Why Have Medicare in Retirement?

There are many perks to retirement, such as freedom, traveling, spending more time with friends and family, and for most, becoming Medicare eligible. Most seniors become eligible for Medicare when they reach age 65. Though, some seniors believe they do not need Medicare due to retiree or Veterans Affairs (VA) coverage. 

That is not always the case, so it’s important to know the facts when you approach your Golden Years. Here’s why you should have Medicare in retirement.

Take advantage of National healthcare coverage

Medicare is America’s national healthcare coverage for inpatient and outpatient services, known as Part A and Part B. Part A is hospital insurance that will help cover the costs for your inpatient hospital stay and skilled nursing facility stay.

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You can think of Part A as your room and board when admitted to the hospital. Part A will cover the cost of a semi-private room and three meals for each day as an inpatient. However, Part A will not cover any actual treatment that you receive in the hospital, such as surgeries – that will fall under Part B.

Part B is outpatient coverage that covers all of your care outside the hospital, such as doctor’s visits, preventative care, durable medical equipment, and more. If you did not have Part B, you would have to pay 100% for all of your outpatient services.

With that said, Medicare Part B only covers 80% of your Medicare-approved services. Therefore, you will be responsible for 20% of your services. Now, 20% of your services can be a hefty payment if you receive a service such as a kidney dialysis – which is why there are Medicare supplements.

You have access to supplemental plans 

Due to Medicare not paying for 100% of your healthcare services, many Medicare beneficiaries purchase a Medicare supplement, such as a Medigap or Medicare Advantage plan. 

These alternative plans are structured differently from one another, but overall, help reduce your overall cost-sharing expenses, compared to what you would spend solely with Medicare. 

Medigap plans

Medigap plans, also known as a Medicare Supplements,  are sold by private health insurance companies. Medigap plans help cover the gaps that Medicare leaves you, such as deductibles, copayments, and coinsurance. 

For example, as mentioned earlier, Medicare Part B only covers 80% of your Medicare-approved services. Eight out of the ten Medigap plans available will cover that 20% for you.

Medigap plans are secondary to Medicare. Therefore, Medicare will pay first, and your Medigap plan will pay next. However, if Medicare does not pay, neither will your Medigap plan. 

Medigap plans also do not have networks, and referrals to see a specialist is not required. Therefore, you can visit any doctor in the United States, and if they accept Medicare, they must accept your Medigap plan, regardless of the plan or carrier you are enrolled in.

Medicare Advantage plans

Medicare Advantage plans, also known as Part C, are sold by private insurance companies. However, when enrolling in a Medicare Advantage plan, you will receive your Part A, Part B, and Part D benefits through the carrier you enrolled with.

These private insurance carriers have a network of doctors and pharmacies for you to visit, and the carrier will also set its own cost-sharing. For example, when visiting your primary healthcare physician, you might pay a small copay, and possibly a higher copay when visiting a specialist. 

Many Medicare Advantage plans also include a built-in Part D plan. So, instead of enrolling in a standalone Part D plan, as you would with a Medigap plan, you will receive all benefits through a Medicare Advantage plan.

Notably, Medicare Advantage plans can offer additional ancillary benefits, such as dental, vision, and hearing benefits, or even a free gym membership. However, these extra benefits can change from year-to-year, so do not pick a Medicare Advantage plan for the free gym membership – the additional benefits are not guaranteed for the next year.

Part A is free for most people

If you or your spouse have worked at least 40 quarters (10 years) in the United States, you qualify for $0 premium Medicare Part A. Over your working years, you have been pre-funding your Medicare Part A premium, which covers your room and board at the hospital. 

If you do not have the qualifying work history, Part A could cost you as much as $458 a month. So, if you’ve earned it premium-free Part A, there’s no reason not to use it.

Most people who have qualified for premium-free Part A, enroll when they are first eligible for Medicare even if they are still working. Though, there are restrictions when it comes to your ability to contribute to a Health Savings Account (HSA) after enrolling so it is best to consult your benefits manager and/or a Medicare broker before doing so.

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Avoid late enrollment penalties

The only way to delay Medicare is if you work past 65. If this does not apply to you, you must enroll in Medicare Part A and Part B during your Initial Enrollment Period (IEP).  This period begins three months before your 65th birthday month and ends three months after your birth month (totaling seven months). 

If you fail to enroll in Medicare during your IEP, you will likely be penalized for late enrollment. If you qualify for premium-free Part A, you won’t be penalized since your premium is $0. However, if you have to pay the Part A premium, you can receive a 10% penalty for twice the number of years you did not have Part A coverage.

There is a similar penalty for Part B if you fail to enroll when you are eligible. For example, if you don’t enroll in Part B for four years, you will pay a 40% penalty on top of your monthly Part B premium for the lifetime of your Medicare policy.

These penalties can add up to thousands of dollars over your lifetime – which is why your Initial Enrollment Period is one of the most important dates to remember when you reach Medicare age.

Retiree coverage is not creditable coverage

Once you leave your employer and enter retirement, you may be offered a form of retiree coverage from your employer.

While this is awfully kind of your employer and may sound like an opt-out of Medicare, retiree coverage is not always cost-effective compared to Medicare, nor considered creditable coverage. For example, COBRA’s monthly premium averages $569 and $1,595 for family coverage per month, according to Dave Ramsey. In contrast, the base Medicare Part B premium is $144.60/month in 2020.

Creditable coverage is health insurance or prescription drug plan that meets a set of qualifications, and retiree coverage does not meet those qualifications. Therefore, if you fail to enroll in Medicare Part A and Part B during your enrollment period, you will receive a late enrollment penalty.

Veterans Affairs is not creditable coverage

There are many seniors who receive Veterans Affairs (VA) health care benefits. However, the VA is not considered creditable coverage for Medicare Part A and Part B.

 So, if you have VA health care benefits without creditable employer coverage, then you would need to enroll in Medicare Parts A and B to avoid any late enrollment penalties.

However, the VA is creditable coverage for Part D. So, if you keep your VA benefits and enroll in Part A and Part B, you likely will not need to enroll in a Part D plan.

Prescription drug coverage

Medicare Part D is your retail prescription drug coverage. According to Bloomberg, an American spends, on average, $1,200 per year on pharmaceuticals. 

Now, imagine if you had to pay 100% for all your retail prescription drugs – you could see your savings dwindle if you take expensive prescriptions, such as medications for chemotherapy or diabetes. But luckily, Part D plans were established in 2006 for Medicare beneficiaries.

Part D plans are solely insurance for your prescription medication needs, and you can qualify for a Part D plan if you have either Medicare Part A or Part B. You can purchase a Part D plan through a private insurance company, and the insurer will create a network of pharmacies for you to get your prescriptions from. 

When you pick up your drugs from the pharmacy, you will pay a copay or coinsurance of the drug price, and the insurance company will pay the remainder.

Part D plans are competitive in price, and each plan sets its own formulary, which is a list of medicines that your insurance carrier will cover. There are several prescription drugs that must be listed on every Part D formulary:

• Anti-psychotic medications
• Antidepressants
• Anti-seizure medications
• Anti-convulsants
• Immunosuppressive medications
• Medications to treat HIV/AIDS

With that said, when enrolling in a Part D plan, you want to ensure that the plan you choose covers the medications that you are currently taking. Suppose you later find out that your medicines are not listed.

In that case, you will have to pay 100% out-of-pocket for those medicines until you can change your Part D plan during the Annual Election Period, which begins on October 15.

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Conclusion

There are many reasons why you should have Medicare in retirement, as Medicare covers anything considered medically necessary for inpatient and outpatient services. Having Medicare in retirement could end up saving you hundreds of thousands of dollars versus not having health care coverage. Check out boomerbenefits.com for more information on Medicare, penalties, and enrollment periods.