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If you're 65 or older, you probably count on Medicare coverage to take care of the majority of your healthcare expenses. Yet many retirees don't know all of the basics of how Medicare coverage actually works. To help educate you more about this vital program, below you'll find seven facts about Medicare that everyone should know.
1. How to qualify for Medicare
Medicare is available to workers who earn enough work credits during their careers. It takes 40 credits to earn full benefits under Medicare, which includes premium-free hospital coverage. In 2016, it takes $1,260 in earnings to get one credit, and you can accumulate up to four credits each year. Therefore, most workers have to work 10 years in order to qualify for Medicare. A worker's spouse can qualify on the worker's record even if the spouse doesn't have enough credits.
If you don't have enough credits, you can still enroll in Medicare, but you'll have to pay premiums for your hospital coverage. For those with 30 to 39 credits, the premium is $226 per month. If you worked less, the monthly amount is $411. Premiums for other types of coverage are the same as for those with 40 or more credits.
2. What Medicare covers
Medicare coverage comes in several parts. Part A covers hospital and other inpatient expenses, and it is funded by the Medicare payroll taxes that workers pay. Part B provides coverage for doctor visits and other outpatient care, and participants pay a monthly premium to get their Part B coverage. Prescription drug costs are covered under Part D, the newest part of the Medicare program for which insurers collect an additional monthly premium charge.
3. The choice of traditional Medicare or Medicare Advantage
Medicare participants can choose between two different forms of Medicare. Traditional Medicare involves the Part A, B, and D plans described above, and the federal government directly provides the coverage for Part A hospital and Part B medical expenses. However, you can also choose to participate in a Medicare Advantage plan, also known as Medicare Part C.
Image source: Medicare.gov.
Medicare Advantage involves an outside insurance provider that offers the same essential coverage that traditional Medicare does. Medicare Advantage plans also have the option of including additional benefits that traditional Medicare doesn't cover, such as dental care or vision-related services. With Medicare Advantage, you can get coverage that incorporates a prescription drug plan with your other benefits, giving you just one payment to make.
Many traditional Medicare participants find that they need to get a supplemental Medigap policy in order to fill in gaps in Medicare coverage. A Medicare Advantage plan can play the same role, and that's one reason why they've become more popular in recent years.
4. Medicare enrollment deadlines
It's important to enroll for Medicare in a timely fashion in order to get coverage and avoid potential penalties. The initial enrollment period starts three months before your 65th birthday and runs until three months after you turn 65. For those who have group plan coverage under their employer or their spouse's employer, a special enrollment period is available once that coverage is lost.
If you don't enroll at the right time, then Medicare late-enrollment penalties can be severe. Part B premiums rise 10% for every 12 months you enroll late, with the surcharge continuing for the rest of your life. Similar increases to Part D premium costs can also apply, although they are temporary in nature.
5. How Medicare works with other types of healthcare coverage
If you have other coverage, it's important to coordinate it with Medicare. If you have coverage through an employer group health plan, then the determining factor is how many employees your employer has. For companies with 20 or more employees, group health plans provide primary coverage, leaving Medicare with secondary responsibility for costs. That can make it less important to sign up for Medicare as long as you still have that coverage.
Image source: Medicare.gov.
On the other hand, for companies with fewer than 20 employees, group health coverage is secondary, while Medicare takes the primary role. If you're in this situation, then your employer might actually require you to sign up for Medicare as a condition of your group plan coverage. Either way, it's important to work with your employer to make sure you coordinate benefits correctly.
6. How to change your Medicare coverage
You have the ability to change your Medicare options every year. During open enrollment, which runs from Oct. 15 to Dec. 7, you can switch between original Medicare and a Medicare Advantage plan, or you can switch between different Medicare Advantage plans. You also have the ability to change your prescription drug coverage under Medicare Part D.
Another period for changes applies between Jan. 1 and Feb. 14. During this period, the only option you have is to drop your Medicare Advantage plan in order to return to traditional Medicare.
Often, switching your Medicare can save you money. It makes sense to look at your coverage every year to see if you can unlock healthcare savings.
7. Medicare's tenuous financial situation
The latest annual report from the trustees of Medicare's trust fund confirmed that Medicare's costs continue to climb. Total program expenditures were $648 billion in 2015, and the trustees believe that the trust fund that covers hospital insurance costs will be depleted by 2028. Once that money runs out, tax revenue will cover only 87% of expected Part A costs, and that could spur action from the government to create reforms.
Other parts of Medicare get their funding from the overall federal budget, and so they aren't as directly exposed to financial pressures. Nevertheless, Medicare is projected to become an ever-growing portion of overall federal expenditures, and that poses a long-term threat to the nation's financial stability unless policymakers find ways to control healthcare costs more effectively.
Medicare is important for retirees, and knowing these facts can help you make the most of your coverage. By being aware of Medicare's provisions, you'll put yourself in as secure a position as possible to take care of your healthcare needs in retirement.
