What if you had to make a healthcare decision that could affect the rest of your life?
That’s not a hypothetical question if you’re 65 and about to go on Medicare. Every day another 10,000 Americans turn 65 and need to make critical decisions regarding how they structure their healthcare going forward.
But Medicare comes with complicated rules that can be confusing and can lead to problems if ignored or misunderstood. It’s important that you make informed choices.
Read on as I take you through a simplified Medicare 101.
Age 65 is the magic number
When you hit 65, you become eligible for Medicare. You’ll be faced with decisions that affect which doctors you can see, which hospitals, specialists, therapists, and other medical providers you have access to, and how much all that will cost you.
In my role as a volunteer Medicare counselor in the federally-funded State Health Insurance Assistance Program, the questions I’m most frequently asked about Medicare include:
- How do I enroll?
- Do I have to enroll?
- How does Medicare work?
- What are my choices?
I’ve written about various aspects of Medicare for Consumer Rescue. Today I’m going back to the basics. I’ll cover how, when and whether to enroll, and what Medicare covers. A follow-up article will explore the major decision you have to make.
How to enroll in Medicare
If you’re 65 and not covered by a workplace plan, then you have to sign up.
Enrollment in Medicare is handled by the Social Security Administration (SSA). If you started collecting Social Security benefits before age 65, then SSA will enroll you in Medicare automatically. SSA will send you a Medicare card between one and three months before you turn 65.
If you’re not already collecting Social Security benefits, then enrollment is not automatic. You have to take the initiative and sign up for Parts A and B (I’ll explain what those are in this article). The easiest way to do that is via the Social Security website or you can also can enroll by:
- regular U.S. Mail
- in-person at a local SSA office
Enrolling by phone is probably the most frustrating because of the often-long wait times to talk to a representative.
The Initial Enrollment Period
Medicare has an Initial Enrollment Period (IEP). That’s a seven-month window centered on the month you turn 65. You can enroll any time:
- In the three months prior to your birthday month
- During your birthday month
- In the three months following your birthday month
If you enroll during the three months before your birthday, your coverage will begin on the first day of the month you turn 65. If you wait to enroll until your birthday month or the three months following, then your coverage will begin the first of the month after you enroll.
It’s best to enroll during the first month of your IEP. That’s because, just like with the massive delays we’ve seen in U.S. passport processing, Medicare enrollment processing is also delayed. That has created problems for some people who haven’t received their Medicare number, which is needed not only to access care but also to sign up for a prescription drug plan, a Medicare supplement, or to join a Medicare Advantage plan.
What if you plan to continue working past age 65?
If you’re working past age 65 and are covered by a workplace or union health plan that’s related to your (or your spouse’s) active employment, then you don’t necessarily have to enroll in Medicare. It depends on your employment circumstances, including the size of your employer and type of insurance coverage you have. You can check out the FAQs on the Medicare website for more details.
Assuming your workplace coverage qualifies, you can choose to continue with that. You will then have a Special Enrollment Period or SEP. That’s an eight-month period which starts when your employment or workplace coverage ends – whichever comes first. During the SEP you can enroll in Medicare Part B and a prescription drug plan without a late-enrollment penalty. Your coverage would start the month after you enroll.
Even if you plan to continue working, you might benefit by enrolling in Part A (hospitalization coverage). That’s because it can act as secondary insurance for hospitalization costs that your workplace plan doesn’t cover. There is no premium for Part A for most people.
Don’t get bitten by COBRA
COBRA is a federal law that allows people to temporarily keep employer or union coverage after their employment ends or after they lose coverage as a dependent of a covered employee. However, you cannot use it to delay signing up for Medicare. Here’s how The Centers for Medicare and Medicaid Services explains it:
A person with COBRA who doesn’t sign up for Medicare when first eligible may have to pay a life-long late enrollment penalty. Since COBRA coverage isn’t considered coverage based on current employment, they won’t qualify for the SEP Related to Coverage Under Group Health Plans after their COBRA coverage ends.
A person who’s eligible for Medicare, but gets COBRA coverage instead, may be responsible for significant bills.
What if you miss your initial or special enrollment period?
Don’t let the deadlines for the IEP or the SEP slip by. But what if you miss them? You still have another chance to enroll. However, you have to wait for Medicare’s General Enrollment Period which runs from Jan. 1 through March 31. Your coverage would begin the month after you enroll. However, you might get hit with a late enrollment penalty.
And if you miss that March 31 deadline? Then you have to wait until the following January to enroll and you will get hit with a late enrollment penalty. It’s a lifetime penalty that will be added to your monthly Part B and drug plan premiums. The size of the penalty depends on how many months you’re late.
The parts of Medicare and how they work
I wish it were as easy as A,B,C and D. Those are the designations given to the parts of Medicare. But to make understanding a little easier, think of them as AB+D, or C instead. I’ll explain.
Part A is hospital inpatient coverage. If you need to be hospitalized, Part A covers that cost. It also covers skilled nursing care in a nursing home and possibly home health care for a limited time if they are needed during your recovery. Part A also covers hospice care for those with a terminal diagnosis.
For most Americans, Part A does not have a monthly premium. It’s covered by deductions that were taken from your paychecks during your working years as long as you worked a total of at least 40 quarters. A frequent exception is the situation of a woman who did not work outside the home but instead took care of the family and the household. In that example, she would be covered under her husband’s work credits.
However, Part A is not completely free. It has deductibles and copays.
Someone who for other reasons did not accrue 40 work quarters can still sign up for Part A but they would pay a monthly premium.
Part B is outpatient coverage. That includes doctor’s office visits, diagnostic services (such as X-rays, MRIs, and labs), physical therapy, home health care under certain circumstances, medical equipment (such as crutches and walkers) and certain preventive services.
Part B has a monthly premium that everybody pays, regardless of how they structure their Medicare. Most have it deducted from their monthly Social Security benefit. For 2024, the Part B premium is $174.70 per month. It generally goes up every year. Part B also has deductibles and a 20% copay.
Medicare doesn’t cover everything
There are some things that Medicare does not cover. These include:
- Long-term care in a nursing home
- Routine dental care (such as exams, cleanings, fillings)
- Routine vision care (such as glasses and contacts)
- Routine tests and exams (such as the routine physical)
- Hearing aids
- Cosmetic and other elective surgery
- Care outside the U.S
A note of caution, however: Doctors don’t always know what Medicare covers when they write an order. The Medicare.gov website has a search function to help you determine if a procedure is covered.
Prescription Drug Coverage
Part D Medicare-approved private insurance plans are available to help with the cost of your medications. Depending on where you live, you have 15 to 24 plans to choose from. Monthly premiums vary by plan and by where you live. They range from zero in a few states to almost $200 per month in others. The copays they charge for drugs also vary widely, as do the annual deductibles.
Don’t choose a plan based on just the premium or deductibles. That can lead to an expensive mistake. Instead, use the Medicare.gov website plan finder tool. It will analyze drug plans based on your prescriptions to help you select the most appropriate and cost-effective plan for your specific medication needs.
I discussed the importance of choosing the right drug plan in this article.
Even if you don’t take prescription medications now, you should join a Medicare drug plan or a Medicare Advantage Plan with drug coverage to avoid a late enrollment penalty. You can get an inexpensive plan that protects you from the costs of unexpected prescriptions and from a lifetime of late penalties later. In this story, I wrote about one of our readers who got hit with a penalty for late enrollment.
There is a drug plan enrollment exception if you have what Medicare calls other creditable coverage which is explained on the Medicare site.
Think of this as AB+D and a supplement.
Medicare was originally set up as a Fee for Service (FFS) model. If you see a doctor or other provider, they send a claim to Medicare. The fee they receive depends on the service and Medicare’s contract rate. If they don’t see or treat you then they cannot bill Medicare.
FFS Medicare is not a PPO (preferred provider organization). There are no network restrictions. You can see any doctor or provider anywhere in the U.S. who accepts original Medicare (and the vast majority do). You do not need a primary care doctor’s permission or referral to see a specialist. There are no “pre-authorization” requirements. If it’s a Medicare-covered benefit and it’s medically necessary, then it will be covered.
If you decide to go with FFS Medicare, you will need to sign up for a prescription drug plan. You should also sign up for a Medicare supplement plan, also called a Medigap, to help cover the deductibles and copays for Parts A and B. Without a supplement, there is no limit to how much those copays might total for someone who has a lot of healthcare needs. How to choose a Medigap plan is the topic for a separate article.
Medicare Part C: the private insurance alternative
The alternative to original FFS Medicare is Part C, known as Medicare Advantage (MA). This is a capitated program. That means private insurance companies contract with Medicare to provide all Medicare-covered services and benefits in exchange for a fixed monthly fee per member from the government.
Most MA plans use the Health Maintenance Organization (HMO) model in which members are required to get all of their services from doctors, hospitals, and other providers that are in the plan’s network. Most of these plans include prescription drug coverage.
Some MA plans are able to offer extra benefits that FFS Medicare doesn’t cover, such as routine dental and vision care and hearing aid assistance among others.
The number of MA plans available depends on where you live. Small-population rural counties may only have a few to choose from, while some large metropolitan areas will have more than 70. The average beneficiary has 43 plans to choose from in 2024.
About two-thirds of the MA plans with prescription drug coverage don’t charge a monthly premium (other than the Part B premium that everyone pays). They do have copays and deductibles, but you are not allowed to purchase a Medicare supplement plan to help with those costs. So, depending on your healthcare needs, total out-of-pocket costs for deductibles and copays in some MA plans can reach as high as this year’s Part C maximum of $8,850. That’s in addition to any premiums.
The fork in the road – which way to go?
And that’s where we come to the most important decision: Which alternative to choose? Do you go with AB+D and a supplement? Or do you go with C instead? Both have their pros and cons. I’ll help you through what to consider when making that decision in my next column. (Abe Wischnia, Special features columnist)