year, without certain health care insurance.
The insurance isn’t entirely free
The premium for Medicare Part A, which covers hospital insurance, is usually provided at no cost, but that’s about it. Premium-free Part A is for people 65 years old who are eligible or already receiving Social Security. Retirees are still on the hook for deductibles and coinsurance though. The Part A deductible is $1,364 for each benefit period, and the coinsurance is $0 for the first 60 days of a benefit period, and then goes up from there. (The benefit period is how Medicare measures the amount of days a patient spends in the hospital. You can learn more here.)
The premium for Part B, which covers medical insurance, is $135.50 (or higher depending on a person’s income). The deductible is $185 a year, and after that patients pay 20% of the “Medicare-approved amount” of most doctor services. Retirees must also pay for Part C, called Medicare Advantage (a supplementary insurance plan from private insurers), and Part D, for medication. Costs for both Part C and Part D vary by plan. “All those Medicare-eligible should consider the long-term cost impact of delaying Medicare coverages and weigh the financial benefit of taking the Part D coverage even if they have access to employer health care in retirement or do not have any prescription needs at the initial enrollment time,” said Michelle Buonincontri, a financial adviser with “Being Mindful in Divorce” in Anthem, Ariz.
You don’t have to enroll in Medicare just because you turn 65 — but you may want to
One of the reasons retirees are hit with penalties come Medicare enrollment is because they had been covered until an employer health insurance plan, and didn’t think they needed to sign up. In some cases, a person should still enroll as soon as she is eligible, like when her employer offers health coverage but also has fewer than 20 employees.
Employees who work at companies with more than 20 employees should discuss options with a benefit manager. When companies have “group health plan coverage,” employees turning 65 may be able to delay Part A and Part B without any lifetime penalties.
There are some key considerations to make though. When ultimately enrolling in premium-free Part A, coverage will retroactively date back to six months before the application for Medicare. Employees planning to make the switch should keep this in mind when deciding when to claim Medicare so that they can stop making contributions to their Health Savings Accounts, if they have one. Employees cannot make deductible contributions to an HSA while covered by Medicare — and they can’t use tax-deductible HSA funds to pay for Medigap supplement plan premiums either, said Patricia Burris, a financial adviser at Meld Financial in Birmingham, Ala. (But they can use HSA money to pay for all other Medicare premiums, including Part B, Part C and Part D).
Medicare doesn’t travel with you on vacation
If taking more vacations is a goal in retirement, be sure to factor in additional health insurance. Coverage for Medicare Part A and Part B, also referred to as “Original Medicare,” is not applicable outside of the U.S. (except perhaps when on a ship within the U.S. territories). “Seniors traveling abroad should pick up some travel medical insurance for peace of mind,” said Clark Randall, a financial adviser at Financial Enlightenment, a financial services firm in Dallas.
There are a few cases where Medicare will pay for inpatient hospital, doctor or ambulance services outside of the U.S., such as when there is a medical emergency and the foreign hospital is closer than the nearest U.S. hospital or when traveling on a direct route in Canada between Alaska and another state and an emergency occurs.
But outside of those non-extreme cases, health expenses get pricey on vacation with Medicare. Americans can pay for Medigap (which is different than Medicare Advantage, or Part C). Medigap plans C, D, F, G, M and N provide foreign travel emergency health care coverage when abroad. They apply to health care during the first 60 days of a trip and pay 80% of the billed charges that are necessary for the care (after a $250 deductible is met for the year). The lifetime limit for Medigap foreign travel insurance is $50,000. You can find out more here.
Long-term care isn’t covered — at least not for the long-term
Medicare only covers long-term care treatment for a limited number of days, but if retirees want better coverage, they’ll need a supplemental plan, said Dennis Nolte, a financial adviser and vice president at Seacoast Investment Services in Winter Park, Fla. Americans often confuse Medicare with Medicaid, which is also celebrating its birthday. Unlike Medicare, Medicaid is a public assistance program that offers health coverage to Americans in need, regardless of age.
“Folks mostly overestimate the amount of coverage they’ll have and underestimate the cost,” Nolte said.
Long-term care, which includes nursing homes and in-home aides, is a major health expense in retirement. A private room in a nursing home can cost about $100,000 or more, a year, while assisted living is around $45,000 and in-home care is $33,000 a year.
About half of people over 65 will need long-term care, and 15% of them will incur more than $250,000 in costs, according to a Vanguard Research and Mercer Health and Benefits report. One typical strategy for help paying these expenses is spending down a person’s retirement savings, so that they become eligible for Medicaid. There are also private insurance plans to offset the costs of long-term care, though even those prices are rising. The average premium today is $2,050 or $2,700 a year for a 55-year-old man and woman, respectively — and that price could jump 25% to 100% every year after.
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