Medicare is our country’s basic health insurance program for people age 65 or older and for many people with disabilities. To understand how enrollment in Medicare works, you first need to understand the alphabet of Medicare.
Part A covers inpatient care in hospitals. If you or your spouse worked for ten years (technically 40 quarters) and contributed to Medicare through taxes, then Part A is free. If not, it’s $458/month in 2020 for this portion of Medicare. This falls under what is commonly referred to as “Basic Medicare.”
Part B helps cover medically necessary services such as doctor visits and tests, and may cover some preventative services. It is also important to know what Part B does not cover: namely dental, vision, hearing and podiatry services. Recipients pay a premium of $144.60/month in 2020, but are still responsible for a 20% copay. In addition, an individual who makes more than $85,000 or a couple earning over $170,000 may be subject to surcharges on this part of Medicare. Recipients pay for this portion of Medicare through their Social Security check. The amount is directly deducted from their monthly benefit. This also considered part of Basic Medicare.
Part D covers some of the cost for prescription drugs and Part C is an alternative to traditional Medicare, called Medicare Advantage. We’ll talk about Parts C and D later. We’ll start with Parts A and B.
Automatic or Actively Enrolling
If you’re already collecting Social Security retirement benefits when you turn 65, you will automatically be enrolled Medicare Part A (hospital insurance) and Medicare Part B (medical insurance) if you sign up for Medicare Part B at the time you sign up for retirement benefits. If you decide to delay your Social Security retirement benefits beyond age 65, there is an option to enroll in just Medicare and apply for retirement benefits at a later time.
You can enroll in Medicare Part A and/or Medicare Part B in the following ways:
- Online at socialsecurity.gov
- By calling Social Security at 1-800-772-1213 (TTY users 1-800-325-0778) Monday through Friday, from 7am to 7pm
- In-person at your local Social Security office.
Your coverage under Medicare kicks in at exactly 65, but you don’t need to wait until your 65th birthday to sign up. Rather, your initial enrollment window starts three months before the month you turn 65 and ends three months after the month in which you turn 65. You have a seven-month window in which to sign up which is called your “Initial Enrollment Period” or IEP for short.
If you did not enroll during the IEP when you were first eligible, you can enroll during the General Enrollment Period. The general enrollment period for Original Medicare is from January 1 through March 31 of each year. Keep in mind that you may have to pay a late enrollment penalty for Medicare Part A and/or Part B if you did not sign up when you were first eligible.
Special Enrollment Period
You may choose not to enroll in Medicare Part B when you are first eligible because you are already covered by group medical insurance through an employer or union. If you lose your group insurance, or if you decide you want to switch from your group coverage to Medicare, you can sign up at any time that you are still covered by the group plan or during a Special Enrollment Period (SEP).
Your eight-month special enrollment period begins either the month that your employment ends or when your group health coverage ends, whichever occurs first. If you enroll during an SEP, you generally do not have to pay a late enrollment penalty. Please also keep in mind that COBRA and retiree health coverage are not considered current employer coverage and would not qualify you for a special enrollment period.
Prescription Drug Coverage
Medicare prescription drug coverage is optional and does not occur automatically. You can receive coverage for prescription drugs by either signing up for a stand-alone Medicare prescription drug plan (Part D) or a Medicare Advantage plan (Part C) that includes drug coverage, also known as a Medicare Advantage Prescription Drug plan. Medicare prescription drug plans and Medicare Advantage plans are available through private insurers. Please note that you cannot have both a stand-alone Medicare prescription drug plan and a Medicare Advantage plan that includes drug coverage.
You can enroll in a stand-alone Medicare prescription drug plan during your Initial Enrollment Period for Part D. You are eligible for prescription drug coverage if:
- You live in a service area covered by the health plan, and
- You have Medicare Part A AND/OR Medicare Part B.
Generally, your Initial Enrollment Period for Part D will occur at the same time as your Initial Enrollment Period for Medicare Part B (the seven-month period that starts three months before your eligibility for Part B, includes the month you are eligible, and ends three months later).
Once you are eligible for Medicare Part D, you must either enroll in a Medicare prescription drug plan, Medicare Advantage Prescription Drug plan, or have creditable prescription drug coverage (that is, prescription drug coverage that is expected to pay at least as much as standard Medicare prescription drug coverage). Some people may choose to delay Medicare Part D enrollment if they already have creditable prescription drug coverage through an employer group plan.
However, if you do not sign up for prescription drug coverage when you are first eligible for Part D, you may have to pay a late-enrollment penalty for signing up later if you go without creditable prescription drug coverage for 63 or more consecutive days.
Medicare Part D Annual Election Period
If you did not enroll in prescription drug coverage during IEP, you can sign up for prescription drug coverage during the Annual Election Period (AEP) that runs every year from October 15 to December 7.
During AEP, you can:
- Sign up for a Medicare prescription drug plan.
- Drop a Medicare prescription drug plan.
- Join a Medicare Advantage plan that includes prescription drug coverage.
- Switch from a Medicare Advantage plan that doesn’t include prescription drug coverage to a Medicare Advantage plan that does (and vice versa).
Medicare Advantage Plans
Medicare Advantage plans are an all-in-one managed care alternative to traditional Medicare. Medicare Advantage plans tend to be cheaper and they cater to people who are healthy. Medicare Advantage Plans are attractive if you are particularly healthy because the plans are lower in cost. However, if you become ill ten years into retirement and need to start seeing specialists or someone outside of the network–unexpected healthcare costs will start racking up. Also, some Medicare Advantage plans often include Part D drug coverage as part of their insurance package. If so, they’re called MA-PDs. If not, you can add a stand-alone Part D policy.
Outside of the Part D Initial Enrollment Period and the Annual Election Period, usually the only time you can make changes to prescription drug coverage without a qualifying Special Election Period is during the Medicare Advantage Open Enrollment Period but only if you are dropping Medicare Advantage coverage and switching back to Original Medicare. The Medicare Advantage Open Enrollment Period runs from January 1 to March 31.
Medicare Part A and Part B do not include prescription drug coverage, and if you switch back to Original Medicare during the Medicare Advantage Open Enrollment Period, you will have until March 31 to join a stand-alone Medicare prescription drug plan.
Talk to Your Advisor
Understanding the Medicare alphabet and enrollment ins and outs are just the beginning. The surging projections of what retirees can expect to spend for healthcare is an increasing concern for our clients and therefore of special importance to us. Please contact us today so that we can help you plan for and navigate the ins and outs of Medicare.
Facing the Complexities of Medicare by MFS
Blake P. Hicks earned her J.D. from the College of William & Mary, Marshall Wythe School of Law and her B.A. from the University of Virginia. She holds her Series 7 and 66 registrations with LPL Financial.