Confusion seems to reign when it comes to Medicare. Do you have to enroll? Is Medicare coverage automatic? Does Medicare cover long term care? What does it not cover? Many of our clients have found it helpful when I let them know about the following facts about Medicare when making decisions for themselves or their parents.
Medicare is mandatory once you are retired.
Medicare is the primary payment method for health care after age 65 unless you are covered by employer group plans that covers 20 or more employees. It is important to understand that coverage must be based on current employment not a retiree plan. In addition the coverage can be as a worker or dependent under the employer plan.
Everyone else must enroll in Medicare at age 65. This includes individuals covered under a small employer plan (less than 20 employees), retiree plan, COBRA or an individual health insurance policy.
Did you know that Medicare enrollment is not automatic? If an individual is not on Social Security they must proactively enroll in Parts A and B during the initial or special enrollment period. Parts A and B are automatic if on Social Security. Parts C and D you must choose a private insurer.
If you do not sign up for Medicare on time you will pay a late-enrollment penalty.
What happens if you do not enroll for Medicare on time? You may not have health care coverage and you may pay a late enrollment penalty. The initial enrollment period is the 7-month period that begins 3 months before the month you turn 65.
I advise my clients to sign up early to avoid a delay in coverage. To get Medicare Parts A and B the month you turn 65, you must sign up during the first 3 months before the month you turn 65. If you wait until the last 4 months of your initial enrollment period to sign up for Part A and B your coverage will be delayed.
Current workers and their spouses who are covered by a comprehensive employer group health plan (covers more than 20 or more employees) may sign up during a special enrollment period.
What happens if you missed the initial enrollment period? The option is that you can sign up during the general enrollment period which covers January 1st through March 31st. Note that coverage will not start until July 1st and you may face a gap in coverage and pay a late enrollment penalty.
Part A late enrollment penalty does not apply to most people since Part A is free to anyone who has paid into Social Security for 10 years. However, if you pay a premium for Part A, and you are late signing up, you will pay a penalty of 10% of the amount of the premium for twice as many years as the delay. For example, if Part A premium is $248 (30-39 quarters) and you are two years late signing up, you will pay an extra 10%, or $24.80, for four years.
Part B late enrollment penalty occurs when you fail to sign up when eligible. The penalty is 10% for every 12 month period you could have had Part B. Note that this penalty is paid for as long as you have Part B (i.e. the rest of your life).
Part D late enrollment penalty occurs when you do not sign up when eligible. The penalty is 1% of the national base beneficiary premium ($35.02 in 2018) multiplied by the number of months you could have had Part D. Like Part B penalty, the penalty must be paid the rest of your life. Note that there is no penalty as long as coverage is at least as good as Medicare’s. It is best to ask your benefits administrator or health plan if coverage creditable. If coverage ends, you must sign up for Part D within 63 days or face late enrollment penalty.
Medicare does not cover everything.
Supplemental insurance is essential since Medicare Parts A and B do not cover the following:
Care delivered outside the United States
Acupuncture and other alternative care
Amounts over Medicare approved amount
Amounts not covered by deductibles and coinsurance (20%)
The need for supplemental insurance is key since that with Medicare alone; there is no limit to out-of-pocket spending. In addition, be aware that Medicare drug plans and Medicare Advantage plans change year to year.
Your out-of-pocket health care costs will probably be higher than you expect.
Health care costs will include:
Out-of-pocket costs for non-covered services.
Your health status will of course affect all these costs. Check out www.MedicareNewsWatch.com website which defines three states of health (good, fair or poor) to concisely define health care needs in terms of doctor visits per year, number of hospital admissions and number of prescriptions. Note also that health care costs are growing at a higher rate of inflation than the Consumer Price Index.
Of course as you age, health care costs typically increase beyond inflation because one is sicker, require more hospital visits, more medications and more care in the home or in a nursing home. A large amount of health care costs may occur in the last few months of life.
There is no way to know what costs each you or your family member will incur or their longevity. There are measures one can take to cut costs such as long-term care insurance and comprehensive living wills can keep some of these costs in check. Other measures include switching to generic prescriptions and changing to a less expensive healthcare plan. We do not recommend holding off going to the doctor, splitting pills, skipping doses (to make prescriptions last longer) or delaying a recommended surgery. We recommend checking on your older parents to make sure they are getting the care they need at a price they can afford.
Medicare does not cover long-term care.
A 2012 survey by Bankers Life and Casualty Company Center for a Secure Retirement indicated that over 50% of middle income Americans did not know that Medicare did not cover long-term care at home or in a facility. 42% of Medicare enrollees have limitations of daily living (ADL) according to the Centers for Medicare and Medicaid Services, Medicare Current Beneficiary Study. ADLs include bathing/showering, dressing, getting in and out of bed and chairs, walking and using the toilet. The help needed for these ADLs increase with age according to the Administration of Aging, A Profile of Older Americans, 2011.
Make good health a priority. Talk openly about your health care future with your family. Listed below are five actions you may want to consider. If you need help please contact us.
Learning about Medicare.
Understanding what is not covered.
Planning ahead for health care costs by including these costs in your financial plan.
Considering long-term care insurance if you qualify.
Developing a comprehensive living will and health care directives.