By Shane Cummings, CFP®, AIF®, Wealth Advisor & Director of Technology/Cybersecurity as featured in Kiplinger
In September of 2024, Halbert Hargrove hosted a webinar with Dan Maniaci titled ‘Do You Need Help Navigating Medicare?’ The goal of this presentation was to help educate attendees on the program and how it impacts their retirement planning. We will provide a synopsis below of the key items that were discussed.
Understanding Medicare: Key Components and Eligibility
If you are not familiar with Medicare and you’re approaching 65 or may otherwise qualify, it’s an important federal program to become fluent in. With healthcare costs as significant as they are, it can be a major blind spot to start planning for retirement without factoring in medical costs.
Medicare is the U.S. federal health insurance program that primarily covers individuals aged 65 and older. More than 65 million people are currently covered by Medicare and more than 31 million are covered by Medicare Advantage – more on that below.
Unfortunately, learning about Medicare means getting familiar with an alphabet soup of different options. Let’s jump into those different pieces. To be eligible for Medicare, you must be a U.S. citizen or legal resident and aged 65 or older. Medicare may also cover those under 65 with disabilities or anyone with End-Stage Renal Disease or ALS.
Medicare Part A: Hospital Coverage and Enrollment Details
Medicare Part A is your basic hospital coverage. This coverage is intended for inpatient hospital stays, skilled nursing facility care, and hospice care generally. Most people will enroll in Medicare at age 65, although if you are still working you may still be covered by your workplace health insurance and opt for that coverage. In that case, your choices will depend on your specific employer health plan, benefits, and rules.
Typically, Part A does not charge monthly premiums.
Medicare Part B: Medical Insurance and Premiums
Medicare Part B is medical insurance for doctor visits, outpatient care, and preventative services. Part B typically does carry a monthly premium and is subject to deductibles and co-insurance.
You can also purchase co-insurance from private insurers (Medigap) that helps pay for out-of-pocket expenses not covered by Medicare Parts A and B. I’ll give more details on that below.
Medicare Part D: Prescription Drug Coverage Explained
Part D is prescription drug coverage. This helps cover the cost of prescription drugs. Similar to Part B, this part of Medicare is subject to monthly premiums, deductibles and co-insurance.
Medicare Part D introduces some complexities. You may have heard the term ‘donut hole’ associated with Part D – that’s the coverage gap that exists that requires you to pay a high portion of prescription costs out of pocket before additional coverage kicks in. Currently, the ‘donut hole’ is scheduled to go away in 2025, but until then it will remain a planning headache for some.
Medicare Part C (Medicare Advantage): Comprehensive Health Coverage
Medicare Part C is also known as Medicare Advantage, which is an alternative to Medicare Parts A and B, offered by private companies approved by Medicare. It typically includes its own Part D prescription drug coverage and may also bundle features like vision, dental and hearing coverages. Another way to think of Part C is as a bundle of Parts A, B, and D. Options, however, are limited by geography – which part of the U.S. you live in – and the local network of health care providers within the plan’s network.
When and How to Enroll in Medicare
You can enroll for Medicare when you turn age 65, and you can change your plan and its coverages, including choosing a new private insurance provider of Medigap, Part D, or Medicare Advantage, during the Annual Enrollment Period (AEP), which begins on October 1 of each year.
Due to processing times, we would typically recommend submitting the Medicare application several months before attaining age 65 to help ensure there are no delays. Medicare enrollment is handled by the U.S. Social Security Administration, so if you desire to begin Medicare and enroll in Social Security benefits at the same time, this can be accomplished using one application. It is also a good idea to coordinate your enrollment with a Medicare specialist or broker who can guide you as to the best elections to make. They should be able to tailor recommendations based upon your personal health and family circumstances.
We also highly recommend that you consult a financial professional for advice prior to enrolling to receive Social Security benefits. Your Social Security benefits are reduced if you take them before your Full Retirement Age (FRA), which is currently set at age 66+ (the number of months after 66 increases depending on the year you were born). For those born in 1960 or later, the FRA is age 67.
An important thing to also keep in mind is that your Medicare elections should be reviewed annually to make sure they’re meeting your needs. It is common these days for many individuals to have specific doctors and prescription medications they need or prefer. Medicare Advantage (Part C) plans may change from year to year, and the providers that are considered ‘in network’ can change year over year, meaning that services or drugs that are covered one year could change in another year. This is why it’s important to have a good, trusted advisor to help review options with you.
Medicare supplemental policies and other considerations
Medicare supplemental insurance plans, also referred to as Medigap, are available for individuals who want to protect themselves from large out-of-pocket costs. These plans are provided by private health insurers and can cover large copays and other costs not covered by Parts A and B. You can enroll in supplemental policies after your initial Medicare application is approved.
Higher earners also need to be aware of IRMAA – the income-related monthly adjusted amount of Medicare premiums. Medicare looks back at the last 24 months of your earnings history via your tax returns, and depending on your prior income levels, may adjust your premiums significantly. For example, in you will pay an additional $384 per month for Medicare Part B and $74 per month for Part D if you made between $386k and $750k (married filing jointly) in 2022. These adjustments can create some very unwelcome surprises for high earner retirees. Those planning to retire and live on their portfolio income can easily overlook this factor when planning ahead.
Understanding Medicare Benefits in Your Retirement Financial Strategy
There are many intricacies and nuances to Medicare, and this overview provides only a minor introduction. That’s why having a team to help guide you as you plan for retirement is essential. How to structure and fund your retirement health expenses [is an important task].
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
