Medicare is a health insurance system designed to provide care for elderly Americans. Anyone 65 years or older can qualify to enroll in the program, and people can enroll younger should they have a specific need or disability.
After you are done working, one of the biggest expenses you will have to account for is your medical bill. Even a healthy couple on average will spend upwards of $250,000 on medical expenses alone in retirement. This makes medical coverage even more imperative for retirees. When you retire from your job, you will need to look for other ways to obtain health care, either through a private insurance company or through Medicare (more likely a combination of the two).
Medicare was orchestrated to cover the costs of medical care for older Americans, and while that is a noble goal the reality is much more complex. While the program does offer key medical support, it does not cover as much as people assume. It often does not cover as much as private insurance, which will change the way you pay for medicine in retirement. Many things like x-rays or dental cleanings may not be covered anymore, which are more expenses to consider.
I’d like to shed some light on what Medicare both does and does not cover so that you can go into retirement with both eyes wide open to help you make the best decision for you.
How The (Medicare) Cookie Crumbles
When you enroll in the Medicare program, it is not as simple as checking a box and calling it a day. The program consists of many “parts” and election options. Each of these “parts” covers different aspects of medical coverage and have their own associated costs.
Traditional Medicare consists of both Parts A and B so let’s take a look at what those “parts” take care of first.
Part A: Hospital Insurance
Medicare Part A exists to help cover the costs of inpatient medical care most often in hospital settings but can also be in a skilled nursing facility. Part A also can cover hospice care and limited home health services should the patient meet the specifications.
Under Part A it is important to talk about the difference between skilled care and custodial care. Skilled care is any medical service done to help you get better, for instance, if your hip is bad and you need a hip replacement to fix it. Custodial care means that you require long-term care, someone to help with your meals, baths, and other daily activities. Medicare Part A does not cover custodial care. This means that most nursing home care is also not covered.
Part B: Medical Insurance
The other aspect of Traditional Medicare, Part B covers medical supplies and services that are medically necessary for your health condition. An example could be if you have MS and are in need of a wheelchair. That wheelchair is necessary medical equipment and the cost can be covered by Part B.
Part B also covers ambulance needs, outpatient procedures, preventative services, and rehabilitation services such as physical therapy if ordered by a doctor as an integral part of your care and recovery.
Part C: Medicare Advantage Plan
Medicare Part C is apart of an advantage program which is designed by private insurance companies that have a relationship with Medicare. Advantage plans are group health plans, where you can get everything in one plan. An important caveat here is that the plans almost always require you to stay in network and many doctors don’t take Medicare, that could include your current doctor! Do your research on this before enrolling.
The Part C advantage programs cover the same aspects of care covered in Part A and B (traditional Medicare) along with other benefits such as x-ray costs, dental, vision, hearing, and exercise options.
It is important to know that your coverage will depend on the type of insurance you purchase. Some advantage programs only cover dental work if it is crucial to the jaw, whereas others will cover routine cleanings. The more coverage you want, the higher the premium you will pay.
Part D: Prescription Coverage
One key element not included in the plans above are prescriptions. So many older Americans rely on prescription medicine to further their care. With the rising costs of this type of medication, it is important that you look at what insurance both will and will not cover.
Most preventative vaccines are covered such as the flu shot, but other than that the coverage you receive is based on what “tier” the drug falls in. These tiers represent the amount you will have to pay the insurance company. Look at your plan carefully to determine how much out-of-pocket expenses you could be looking at.
A Medicare supplement plan is an additional item you can add to your existing plan to help cover the costs of insurance co-pays and deductibles you would otherwise be responsible for. In order to enroll in a supplement program, you must first be enrolled in Part A and B. Unlike Medicare advantage programs, the supplement programs do not offer any additional coverage options, rather they help offset the up-front costs of the care itself.
One supplement plan gaining a lot of popularity among retirees today is Plan F, or the Cadillac plan, which costs about $350 per month and covers Medicare deductibles, copays, and coinsurance, leaving people paying almost nothing out-of-pocket.
The Medicare “Donut Hole”
The vast majority of Medicare coverage plans have a coverage gap when it comes to prescription drug coverage. This gap often referred to as the Medicare “donut hole”, means that there may be a limit as to what type of prescription drug coverage Medicare offers you. In 2019, this “gap” kicks in after both you and your plan have spent a combined total of $3,820 on prescription drugs. Once you hit the coverage gap, you’ll pay 25% or less of what your plan pays for prescription drugs. However, these expenses can add up – especially if you have to take brand-name prescription drugs that can be more costly than the generic version of similar prescriptions.
If you have a set of prescription drugs that your employer’s health insurance already covers, it might be wise to check whether or not that specific prescription is covered under Medicare, and what the prescription will cost. Taking the time to talk to a financial planner about your drug coverage, and whether or not you’ll enter the coverage gap, can also help you to plan for medical expenses you’ll incur beyond Medicare coverage in retirement.
Medicare & You
As you can see, Medicare is an extensive and complicated health plan. With many parts, plans, and special elections, the program can be confusing to many people first entering retirement, primarily what is and is not covered. Medicare covers some expenses, but not all of them. It is just one piece of the puzzle, which is something to keep in mind when planning future medical costs.
Whether you choose to enroll in Medicare or purchase private insurance, health care is expensive. Your health is imperative in retirement, and choosing the right plan will help put you on the right course.
Medicare is a good program for some, but not for everyone. Be sure to do your research to find out if this system will work for you.