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Over 3.5 million people become eligible for Medicare every year. If you or a family member is currently eligible or will soon become eligible for Medicare, this article will help you understand some of the core components of the program. This installment is the first of a two-part series that will also explore how Medicare coordinates with health benefits offered through FEHB, TRICARE, and VA.

What is Medicare and who is eligible?

Medicare is a federal health insurance program for people 65 and older. It’s also available for people with certain disabilities or end-stage kidney failure. More than 63 million Americans are covered by Medicare, making it the second largest social insurance program in the United States behind Social Security.

Medicare eligibility starts for most people at age 65, whether you’ve retired or not. You must be a U.S. citizen or a permanent legal resident who has lived in the United States for at least five continuous years. Eligibility for Medicare is not based on income or work history, although both factors may impact the cost of some program benefits.

What are the parts of Medicare?

There are four primary parts of Medicare insurance: Part A, Part B, Part C, and Part D. Medicare Part A and B together make up Original Medicare, while Part C and D are provided through private insurance companies that contract with Medicare.

Medicare Part A (Hospital Insurance)

Medicare Part A helps pay for inpatient hospital care or limited time at a skilled nursing facility following a hospital stay. It also pays for some hospice care and home health care.

Premiums for Part A are free if you or your spouse paid Medicare payroll taxes for at least 40 quarters (10 years).

Medicare Part B (Medical Insurance)

Medicare Part B helps cover services from doctors and other health care providers, outpatient care, ambulance rides, home health care, durable medical equipment, and some preventive services.

The standard Part B premium amount in 2021 is $148.50 per month for single people with a modified adjusted gross income (MAGI) of $88,000 or less or married couples with a MAGI of $176,000 or less. If your MAGI is above those limits, you may have an extra charge added to your premium. This additional charge is called an income-related monthly adjustment amount (IRMAA).

Medicare uses the MAGI reported on your IRS tax return from two years ago. Less than five percent of people with Medicare are affected by an IRMAA; however, if your premium is more than the standard amount because your earlier tax returns showed higher income than you now have after retirement, you can file an appeal with Social Security. New premium rates for the following year are usually announced in November.

Medicare Part C (Advantage)

Medicare Part C, also known as Medicare Advantage, bundles Part A, Part B, and usually Part D. Medicare Advantage plans may also include vision, hearing, and dental benefits.

The cost of Part C varies by carrier, place of residence, and plan selected. Many Part C plans have very low premiums, but you must continue to pay your Part B premium while enrolled in an Advantage plan.

Medicare will pay your plan provider a set monthly fee for your care, and your coverage will come from a private insurer rather than the government.

Medicare Part D (Prescription Coverage)

Medicare Part D helps cover the costs of prescription drugs that you pick up at the pharmacy or order via mail.

The monthly premiums for Part D vary depending on the specific plan that you choose. Each insurance company sets its own rates. Similar to Part B, some people with higher incomes may have to pay more for their Part D plan.

Medicare Supplement Plans (Medigap)

A Medicare Supplement plan, commonly known as Medigap, is an additional coverage option to Original Medicare. It helps pay some of the costs not covered by Medicare Part A and B, including deductibles, copayments, and coinsurance. Medigap cannot be used with a Medicare Advantage plan.

Medigap premiums vary and are paid directly to the private insurance company you got your Medigap policy through. Most states offer 10 standardized types of Medigap plans; however, the three most popular plans are Plan F, Plan G, and Plan N.

What is the enrollment process for Medicare?

There are few ways to enroll in Medicare. If you’re receiving Social Security benefits when you turn 65, you’ll be enrolled automatically in Medicare Part A and B. Otherwise, you can sign up for Medicare online at the Social Security website, on the phone by calling 1-800-772-1213, or in-person at a local Social Security office.

If you have to apply on your own, your initial enrollment period for Medicare is a seven-month window that begins three months before you turn 65, includes the month you turn 65, and ends three months after you turn 65. For example, if you turn 65 on July 19, 2022, your enrollment period will start on April 1, 2022 and end on October 31, 2022. One exception to this rule is if your birthday falls on the first of the month; your initial enrollment period will start one month early.

If you’re 65 or older and covered by health insurance as a current federal employee or are covered by the health insurance of your spouse who is a current employee, then you can delay enrollment in Part A and/or B. When you or your spouse retires or loses coverage, you have eight months to sign up for those Parts during a special enrollment period.

If you miss your initial enrollment period and don’t qualify for a special enrollment period, you’ll have to wait until the next general enrollment period that starts January 1 and ends March 31 of each year. Your coverage won’t start until July 1 that year. Additionally, you may incur a permanent 10% late enrollment penalty on your Medicare Part B premium for every 12 months that you could have been enrolled in Part B but weren’t.

There’s also an annual election period that occurs between October 15 and December 7 each year that’s specifically for Medicare Part C and D. During this period, you can switch to Medicare Advantage from Original Medicare or vice versa. You can also change Medicare Advantage plans if you’re currently enrolled in one.

What is excluded from Medicare?

Original Medicare does not cover certain health services and costs, including:

• Long-term care
• Most dental care or dentures
• Routine eye exams, eyeglasses, or contacts
• Hearing aids and related exams or fittings
• Acupuncture or other alternative treatments
• Cosmetic surgery
• Routine foot care
• Most medical care overseas

Let’s Connect!

We hope you enjoyed this blog post about the essentials of Medicare. If you have any questions about federal benefits, personal finance, or retirement planning, connect with us. Here are some ways that we can help you:

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Jerel Harvey

Jerel Harvey

Jerel Harvey is the Founder and Managing Principal of Fedway Financial, an advisory firm that provides financial planning, investment management, and benefits training to the federal workforce.

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