Understanding Medicare
By: Financial Hotline
Summer 2024 (Vol. 42, No. 2)
Q: I turn 65 on January 3, 2025. When can I sign up for Medicare?
A: The 7-month window of time when you can sign up for Medicare is called your Initial Enrollment Period (IEP). Your IEP includes your 65th birthday month, the 3 months before and the 3 months after.
Since your 65th birthday is January 3, 2025, your IEP begins October 1, 2024 and ends on April 30, 2025. For those whose birthday falls on the 1st of any month, the IEP is determined as though they were born the month before. Therefore, for anyone turning 65 on January 1, 2025, their IEP would begin September 1, 2024 and end on March 31, 2025.
If you currently receive Social Security, Railroad Retirement Board benefits or have been on disability for at least 24 months, you may be automatically enrolled. You’ll receive your Medicare card in the mail before your 65th birthday but you’ll still need to make note of your Initial Enrollment Period (IEP) during which you may make Medicare coverage decisions.
Q: What if I miss my IEP window?
A: That could be a costly mistake. If you don’t sign up during that seven-month window, you’ll have another chance to enroll during Medicare’s general enrollment period (GEP), which runs from Jan. 1 to March 31 each year. However, you may have to pay higher Medicare premiums for the rest of your life.
The late enrollment penalty could add 10 percent to your monthly Part B premium for every 12 months you delay. So if you wait two years to register and your monthly payment is $150, you would pay an extra $30 each month (20% penalty) resulting in a total payment of $190. There are some exceptions to this rule including the option to postpone signing up for Medicare without a penalty if you or your spouse are still working and you have health insurance based on that job.
What is the difference between Medicare A, B, C and D?
A: Medicare A and B are traditional Medicare. Medicare A covers hospitalization and Medicare B covers a wide range of what’s left including doctor and outpatient visits, tests and preventative healthcare. Medicare C (also known as Medicare Advantage) is offered by private companies that must follow Medicare rules. This coverage combines all the benefits of traditional Medicare (A and B) with a supplement plan that helps limit your out of pocket cost and covers extra benefits. Medicare Part D is prescription drug coverage.
What will Medicare cost me?
A: You don’t pay a monthly premium for Part A if you (or another qualifying person, like your current or former spouse) paid Medicare taxes while working ten years or longer. If you worked less than ten years but more than 7.5 years, your premium in 2024 is $278. If your work record is less than 7.5 years, your premium this year is $505.
Currently, with traditional part A, you will pay a deductible of $1,632 for each inpatient hospital benefit period, before Original Medicare starts to pay. You may have to pay multiple deductibles since here’s not a limit to the number of benefit periods you can have in one year. Part A also pays for inpatient care such as a skilled nursing home as follows:
- Days 1-60: $0 after you pay your Part A deductible.
- Days 61-90: $408 each day.
- Days 91-150: $816 each day while using your 60 lifetime reserve days.
- After day 150: You pay all costs.
The standard monthly premium for Medicare Part B enrollees in 2024 is $174.70, but some people may have to pay more depending on their income. There is a $240 annual deductible for Medicare Part B in 2024 . After the deductible, you’ll pay a 20% copay for most doctor services while hospitalized, as well as for durable medical equipment (DME) and outpatient therapy . There is a 20% copay of the Medicare-approved amount for doctor visits to diagnose a mental health condition after the deductible.
Medicare Advantage (Part C) plans are required by law to provide—at minimum—the same coverage, benefits and rights provided by Original Medicare Part A and Part B, with the exception of hospice care but most offer significantly more coverage and many include a prescription drug benefit. The average cost for Part C is low but since it’s offered by private insurance companies the plans vary in cost, coverage, deductibles and copays.
In 2024, the average cost of Medicare Part D is $55.50. Part D can be purchased with traditional Medicare and can also be included in a Medicare Advantage (C) plan.
Q: What are Medigap plans?
A: If you choose to purchase traditional Medicare (part A and B) you can buy a separate Medigap policy to help cover out of pocket costs and extra services. The difference between Medigap and Medicare Advantage (C) is that you must have traditional Medicare (A and B) to purchase Medigap. These plans may also be known as Part F, G , K or other letters according to your state.
Q: Medicare decisions can be overwhelming. What are some mistakes to avoid?
A: A frequent complaint is not being financially prepared for the services Medicare Parts A and B do not cover. Here are more points to look out for:
- Determine your Initial Enrollment Period now and do not miss it. Not signing up in time could cost you a monthly penalty for the rest of your life.
- Don’t make assumptions or ignore enrollment just because you are still employed, or you have insurance already. You need to know all your options and possible penalties.
- Don’t treat prescription drug coverage as an afterthought. Medicine can be your largest expense. Check the covered drug list and make sure your medications are covered.
- Do not choose a Medicare Advantage plan without verifying that it includes your health care providers.
- Waiting too long to buy Medigap coverage.
- Don’t assume traditional Medicare is your cheapest option. You may find a Medicare Advantage plan is more affordable.
Q: I have an HSA to help with medical costs but can I also consider this account as retirement savings?
A: In general, Health Savings Accounts (HSAs) are tax- advantaged savings vehicles for funding health care expenses not covered by insurance. And for those in relatively good health, they also may serve as attractive retirement savings vehicles.
To be eligible to contribute, an individual must be covered by a high-deductible health plan (HDHP). In 2024, an HDHP must have a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. For 2024, you can contribute up to $4,150 to an HSA, $8,300 if you have family coverage (plus an additional $1,000 if you’ll be 55 or older this year). Contributions are tax-deductible and withdrawals used to pay for qualified unreimbursed medical expenses are tax-free.
Any funds you don’t need for medical expenses will continue to grow on a tax-deferred basis, providing a valuable supplement to your other retirement accounts. In general, once you reach age 65, you can use your HSA funds to pay for anything. Amounts spent that aren’t for qualified medical expenses will be subject to state and federal taxes, but not subject to a penalty.