Be Medicareful: Maximizing 2025 Benefits
Like Social Security, Medicare is one of the most important programs for older Americans, and yet, most people who are not yet receiving benefits do not understand it. I often hear people mix up Medicare and Medicaid. That is a sure sign to me that they need a quick education on the basics. These are two totally different programs.
Medicare is health insurance for eligible people who are 65 and over (or who qualify for Social Security disability at a younger age). It is part of the Social Security system and working Americans have paid taxes to earn their Medicare benefits.
Medicaid is financial assistance for people who have a low income and virtually no assets in their own name. Eligibility is not based on being 65. A Medicaid recipient could be a newborn or a very aged senior. Medicaid is a state and federal partnership, so Medicaid rules vary from state to state. Often older people who run out of assets and need to move into a nursing home may get Medicaid to cover those expenses. People may have BOTH Medicaid and Medicare.
A financial advisor can help you understand the basics of both programs and especially situations where Medicaid may come into play. Many financial advisors don’t know nearly enough about either Social Security or Medicare because it is outside of their investment work. It is something advisors don’t get paid for and are not involved in unless they are charging for financial planning advice that covers these topics.
Be Medicareful! Don’t Be Late To This (Birthday) Party
The year you turn 65, you MUST know where you stand with Medicare eligibility. Medicare enrollment is mandatory—it is NOT automatic! You must be proactive and enroll yourself. You can do it online three months before your 65th birthday, so that you have Medicare coverage starting the month you turn 65.
Be Medicareful! Procrastinate and Pay the Penalties
Medicare is not entirely free. Medicare Part A (Hospitalization) is free, but Medicare Part B (Doctors) has a premium based on your earnings. Medicare Part D (Prescription Drug coverage) also has a premium.
If you miss enrolling during your initial eligibility period, you may end up paying substantial penalties for each part of Medicare:
- Part B: You’ll pay an extra 10% for each year you could have signed up but didn’t.
- Part D: You’ll pay an extra 1% for each month (that’s 12% a year) if you:
- Don’t join a Medicare drug plan when you first get Medicare.
- Go 63 days or more without creditable drug coverage.
- You may also pay a higher premium depending on your income.
Be Medicareful! Group Coverage
Once you turn 65, you MUST enroll in Medicare Parts A&B unless you have creditable coverage, which is true group coverage with a plan that has 20 or more employees.
True group coverage is not always as clear as you might think. One trap is that you may have a retiree health plan from a company you are no longer working for, turn 65, and find that the plan becomes secondary after Medicare. That means that you must enroll in Medicare Parts A&B. If you don’t do this on time, you will pay a penalty for life.
Be Medicareful! COBRA
Once you leave a job, you may be eligible to continue your current group health coverage through COBRA. It is expensive because now that you are no longer working for your former employer, you are paying your part of the premium as well as what the former employer paid. Still, some people just want to keep the coverage they have always had. If you have COBRA before 65, and turn 65, you MUST enroll in Medicare Parts A&B. COBRA does NOT qualify as true group coverage. This may seem counterintuitive since this has always been group coverage as far as you are concerned.
Be Medicareful! Supplemental Is Elemental
I have mentioned Medicare Part A (Hospitalization), Part B (Doctors), and Part D (Prescriptions), but I skipped Part C. I think calling it Part C is confusing, because this part refers not to medical benefits, but to health insurance plans (Medicare Advantage plans) that offer supplemental benefits.
Medicare alone does NOT cover ALL of your medical expenses and can leave you exposed to potentially ruinous medical expenses. You have deductibles to pay, but your biggest potential financial exposure is the 20% co-pay on medical expenses including hospitalization. Supplemental coverage fills that gap.
There are two ways to get supplemental coverage:
- First, you can utilize Medicare Part C by enrolling in a Medicare Advantage Plan.
- Second, you can buy a separate Medigap insurance policy from a private insurance company.
Medicare Advantage Plans (Part C)
These plans may be completely free to enroll in and will likely give you the extra insurance coverage you need. Many plans feature extras like discounts on dental, vision, gym membership, and even a partial reimbursement of your Part B premiums. You must be enrolled in Medicare Parts A & B before you can enroll in Medicare Part C.
Medigap Insurance Plans
Medigap policies are popular but can be expensive. If you sign up during your initial enrollment period (age 65) or your special enrollment period (after your group coverage ends), you cannot be denied coverage regardless of your health.
Medigap plans are lettered (A through N) and cover different gaps in Medicare coverage. They are regulated by state and federal governments to offer standardized benefits. Costs and services may differ between plans, so it pays to shop.
Why buy a Medigap plan if enrolling in a Medicare Advantage plan may be free?
Advantage plans require you to use their own network of doctors. You cannot just go to any doctor that accepts Medicare. For people who have many doctors, move around the country, or just want the flexibility to go to any Medicare doctor, the extra expense of a Medigap insurance plan may be worth it. You will have to decide this for yourself based on your budget and your need to access health care.
You cannot have both a Medigap and a Medicare Advantage plan at the same time, but you can switch between the two. However, if you are outside of your initial or special enrollment periods, you may not be able to get a Medigap plan since it can be subject to underwriting.
Medicare and Social Security
Medicare Part B premiums are deducted from your Social Security check. But, what if you enroll in Medicare at age 65 and postpone Social Security benefits because you are still working? No worries, Medicare will simply bill you quarterly for the Part B premiums.
Be Medicareful! Common Medicare Mistakes
- Not signing up for Medicare at the right time
- Missing the special enrollment period
- Delaying enrollment when your job insurance is second in line
- Not understanding Part B and Part D late enrollment penalties
- Not fully comparing original Medicare with Medicare Advantage plans
- Delaying buying a Medigap policy
- Not understanding your out-of-pocket costs
- Choosing a Medicare Advantage plan that doesn’t include your healthcare providers
- Choosing drug coverage that doesn’t fully and affordably cover your prescriptions
- Assuming you can’t afford Medicare
Medicare is not a one-time decision. Plans change their benefits, pricing, which drugs are covered, and more each year. Sometimes they add benefits. Doctors come and go. Plans themselves come and go. It’s a good idea to revisit your options each year—especially if a change negatively affects you. It may pay to shop plans and switch. It is a very competitive market in most places.
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