MEDICARE – An Enigma or a Solution?
By Rashida Lilani CFP® CMFC
“Americans – even those who have diligently saved for their golden years – are not prepared for the reality of health care costs in retirement and don’t really understand how Medicare works,” says John Carter, president of Nationwide Financial Distributors, Inc. according to a survey done by Nationwide last year, nearly half of soon-to-be-retired, high-net-worth Americans say they are “terrified” of what health care costs may do to their retirement plans, and nearly three in four say health care costs going out of control is among their top retirement fears.
Medicare is our nation’s health insurance program designed for individuals age 65 and older and pays for basic healthcare costs. We will first discuss the basic coverage provided under Medicare, ways to fill in the “gaps” and dispel some myths that are common about this program. The article is meant to provide you with a general background and should not be construed as a comprehensive list. Please refer to ssa.gov for detailed information.
Basic Coverage - Hospital Insurance (Part A): It covers inpatient care in hospitals, skilled nursing facility, rehabilitation facilities, hospice care and home health care (with limitations). Costs typically associated with an overnight stay at the hospital, such as meals and nursing services are also covered. This portion of Medicare is free for U.S citizens or permanent residents and their spouses as long as they are eligible for Social Security or railroad retirement benefits. An annual deductible of $1,184 per benefit period applies for 2013. The first 60 days of hospital stay are included, after which a cost of $296 per day applies from days 61 – 90 and $592 per day applies from days 91 – 150. There is no coverage for days 151 and onwards. Benefit period is …
Basic Coverage - Medical Insurance (Part B): This second part of basic Medicare covers doctors visits, outpatient hospital care, lab tests, physical therapy, rehabilitation and some home health care services. Unlike hospital Insurance, it is not free and has a monthly premium contingent upon the income of the insured. Premiums for 2013 begin at $104.90 per month per person and can be higher for joint filers if their MAGI exceeds $170,000 for this year ($85,000 for individuals). In addition there is a deductible which for 2013 is $147 per year. Once the deductible has been satisfied, Medicare pays about 80% of the “approved” amount for medical expenses. If the bill is higher than what has been approved or is allowed, you pay the 20% plus the difference.
Medicare Advantage Plans (Part C) — these are health insurance plans approved by Medicare and offered by private insurance companies. Usually all coverage3s provided by Plans A and B are offered by Medicare Advantage Plans and can include additional coverage such as extra days in the hospital or prescription drug coverage. You can sign up for it during the initial enrollment period or during the annual coordinated election period from October 15 – December 7 every year. Depending on the plan chose, additional premiums may apply.
Prescription Drug Coverage (Part D) — this too is approved by Medicare and offered by private insurance companies and as the name suggests, offers prescription drug coverage. Anyone who has Part A, Part B or Part C is eligible for this coverage. It is voluntary and a monthly premium (in addition to Part B premium) is involved. And like Part B, the premium is contingent upon the income of the insured.
Medigap Insurance — supplemental insurance sold by private insurance companies to help pay some of the healthcare costs not covered by Medicare. The best time to buy a policy may be the seven-month period in which you are age 65 or older and enrolled in Part B.
Now let’s dispel some common myths about Medicare:
Medicare is “free” or inexpensive. Besides premiums and deductibles, coinsurance and co-payments may apply. According to an annual report from Fidelity Investments, a 65-year-old couple retiring today will spend about $240,000 in healthcare costs during the course of their retirement, averaging around 18 years.
According to the Healthcare Research Institute, health-care costs inflation rate for 2013 is around 7.5%, far greater than the U. S. inflation rate of 2% as reported last in July by Bureau of Labor Statistics.
Medicare covers all medical expenses: prescription drugs, dental care, hearing aids, eye care are not covered under basic Medicare.
Medicare provides coverage for long term care: this is the most common misconception about Medicare. Besides paying for a short stay in a skilled nursing facility and home health care under certain conditions, Medicare does not pay for long term care services. Custodial care such as bathing, dressing and eating, the most common type of long term care is not covered by Medicare.
Enrollment in Medicare is automatic once you turn 65: If you’re already receiving Social Security benefits or disability benefits or railroad retirement benefits, you will be enrolled automatically in Medicare Parts A and B. However, if you’re not, you need to contact the Social Security office about three months prior to your 65th birthday to sign up, even if you’re not planning on taking benefits. It is important to remember to sign up for benefits in the initial enrollment period (three months before your 65th birthday, month of your birthday and four months after, total 7 months); otherwise you will end up with higher premiums for Part B for the rest of your coverage period.