Medicare coverage is one of the most important benefits that Americans get for their retirement. With most people becoming eligible for Medicare at age 65, the program's help for retirees in meeting the challenge of paying for healthcare is invaluable. Before you take your benefits, though, there are a few things you should be aware of and take into consideration. Below, we'll talk about several important factors that should go into your Medicare decision.
Coordinating Medicare with other coverage
If you have other healthcare coverage, the first question many people ask is whether they really need to apply for Medicare. Because Medicare charges premiums for Part B medical coverage, those who have group health plans through a current or former employer might not want to pay for Medicare if their current plan provides adequate coverage.
In general, if your employer has 20 or more employees, then a group health plan either through your current employer or your spouse's employer will be the primary insurer, and Medicare will play a secondary role. For employers with fewer employees, the opposite is true, and Medicare is the primary payer while the group plan pays second. If you have retiree coverage through a former employer, Medicare is typically the primary payer as well.
However, it's important to go to the provider of the employer coverage to get details. Some plans will require that you sign up for Medicare when you become eligible. Others will give you the option. Most of the time, you can qualify to start Medicare later during a special enrollment period without paying a penalty, and so that can be your best option in some cases.
Traditional Medicare or Medicare Advantage?
One key issue with Medicare is whether you want to elect traditional coverage under Parts A and B or instead choose a Medicare Advantage plan. Traditional Medicare offers benefits directly through the agency that administers the Medicare program, offering fixed benefits and allowing you to add supplemental Part D prescription drug plans if you want. By contrast, Medicare Advantage plans are run through private health-insurance companies, and they can offer slight variations in benefits as well as integrating Part D drug plan services directly into the Medicare Advantage plan.
Many people choose Medicare Advantage because it offers a cap on out-of-pocket spending. Traditional Medicare has no such limit, forcing those who want that protection to get a supplemental Medigap policy to go along with their regular coverage. In addition, different cost structures under Medicare Advantage can reduce your overall expenses, moving away from the typical 20% coinsurance payment that you'll have to make with traditional Medicare.
How to avoid penalties
Medicare expects you to sign up for the program at certain times, and if you don't, you can owe a penalty. Different parts of the program have different penalties.
Most people qualify for Part A hospital coverage under Medicare without paying a premium, so there's no penalty associated with late filing. However, those who have to pay the Part A premium also pay a 10% penalty on each monthly premium for a period equal to twice the number of years that you waited to sign up.
Part B medical coverage has a similar penalty provision. Premiums will rise 10% for every 12 months you delayed taking Medicare Part B, but the difference is that unlike Part A penalties, the Part B penalty continues for the rest of your lifetime. However, you won't pay a penalty if you qualify for a special enrollment period. This can happen if you work past 65 and have private insurance coverage through your employer, with the special enrollment period typically starting as soon as you retire and lose that coverage.
Finally, for Part D drug coverage, the penalty calculation is more complex. Medicare takes the base beneficiary premium and imposes a 1% penalty for every month that you didn't have coverage. To avoid the penalty, you'll need to avoid going 63 days or more without drug coverage from some source.
Medicare is an extremely useful program, but it also has some complexities. Making sure you understand how the program works will help you when it's time to enroll.
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