Getting to know about Medicare is a key part of preparing for retirement, with the government program taking a huge portion of the burden of healthcare expenses off your shoulders once you become eligible at age 65. Yet as complicated as the program is, many find Medicare intimidating. To help simplify Medicare and boil it down to its essential elements, we asked three Motley Fool contributors to weigh in on what they see as the must-know facts about Medicare and why it's so important to your financial health.
Selena Maranjian: One key thing to understand about Medicare is that signing up for it at the right time is VERY important. Being late can be very costly, in the form of facing more expensive premiums for the rest of your life. Specifically, your part B premiums (which cover medical services, but not hospital services) can rise by 10% for each year that you were eligible for Medicare but didn't enroll. Yikes, right?
When is the right time to apply? You're eligible for Medicare at age 65, and can sign up anytime within the three months leading up to your 65th birthday, during the month of your birthday, or within the three months that follow. If you fail to enroll during this time, you can always enroll during the "general enrollment period," which is from January 1 through March 31 of each year.
If you're still working, with employer-provided healthcare coverage, at age 65, or are serving as a volunteer abroad, you can delay enrolling in Medicare without penalty. You'll get a special enrollment period based on when you return, when you stop working, or when your employer-provided coverage ends.
There's a little safety net for some folks: If you're already receiving Social Security benefits, you'll likely be automatically be enrolled in Medicare. You'll know this has happened because you'll receive your Medicare card in the mail three months before your 65th birthday. Many people don't start collecting Social Security that early, though, so this little loophole may not help you.
This is a tricky topic, so read up on it before you turn 65, so that you don't end up facing unnecessary and costly penalties.
Sean Williams: Medicare is among one of the most important entitlement programs you'll likely come across in your golden years. Therefore it's imperative that you understand what this health insurance program covers, what it doesn't cover, and what your options are.
Let's start with the basics. Medicare is divided into a number of components, but the original Medicare consists of Part A, which is your hospital insurance coverage, and Part B, the medical insurance that pays for doctor and outpatient visits and services. Part A usually doesn't have a premium, but as Dan notes below, Part B does come with a monthly premium cost. Also, Part B has a $147 out-of-pocket deductible in 2015, after which you are responsible for 20% of Medicare-approved costs. There is no out-of-pocket limit on these costs.
What options do you have? If the idea of uncertain out-of-pocket costs, or prescription drug costs (prescription drugs are covered under Part D), scares you, there are always Medicare Advantage (MA) plans. MA plans (known as Part C) replace the original Medicare but give you access to all the benefits of the original plan. You'll pay a higher premium for Part C, but you'll also have a limit to your annual out-of-pocket expenses. Which plan works best will differ on a person-to-person basis.
Medicare beneficiaries should also be aware that they are allowed a free wellness exam once every 12 months, and they'll likely qualify for a handful of free preventative services, such as a flu shot or mammogram. But, not all things are free or covered. If a problem arises during a wellness exam, it could lead to out-of-pocket costs. Furthermore, dental care, hearing aids, and eyeglasses are all examples of what Medicare doesn't cover.
Dan Caplinger: Medicare is a great program, but it isn't free. Medicare Part A hospital insurance coverage usually comes at no cost for those who paid taxes into the Medicare system during their careers, as well as their spouses. However, Part B medical coverage and Part D prescription drug coverage typically involves paying premiums.
For most people, Part B coverage costs $104.90 per month in 2015. However, those who have higher incomes pay larger premiums, with increased amounts kicking in for single filers making $85,000 or more and for joint filers with incomes of $170,000 or more. Four different brackets apply, with the highest-income taxpayers seeing premiums top out at $335.70 per month.
Part D costs vary by the type of plan, with some bare-bones prescription drug plans not charging any premium at all while higher-coverage options can charge extensive premiums. As with Part B medical coverage, income-based surcharges can apply to Part D plans that can boost your monthly prescription drug plan premium by as much $70.80 in 2015.
In addition to these premiums, Medicare also requires participants to pay a share of their healthcare costs, with various deductibles and copayments applying for certain services. All told, Medicare is a huge benefit for older Americans, but it still requires some financial planning to ensure you can meet all your healthcare needs.