Medicare is a vital part of how retirees meet their healthcare costs, with the federal program offering valuable benefits for hospital costs and routine doctor-provided outpatient treatment. Yet while tens of millions of Americans participate in Medicare, few know all of the intricacies of the program. If you're unfamiliar with some of Medicare's key provisions, you might be surprised by what the program does and doesn't do for you.
To reveal some of Medicare's secrets, we turned to three Motley Fool contributors to discuss their knowledge of Medicare and some of the more difficult provisions for people to understand. Their thoughts can help you learn more about Medicare and take greater advantage of the program's benefits when you retire.
Selena Maranjian: When it comes to obtaining healthcare coverage for those of a certain age, you can sign up for Original Medicare coverage or for a relatively new offering, Medicare Advantage, which is a plan offered by a private insurer. Many people don't realize there is another option for a large number of seniors: the Medicare Medical Savings Account.
The Medicare MSA is a Medicare Advantage plan that is different from most others, combining a high-deductible health insurance plan with a medical savings account. It works likes this: Medicare pays the plan sponsor (typically, a health insurance company) a certain sum per enrollee. If you enroll, the insurer then parks a portion of that money in an account for you. You can now pay for qualified medical expenses with that money. (Note that you have paid no premium for this plan. You simply signed up and have money to spend.) If you spend all the money in the account, you'll have to pay for any further expenses out of your own pocket, until you hit your deductible, which is generally extremely high, possibly topping $10,000. Once you hit the deductible, the plan will cover your qualified expenses through the end of the year, when the process starts again.
There's a lot to know about Medicare MSAs, such as that they don't cover Medicare Part D prescription drugs and that the money deposited into your account isn't taxable as long as it's used for qualified expenses. Also, money in the account that is not used during the year stays in the account and can be used in future years. It's even considered part of your estate. Medicare MSAs aren't available everywhere at this point, but you might be able to enroll in one, so look into it if you're intrigued.
Todd Campbell: People can choose to delay when they take their Social Security, but failing to sign up for Medicare Part B on schedule could put you on the hook for a penalty.
There is a seven-month window during which a person can sign up for Medicare Part B without worrying about being penalized. That window opens three months prior to the month in which you turn 65 and closes three months after that month. If you fail to sign up for Part B during this period, then for every 12 months of delay enrollment you could pay 10% more monthly in Medicare Part B premiums, unless you qualify for a special enrollment period.
For example, if you sign up for Part B 30 months after your initial enrollment period ends, then your monthly part B premium penalty would be 20% because the delay includes two full 12-month periods.
If the reason for delaying involves being covered by a group plan at work, then the individual will likely qualify for a special enrollment period. In that situation, individuals can sign up without penalty for up to eight months after they stop working, or after their group health plan coverage ends, whichever comes first.
Dan Caplinger: One thing many people don't know about Medicare is that the program already features an element of means-testing. While anyone who has a sufficiently long work history can qualify for Medicare, earning too much money in retirement can make the program more costly for some than for others.
Specifically, most people pay a monthly premium of $104.90 for their Part B medical insurance coverage under Medicare. But for individuals who earn more than $85,000 or couples with incomes above $170,000, higher rates apply. A $42 increase to $146.90 applies to singles earning $85,000 to $107,000, while those making up to $160,000 pay $209.80 per month, and the tier upward to $214,000 pay $272.70. Above $214,000 for individuals, you'll pay $335.70. For couples, each of the thresholds is double that for individuals, so couples making more than $428,000 pay the maximum $335.70 monthly rate.
These income figures might look relatively high for someone in retirement, but recent proposals have suggested expanding these tiers to charge even more. Medicare might be a reasonably good deal even with the higher premiums, but many Americans are surprised to discover the rates aren't perfectly equal regardless of means.