6 key Medicare questions
- When am I eligible?
- What are my choices?
- How do I choose my Medicare supplement options?
- What do the plans cost?
- When and how do I sign up?
- Where can I go for more help?
As the first among her group of close-knit friends to reach age 65, Diane became their de facto expert on Medicare. When each one got closer to their Medicare eligibility date, she got a frantic call for help.
Even though they were smart business people and professionals, they "were flummoxed by the new language and process for managing their health care coverage," she remembers. "Since I had already made my way through the decision maze, they figured I'd have some of the answers for them."
Unfortunately, as Diane and her friends soon discovered, you "really do need to do your own homework on this, because every situation is unique." While she could direct them to some of the places where she found information, she couldn't give them the individual answers they needed.
Getting on top of your Medicare choices can have a major impact on your readiness to retire. Indeed, Fidelity estimates that the average couple turning 65 this year will have $280,000 in health care expenses in retirement.1 "Insuring that your health care costs are covered wisely is a key component of a solid retirement income plan," says Ann Dowd, CFP®, a Fidelity vice president.
Good sources of information include the Medicare site, the Social Security site or getting in touch with the local State Health Insurance Assistance Program (SHIP) office for free one-on-one assistance. Available in every state and US territory, SHIP program counselors are uniquely trained to help people navigate the maze of Medicare options.
To get started, here's a quick rundown of the questions most frequently asked about retiree health care—with answers you'll find at the Social Security and Medicare sites.
1. When am I eligible?
Normally, your health insurance coverage under Medicare begins when you reach age 65. However, you also may be eligible for Medicare at any age if you have certain qualifying disabilities. It is often a surprise that you enroll in Medicare only for individual coverage. There is no "family" coverage with Medicare, so your spouse or partner will not be covered by your Medicare plan and is required to enroll on their own when they reach Medicare age.
Tip: If you have a younger spouse or partner, they won’t be able to enroll in Medicare when you do. If they lose health insurance prior to age 65, they can seek coverage on their state's health insurance exchanges or in the private market. Cost will vary. Once the younger spouse or partner reaches 65, they too become eligible for Medicare.
When you do become eligible, you'll want to remember to sign up within the 7-month time frame that begins 3 months before the month you turn 65 and ends 3 months after the month you turn 65. If you miss this initial deadline, called the Initial Enrollment Period, you may have a big gap in coverage. You'll have to wait until the next January to March General Enrollment Period to sign up. Your coverage won't be effective until the following July and you’ll likely incur a permanent penalty that increases your premiums.
The exception is if you're still working when you're 65 and get health insurance through your employer or your spouse's employer. You don't have to enroll right away, as long as you can prove that you had this coverage when you sign up later on.
For more, read Viewpoints on Fidelity.com: Working after 65? Avoid 5 Medicare pitfalls.
2. What are my choices?
While the decisions you need to make are similar to what you may be used to with employer-provided health insurance, the structure of the Medicare health insurance program is very different. Not only are there different categories of insurance to sort out, but there are many options within each category. Here's a quick rundown:
Part A: Hospital insurance
Medicare Part A coverage was first introduced in 1965 to help seniors manage the high cost of hospital care. After you pay an annual deductible, this insurance kicks in during your "benefit period"2 to pay for hospital stays, certain treatments and procedures performed in the hospital, care at a skilled nursing facility, and hospice care.
Part B: Medical insurance
Medicare Part B was designed to pay for many of the health care costs not covered by Part A, including doctor visits and services, outpatient hospital care, physical and speech therapy, lab tests, blood transfusions, medical equipment and supplies, and ambulance services. There is a standard monthly premium that each individual pays, and it increases for higher income households.
Medigap (supplemental) policies
You may have other health care costs that won't be covered by either Part A or Part B of Medicare, such as deductibles and co-pay amounts, and certain other services. Unless you have other health insurance—for example, if you are a veteran, a union member, or a retiree with an employer health benefit—you may want to consider purchasing a policy that gives you the extra coverage you may need. To supplement Medicare Parts A and B, you can purchase a "Medigap" policy. Medigap policies are offered by private insurance companies, and there are a variety of plans to choose from, based on the services you would want to have covered.
Alternative insurance with a Medicare Advantage plan
With Medicare, you can purchase an all-in-one managed care Medicare Advantage plan that provides your Part A and Part B coverage, gap coverage for many other services, plus costs that are not covered under Parts A and B, and may include Part D prescription drug coverage (explained below). Most Medicare Advantage plans provide coverage only for in-network providers for non-emergency services. The type of plan you choose depends on what types of services you want to include (such as eye glasses or dental care) and whether you prefer to choose your own doctors or health care facility.
- Compare Medicare Advantage or managed care plans, with the Medicare Plan Finder.
Part D: Prescription drug coverage
Prescription drug coverage is not included in the original Medicare (Parts A and B) or Medigap supplemental policies. So unless you have this coverage elsewhere—or it's already included in your Medicare Advantage plan—you may want to think about buying a Medicare Part D policy to help pay for your prescription medications.
The plan you select for Part D coverage may depend on whether the plan includes the types and doses of medications you need (and how these fit with their formulary), how frequently you need them, and what pharmacy you use.
3. How do I choose my Medicare supplement options?
Begin by looking at the coverage you have now with your current health care provider and deciding what you want to duplicate or change. Then consider these questions to help narrow your choices:
- How much can I afford to spend on monthly premiums?
- What benefits do I really need? (You can save money if you don't buy coverage for benefits that you don't mind paying for out of pocket, such as Part B deductibles.)
- Do I want to choose my own doctors or health care providers?
- Does the plan include coverage for my unique situation? (Paying for emergencies outside the US may be important if you travel frequently.)
- How does the plan's cost compare with that of other plans with the same benefits?
You can go to www.medicare.gov or call your local SHIP office to find out which insurance companies sell supplemental Medigap or Medicare Advantage policies in your state. Ask if they have any guides or rate cards so you can begin to compare plan features and costs.
4. What do the plans cost?
As long as you or your spouse (or ex-spouse) paid Medicare taxes for at least 40 quarters, your basic Part A coverage is free.3 But you are still responsible for paying an annual deductible (which is $1,340 in 2018), and a portion of the expenses for hospital stays that last longer than 60 days or nursing home stays beyond 100 days. Individuals who don't qualify for free Part A because they did not pay Medicare taxes long enough can generally purchase this coverage for an additional cost.
The cost (premium) for Part B is set by Medicare each year at a fixed rate for most participants ($134 a month for 2018), but it increases for individuals with annual income over $85,000 and married couples with annual income above $170,000. The cost for these higher-earning participants can range from $187.50 to $428.60 per month in 2018. Part B premiums also can be higher if you don't enroll when you're first eligible—tack on an additional 10% per year that you missed enrolling on time.
As with Part A, you will pay an annual deductible for Part B ($183 in 2018). And some covered services require that you pay a percentage of the charges or a co-payment amount approved by Medicare—generally 20% of these costs are paid out of your pocket. If you are already receiving Social Security benefits, payment for your monthly Part B premium is deducted directly from your Social Security checks. If you're not yet collecting benefits, Social Security will send you a quarterly bill.
Medicare Advantage plans
With a Medicare Advantage plan, you typically have a set premium, which includes your Part B cost, no (or low) deductibles, and co-pays for doctors, doctor's office visits, and other services. Everyone who enrolls in the same Medicare Advantage plan pays the same premium, regardless of age, gender, or health status.
To compare the cost of Medicare Advantage or Managed Care plans in your area, use the online Medicare Plan Finder.
The amount that insurance companies charge for prescription drug coverage will vary widely, based on how they structure their deductibles and their co-pays, and the brand name and generic drugs that are covered.
For higher income individuals and couples, you'll pay more for Part D coverage (as well as Part B premiums). Premium surcharges range from $13.00 a month to $74.80 a month depending on modified adjusted gross income (MAGI) and marital status.
There is also a span of time for every Part D coverage plan (aptly called the "doughnut hole")—after you hit a certain expense level and before your coverage kicks in again—when Part D insurers reduce what they pay for your prescriptions and require you to pay more. But this often exasperating arrangement will be phased out by 2020, as insurers gradually fill in the amount they cover during the donut-hole period.
You can get help comparing costs among Part D insurance providers at www.medicare.gov or by contacting your local SHIP office. As with all prescription drug plans, you'll need to present your Part D card at the pharmacy you use and pay the copayment amount when you pick up your prescription.
Although the benefits offered under a Medigap or supplemental insurance policy are standardized across the US, the premiums, deductibles, and co-payments for these policies can vary widely. So be sure to compare costs before you buy one. The cost of a Medigap policy may also depend on whether the insurance company offers discounts (e.g., for nonsmokers or for paying your premiums online), or a lower-cost option for using certain hospitals or doctors within the preferred network covered by the policy. The Medigap Policy Search on the Medicare website can help you compare the costs and benefits of the Medigap and Supplemental insurance policies available in your state.
5. When and how do I sign up?
Parts A and B
Every eligible Medicare participant is entitled to receive Part A and Part B coverage upon reaching age 65, but you still need to sign up for your benefits. If you're already receiving Social Security payments, you'll be notified automatically. If not, you'll need to contact your local Social Security office or go to www.socialsecurity.gov to request your ID card and benefits.
Medicare Advantage plans
You may enroll in a Medicare Advantage policy during the same enrollment time frames that apply to Parts A and B. The annual open enrollment period for Medicare Advantage policies takes place every year from October 15 to December 7.
Outside of this period, the government has a 5-Star Special Enrollment Period for Medicare Advantage plans and Medicare prescription drug plans. With this option, you can switch any time during the year except between Nov. 30 and Dec. 8. You can switch from your existing plan to a 5-star-rated Medicare Advantage Plan or a 5-star Medicare prescription drug plan as long as a 5-star plan is available in your area.
You can purchase a Medigap policy when you are first eligible for Medicare, or during the Medicare open enrollment period. Some insurance companies may allow the purchase of a Medigap policy at other times.
If you're new to Medicare, consider enrolling in a prescription drug plan during the initial 7-month enrollment period that begins 3 months before you turn 65. If you sign up after that, your premium can increase for each month you delay. After you enroll, you can always change to a different prescription drug plan during the annual open enrollment period from October 15 to December 7.
See the key differences between Medicare Parts A, B, and D—along with Medicare Advantage and Medigap supplemental policy options.
6. Where can I go for more help?
In addition to the resources offered by your State Health Insurance Assistance Program, or SHIP, check out the services, seminars, and publications available through your local Office of Elder Affairs or Council on Aging. The official Medicare site also has many helpful guides and interactive tools to help you compare your Medicare options.
Having the right Medicare coverage is a key part of your retirement plan. There are many options to explore, so be thorough. Among the many factors to consider in your Medicare decision: health status, cost, coverage, amount of travel you plan to do, and access to existing or preferred doctors and hospitals.
Next steps to consider
Develop a retirement income plan and factor in health care costs.
Prior to Medicare, see which health insurance options are best for you.
Learn how to bridge a gap in coverage if you retire early.