Medicare and You: An Overview
Medicare is a taxpayer funded program that provides health insurance for people 65 and older. Because this far-reaching program helps pay for most senior medical costs, it has become an indispensable financial resource for millions of retired Americans. Understanding clearly what it does and does not pay for, and how much Medicare coverage costs, can help future retirees budget more accurately and, in doing so, create more effective retirement plans.
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Medicare Parts A Through C
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Medicare coverage is divided into four basic parts, each covering a different set of services.
Part A helps pay for inpatient hospital costs, hospice care, home health care, and stays at skilled nursing facilities. (Note that we say “helps pay” for these costs. Medicare will cover only up to 80 percent of these costs.)
Part B helps cover visits to doctors’ and other health care providers’ offices along with some medical equipment and home health care services. It also helps cover some preventative health treatments.
Part C, also known as Medicare Advantage, offers health insurance options from Medicare-approved private insurance companies. Working closely with Medicare, these companies provide supplemental insurance to cover medical costs that Medicare parts A and B will not cover.
Part D, also known as Medicare Prescription Drug Coverage, helps cover the cost of prescription drugs. It also strives to lower the costs of some prescriptions used by Part D participants, and shield these individuals from paying higher costs in the future.
Medicare Participant Costs
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Medicare has strengths and shortcomings, but all future retirees should just know this: Medicare is a remarkably good deal. When you sign up for one or more of the Medicare plans, you have access to a network of roughly 800,000 physicians and more than 6,000 hospitals across the country. In return you pay very little. For example, most participants in Part A pay no premium at all because they paid Medicare taxes while working. For those who do pay, the premium is $451 monthly. Part B participants pay $99 per month (high-income participants pay slightly more). Premiums for Parts C and D vary by plan.
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Supplemental Plans
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Though Medicare offers excellent health coverage, it does not offer complete coverage. You will have to somehow pay for that 20 percent of medical costs that Parts A and B do not cover. Your options are:
1. Pay the costs out of pocket, which could be financially ruinous if you became seriously ill.
2. Purchase a supplemental insurance policy on the private market that will cover the outstanding 20 percent. Premiums for such policies vary, but they are competitive and numerous.
3. Enroll in Medicare Part C and, for a monthly fee, all of your Part A and B costs will be covered in full. These plans are not technically supplemental coverage, but you get the same net outcome. Be advised, however: Part C plans can have different rules and different out-of-pocket costs. You should read the fine print before enrolling.
Long-Term Care
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Understanding the many ways that Medicare benefits seniors is essential to effective retirement planning. Yet, it is equally important to understand one critical thing it does not do: provide for long-term care. Long-term care refers to the medical and non-medical services that the chronically ill need to survive, either at home or in assisted living facilities. And generally, that includes the costs of living in nursing homes. Anyone contemplating retirement should work with a financial advisor to explore private insurance options for long-term care coverage.
Medicare and Your Future
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Since its inception in 1965, Medicare has, arguably, done more to improve the lives of American seniors than any other government program. Yet, with skyrocketing health care costs wreaking havoc on Medicare’s budget, changes to this tremendously successful program are inevitable. Those approaching retirement should follow this issue closely. Any change in Medicare benefits has the potential to blow a hole in even the most carefully crafted retirement plan.
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