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How to Enroll in — and Pay for — Medicare

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Health insurance is confusing enough while you’re still working, but once you turn 65, introducing Medicare to the mix adds another layer of confusion. A webinar hosted Monday by Jim Holtzman, a wealth advisor and shareholder at Legend Financial Advisors and EmergingWealth Investment Management, explained the ins and outs of enrolling in and paying for Medicare coverage.

Your clients must enroll in Medicare at 65, according to Holtzman, unless they’re covered by a health plan from an employer or a spouse’s employer. If they don’t enroll (and if that caveat doesn’t apply to them), they’ll have to pay late-enrollment penalties.

For Part A, that penalty is a 10% increase in the monthly premium, which must be paid for twice the number of years the beneficiary was eligible but not enrolled, according to Medicare.gov. The penalty for late enrollment in Part B is 10% for each full 12-month period that the beneficiary was eligible but not enrolled, and the penalty must be paid for the entire time he or she has Part B coverage.

If your clients are receiving Social Security benefits when they turn 65, they’ll automatically be enrolled in Parts A and B, but they’ll have to look for their own coverage for Parts C or D if they choose that coverage.

Retirees who aren’t automatically enrolled have a seven-month enrollment period. Clients can enroll one to three months before the month they turn 65 and Plan B coverage will start as soon as they hit 65. If they wait until the month they turn 65 to enroll, or the three months after their birthday, there will be a delay before Plan B benefits take effect.

Another point of confusion for clients is that although Medicare is administered by the Centers for Medicare and Medicaid Services, they enroll through the Social Security Administration.

ABCDs of Medicare Enrollment

A common area of confusion for consumers is the difference between Medicare’s various plans. Part A covers hospital insurance; Part B covers medical insurance; Part C, also called a Medicare Advantage plan, combines Parts A, B and sometimes D; and Part D covers prescriptions.

Retirees can sign up for Medicare Part A and B, then decide if they need Part D. They may also decide they need a supplemental “Medigap” policy. Alternatively, retirees can sign up for the Medicare Advantage plan, which as mentioned before combines Parts A and B, and may add Part D coverage if they choose.

“Most of the time I see Medicare Advantage plans do cover prescription drug coverage, just be aware it’s not guaranteed to be part of it,” Holtzman said.

Medicare Advantage plan beneficiaries don’t need to buy Medigap policies, and in fact, aren’t even allowed to be sold those types of plans, Holtzman said.

Retirees who want Part D coverage must sign up during their initial enrollment period or face late enrollment penalties, unless they have comparable coverage through another plan. They can switch to Part D any time before that comparable coverage ends; after it does, retirees have 63 days to enroll in Part D.

If they miss the initial enrollment period, clients can sign up during the general enrollment period between Jan. 1 and March 31, but coverage won’t begin until July 1, Holtzman said.

Medicare Costs

Premiums make up a significant chunk of out-of-pocket costs for retirees, according to Holtzman: 42%. The average out-of-pocket cost paid in 2010 was $4,734. Women tend to pay more, Holtzman said ($5,036 versus $4,363).

Most people won’t pay Part A premiums if they or their spouse paid into Social Security for at least 10 years (40 quarters). If they paid into the system for between 30 and 39 quarters, the premium is $224 a month, and increases to $407 per month for those who paid into the system for less than 30 quarters.

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The base premium for Part B in 2015 is $104.90, according to Holtzman. “Then there are income-related adjustments; basically, the more income you make, the higher premium you pay for Part B,” he said.

For example, joint filers with a modified adjusted gross income between $170,000 and $214,000 will pay an additional $42 a month for their Part B premium.   

Holtzman noted that because there’s no cost-of-living adjustment (COLA) scheduled for 2016, there won’t be any increases in Medicare premiums next year.

Part A deductibles are $1,250 per benefit period or “spell of illness,” Holtzman said. A patient is eligible for 90 days of hospital care and 100 days of extended care in the same benefit period, according to Medicare, but may be eligible for as much as 150 days of hospital care if they draw on their lifetime reserve.

However, coinsurance kicks in after 60 days and patients will have to pay $315 per day during the benefit period. After 90 days, when patients begin drawing on their lifetime reserve, coinsurance increases to $630 per day.

The deductible for Part B is $147 a year.

Part D coverage introduces the so-called “donut hole,” the gap in coverage when costs exceed the combined annual deductible of $320 and the initial coverage period of $2,640. During that initial coverage period, patients will be responsible for 25% their prescription costs, but once they meet the donut hole limit, Part D benefits stop. Patients will take on 45% of the cost of covered brand name drugs and 65% of the cost of covered generics.

The maximum out-of-pocket cost for prescription drugs in 2015 is $4,700. Once that limit is exceeded, catastrophic coverage kicks in. Part D will pay 95% of covered drugs, or the cost of the drug minus the copay. Patients will be responsible for either 5% of the cost, or copays of $2.65 for generic drugs and $6.60 for brand name drugs, whichever is greater.

Long-Term Care

Regardless of when boomers enroll in Medicare, they have to plan for higher health care costs in retirement than while they were working. Long-term care is not covered by Medicare or Medigap, Holtzman said.

Medigap policies can be purchased by beneficiaries who aren’t on a Medicare Advantage plan, Holtzman said. They’re offered by private insurers and can be used to cover things like copayments, coinsurance and deductibles. Medigap policies don’t cover prescriptions; beneficiaries have to use Part D to cover their prescription needs.

Medicaid, however, does cover some long-term care services, although programs and eligibility vary from state to state. A report released Monday by BMO Wealth Institute found 57% of Americans are planning on Medicaid to fund their long-term care.

Holtzman noted that 42% of Medicare beneficiaries have limitations in their daily activities. In all age groups, arthritis was the biggest cause for those limitations, followed by heart disease and other circulatory problems.

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