PRIME MAGAZINE Special Features — 03 November 2017
How to plan for Medicare before turning 65

By Robyn A. Friedman

PRIME Magazine

If you’re a baby boomer nearing age 65, then you’re probably aware that you’ll soon be eligible for Medicare. What you might not know, however, is how to sign up, what it covers, how much it costs, whether you need supplemental insurance and just what the heck that donut hole you keep hearing about means.

“Medicare is a mystery to a lot of people,” says Dave Bruns, a spokesman for AARP Florida. “They don’t understand how it works or that they have to pay a premium for Parts A and B.”

Here’s what you need to know.

What is Medicare?

Medicare is a federal health-insurance program that covers people 65 or older, certain younger people with disabilities and people with End-Stage Renal Disease.

Unlike traditional health-insurance plans, Medicare is comprised of four different parts: 

Part A helps pay the cost of hospital stays, care in a skilled nursing facility, hospice care and some home-health care, as well as medication administered to inpatients.

Part B helps pay doctors’ bills, as well as outpatient care, medical supplies and preventive services. Parts A and B are often referred to as “Original Medicare.”

Part C provides an alternative to Parts A and B. Plans under Part C are known as Medicare Advantage Plans. These are private plans that are an alternative to Original Medicare. They often include prescription drug coverage. “Private insurance companies are allowed to use the Medicare name, and they have to sell healthcare coverage that meets Medicare standards,” Bruns says. “Those plans are frequently much less expensive than Original Medicare but you can only get coverage through providers in the network, like if you had employer coverage in an HMO or PPO.” That means that if you plan to travel after you retire, your preferred providers may not be part of the network. Or, if you end up in a hospital that’s not part of the network, the entire bill may be on you. “It’s a risk that can be managed if you know the risk is there,” Bruns says. “But people who make choices strictly on price may find themselves with inadequate coverage and catastrophic costs that can wreck a lifetime of savings.”

Part D plans are private plans that add prescription drug coverage to Original Medicare.

How Do I Sign Up?

If you are already receiving Social Security retirement benefits when you turn 65, you do not need to apply for Medicare; you will be enrolled automatically in Parts A and B and will be covered the first day of your birthday month.

If you do not already receive Social Security, then you need to sign up during a seven-month enrollment period that starts three months before the month of your 65th birthday and ends three months after that month.

You must pay a penalty if you don’t sign up in this time period, unless you have another form of health coverage.

There are special rules for people still covered by an employer’s group health-insurance plan, are on a COBRA plan or in the military, so check with an advisor.

Remember that when you sign up, you can elect to stick with Original Medicare (Parts A and B) and then, if you want prescription drug coverage, join a Part D plan — or you can instead join a Medicare Advantage Plan (Part C), which may include prescription drug coverage.

How Much Does It Cost?

Many people mistakenly think that Medicare is free. While Part A is usually free if you or your spouse paid Medicare taxes while working, you’ll need to pay a premium each month for Part B, but the amount varies based on your income and whether you receive Social Security benefits.

You must pay for Parts C and D, which are private plans.

Also, Medicare Parts A and B only cover 80 percent of usual and customary medical costs, Bruns says. To avoid paying the rest — which can be significant for hospital stays, for example — many people opt for a Medicare Supplement plan, which covers the balance.

“The premium depends on age, sex, ZIP code and which plan you opt for,” says Robert Holzman, an independent insurance agent in Boca Raton. “A supplemental plan can cost from $65 per month for a high-deductible plan to $230 a month for the best plan.”

So What About
the Donut Hole?

The donut hole is a gap in the coverage for prescription drugs. After your Part D drug plan has paid a certain amount for covered drugs, you’ll have to pay all costs out-of-pocket up to an annual limit. For 2017, once your plan has spent $3,700 on covered drugs, you’re in the donut hole. Drug costs are on you at that point until you hit $4,950.

“The Affordable Care Act has started to close the donut hole,” Bruns says. “And provided Congress takes no action, the donut hole will close entirely by 2020 — but that assumes that the ACA is still law in 2020.”

Where Can I Get More Information?

The Medicare website (Medicare.gov) has all the information you need, and it’s written in plain language. You can also determine what premiums you’ll have to pay on that site. Additional information is also available in AARP’s Medicare Resource Center, at aarp.org/health/medicare-insurance.

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