Social Security is often anointed as the most important social program in the U.S. because of the income it provides retired workers each month. But you'd be making a mistake if you didn't put Medicare, the program designed to provide medical care primarily to seniors aged 65 and up, in the same discussion.
According to an analysis conducted by the Urban Institute, the cumulative lifetime benefits for a median income 65-year-old are estimated to be higher from Medicare than Social Security by the year 2055. In other words, the importance of Medicare is growing, especially on account of the medical inflation rate handily outpacing both the national inflation rate and wage growth.
Despite Medicare's being a critical program for seniors, there's a lot about it that's simply misunderstood. Unfortunately, if you misunderstand Medicare it could come back to haunt you in your pocketbook. Here are seven of the most common myths associated with Medicare.
1. Medicare is free
Arguably one of the biggest Medicare misconceptions is that since it's a critically important social program, it's free. In reality, though some aspects of the program may be offered "free," retirees are expected cover certain expenses on their own.
For example, Part A, otherwise known as hospital insurance, has no premium attached if you've earned 40 work credits throughout your lifetime. However, Medicare Part B (outpatient services) has a standard premium of $121.80 in 2016. Part D, or prescription drug plans, also requires a monthly premium.
On top of premiums, consumers could be responsible for deductibles and out-of-pocket costs. There are no annual out-of-pocket limits with original Medicare, meaning that retirees are often responsible for about 20% of their medical expenses.
2. Medicare covers everything
Another common myth is that Medicare covers all types of medical procedures and care. This is actually fiction, as there are a number of services Medicare doesn't offer.
For instance, Medicare doesn't offer coverage for standard dental, vision, or hearing care. If you're interested in these services, you may want to consider an all-encompassing Medicare Advantage plan or purchase separate health insurance for these services from a private insurer.
In total, there are 10 services that Medicare surprisingly doesn't cover. In addition to the three mentioned above, out-of-country medical care, most cosmetic surgery, and certain types of diabetes supplies aren't covered by Part A or Part B.
3. I can enroll anytime I want
Medicare is designed to provide significant financial assistance during your golden years, but there are some restrictions, including when you're allowed to enroll.
During your initial enrollment period (IEP), you're eligible to enroll during the three months prior to your 65th birthday, the month you turn 65, and the three months following the month you turn 65. If you miss this IEP, you'll need to wait to enroll until the next enrollment period.
For those of you who aren't within your IEP, the standard enrollment period for Medicare or Medicare Advantage plans is between Oct. 15 and Dec. 7. The reasons these dates are consistent from one year to the next has to do with giving private insurers covering Part D time to get their paperwork in order prior to the Jan. 1 coverage start date.
Furthermore, Medicare Advantage members have an opportunity to dis-enroll and opt into original Medicare between Jan. 1 and Feb. 14. But note that this is a one-way street since original Medicare members may not dis-enroll and opt into a Medicare Advantage plan during this time period.
4. I'll be notified when it's time to enroll
Clearly you don't want to be late enrolling for Medicare, but that doesn't mean the program will necessarily notify you that it's time to enroll.
Here's the good news: If you've chosen to file for Social Security benefits before turning 65, you'll be automatically enrolled in Medicare Part A and Part B. You'll still need to enroll in Part D on your own.
The bad news is that if you're not receiving Social Security by age 65, you'll have to remember to enroll during your IEP or the normal enrollment period. If you fail to enroll in Part B or Part D, you could face a penalty when you do eventually enroll in Medicare. Worse yet, this monthly penalty follows you around for the remainder of your life (i.e., for as long as you're enrolled in Medicare).
5. Everyone pays the same for Medicare
Medicare may offer the same benefits for everyone, but that doesn't mean everyone pays the same price for medical care. Your work and earnings history can dictate how much you'll pay for Medicare.
For example, if you haven't earned 40 work credits over your lifetime, Part A isn't free. If you have 39 or fewer work credits you could owe up to $411 per month for Part A. For what it's worth, the vast majority of retirees receive Part A without paying a premium.
However, the biggest differences can be seen in Part B and Part D premiums between higher-income individuals and everyone else. If your individual adjusted gross income is below $85,000, or $170,000 as a couple, you'll pay the standard Part B and Part D premium. But if you earn more than these income thresholds, you'll pay a surcharge for your medical care. Part B monthly expenses can be as high as $389.80 for individuals earning more than $214,000 in 2016 and couples tipping the scales at $428,000 or more in income. Part D monthly surcharges range from $12.70 a month to as high as $72.90 a month on top of your plan premium for well-to-do persons.
6. Having poor health will disqualify me from coverage
Prior to the introduction of the Affordable Care Act, health insurance providers would have been able to pick and choose what patients to accept into their network. Following the ACA's implementation, insurers are required to accept members regardless of their health. The same can be said of Medicare, which can't reject you because you're sick or have a pre-existing condition. You could be required to pay a surcharge if you make too much money, but your acceptance into Medicare is guaranteed.
7. Medicare is going bankrupt
The final misconception is the belief that Medicare is going bankrupt and won't be there for Generation X and millennials when they are of retirement age. This is false, but the program itself isn't on solid footing.
According to the Social Security and Medicare Board of Trustees' latest report, Medicare's Hospital Insurance Trust is on track to burn through its spare cash by the year 2028. If Medicare were to exhaust this cash, it would become a budget-neutral program. The result would be an estimated reduction in payouts to hospitals and physicians of 13%. It's possible this payout reduction could cause some medical care providers to drop Medicare coverage.
Yet the keyword here is "budget-neutral." This means that the money being generated from payroll taxes will continue to fund the program for the tens of millions of seniors enrolled. Medicare still clearly needs the attention of Congress, but it's not going bankrupt and will be there for you when you retire.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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