Medicare is a public health insurance program administerd by the federal government and private insurance companies. Unless you are on disability (in which case you might qualify under the age of 65), everyone is eligible upon turning 65. For people who are retired and not covered by an employer, the only decision they have to make is whether to opt for traditional Medicare vs. a Medicare Advantage plan. That alone can throw people into a tailspin of questions and angst about which is better.
For this article’s purposes, we will focus a few of the options available to people who are offered an employer-sponsored plan when they retire and how to make a decision about Medicare. Our best advice? Check with your employer’s human resources department about how their health insurance plan interfaces with Medicare. Next, go to Medicare.gov to get your questions answered.
Let’s look at basic definitions of Medicare and what it covers. Keep in mind there are always extenuating circumstances, so these are basic definitions. You have seven months to enroll in Medicare. Three months before your 65th birthday, the month of your birthday and three months following your birthday.
Medicare Part A. Covers inpatient hospitalization, skilled nursing rehab after a three-night stay in the hospital, home health care and hospice. Medicare Part A has no premium. If you do not sign up for Medicare Part A when eligible, 10% is added to your monthly premium. You pay this penalty for twice the number of years that you were eligible for Part A.
Medicare Part B. Pays for a percentage of outpatient visits to your doctor or other health care provider, emergency visits, durable medical equipment and preventative health care. There is a premium associated with Part B determined by your income. Most people opt for a Medigap plan to pick up what Medicare Part B doesn’t. If you don’t sign up for Part B and decide to do so later, the penalty is 10% added to your monthly premium, multiplied by the number of years (12-month periods) that you were eligible for Part B but not enrolled.
The other very important point to remember is that if you sign up for Part B later and add a Medigap plan, Medigap insurance can consider pre-existing medical conditions. Medigap plans can’t consider pre-existing conditions if you enroll when you turn 65 or for the six-month open enrollment period following your 65th birthday. If you wait, premiums could be very high, or companies could deny you coverage based on your medical condition.
Medicare Part D. A prescription drug plan offered by private insurance companies.
Medicare Part C. Also known as Medicare Advantage plans. These plan roll Medicare A, B, and D into one plan, usually with lower premiums. Private insurance companies approved by Medicare administer these programs.
The number of possible scenarios with employer plans is dizzying. We will focus on a few to get you started with making a decision.
You are 65 or older and have coverage based on your current employer or your spouses employer.
If you or your spouse’s employer has over 20 employees, then the employer plan is primary, and Medicare is secondary. The employer plan pays first, and Medicare pays for what the employer plan did not cover. People with group health coverage based on current employment may be able to delay Part A and Part B and won’t have to pay a lifetime late enrollment penalty if they enroll at a later date.
If you or your spouse's employer has less than 20 employees, then Medicare pays first, and the group health plan pays second. If you were to lose your employer's health plan, you would be covered by Medicare A and B. You will, however, probably want to sign up for a Medigap plan at that point. If your employer plan has a prescription drug plan, you can keep that plan’s drug coverage.
You are 65 and older, retired and have an employer-based health plan
Regardless of your retiree insurance, you must make sure to enroll in Medicare Parts A and B because Medicare will always pay first after you retire, and your retiree plan will pay second. The advantage for many people in keeping their employer-sponsored health plan as their secondary payor is that it probably has more benefits than a traditional Medigap plan. Here is an example:
Jan worked for the federal government for over 30 years. She retired before the age of 65 and continued to receive her employer-sponsored health plan at the same premium amount she was paying when she was employed. At age 65 she signed up for Medicare Parts A and B.
At that point, her Medicare became primary, and her employer offered her seven different employer-sponsored plans for Medigap coverage. Jan still has to pay a premium for that Medigap plan, but with these perks:
If your employer plan does not have a drug plan like Jan’s you will want to get a Medicare Part D plan to cover your prescriptions.
Deciding on Medicare can be challenging, and it will require some effort to find the best fit and cost for you. Understanding the rules and penalties will give you the coverage you need and save you money in the long run.
Alliance America is an insurance and financial services company. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.