Medicare: Separating Fact From Fiction
Are you sufficiently confused with all of the talk leading up to the election regarding health care coverage? Especially as you approach retirement, do you feel like you have a strong understanding of the Medicare system? Or do you have more questions than answers about what may soon be your primary healthcare coverage?
One major misconception I encounter about Medicare is that many people believe the premiums are level, no matter your income. Unfortunately, the truth is that as your income goes up, so do your Medicare Part B premiums.
What’s more, Medicare premiums are based on your taxable income from two years ago. For many new retirees, their income from their final working years is significantly higher than their income in retirement. This means they may be paying too much for their premiums. Luckily, you can submit a “Change in Status” form to lower your premium based on current income to correct this issue.
These are just two examples of how Medicare is often shrouded in mystery. Online, on the news, and in magazines, we’re told facts and figures about Medicare that are not always accurate and are often contradictory. As a result, many people have questions and concerns about Medicare, but they don’t know where to start.
A lot of people assume Medicare is a complex government program we all receive at some point in our elderly years. However, Medicare offers a number of benefits — if you know the facts and have a strategy in place. Let’s look at a few of the biggest myths and misconceptions about Medicare.
Myth #1: Medicare and Medicaid are the Same
Because they sound similar, many people think Medicare and Medicaid are the same. Medicaid is designed to help low-income individuals and families pay for medical and long-term care. Medicare, on the other hand, is a federal program associated with Social Security.
The benefit of Medicare is substantial enough that even the wealthy should take notice. Medicare is available to U.S. citizens 65 years of age and older regardless of their income. In fact, as of 2014, 53.8 million Americans receive Medicare.
Myth #2: Medicare is the Same for Everyone
There are four different types of Medicare coverage from which you can choose, depending on your needs.
Known as “Original Medicare,” Part A covers medically necessary inpatient care in hospitals, skilled nursing facilities, hospice, and some home health care. Part A is free if you have worked for 10 years or more. And by "free" we mean that in retirement there is no premium for Part A. Although, you have paid into Medicare over your working career through a portion of your FICA (Federal Insurance Contributions Act) withholdings.
Also known as “Original Medicare,” Part B takes care of doctor services, lab work, diagnostic tests, medical equipment hospital outpatient care, home health care, and some preventive services. This benefit requires payment of a monthly premium.
Part C, which is known as “Medicare Advantage,” is not a separate benefit. It’s the part of Medicare that allows private insurance companies to provide coverage. If you have Part C, your Medicare acts like an HMO or PPO because you receive the coverage of Part A and B through private insurance companies approved by Medicare. Many people elect to use Medicare Advantage because the plans may offer more benefits and lower total out-of-pocket costs.
Known as the “Prescription Drug Coverage,” Part D helps cover the cost of prescription drugs and is administered by private insurance companies approved by Medicare.
Myth #3: Medicare Covers Everything
There are a number of limits to what Medicare will cover, and even if Medicare covers a certain service or item, you may have to pay a deductible, coinsurance, and/or copayment.
Currently, Medicare Part A and Part B does not cover:
- Long-term care
- Most dental care
- Eye examinations related to prescribing glasses
- Cosmetic surgery
- Hearing aids and exams for fitting them
- Routine foot care
This is why it is important to determine whether you need a Medicare supplement policy or long-term care policy. If you may potentially require these procedures or types of care, you’ll want to review your other options.
Myth #4: Medicare is Free
While many people may receive Medicare Part A without any premium fees due to their work history, costs can quickly increase based on the additional Parts you choose, as well as your income.
High-income earners typically have to pay an IRMAA (income-related monthly adjustment amount), and there are other monthly costs for Part B, C, and D. Additionally, Medicare coverage and costs change annually. If your income increases, your supplemental insurance payment may go up as well.
Don’t assume that Medicare will be less expensive than your current insurance policy. When determining your insurance strategy, evaluate your options to determine a coverage and premium cost that is best for you. Whichever route you take with your insurance, review your plan every year to evaluate price and coverage adjustments.
Myth #5: You Have to Sign Up for Medicare at Age 65
Similar to Social Security, it may not always make sense to sign up for Medicare at the earliest available date, especially if you’re still working. Depending on your situation, it may make more sense to delay signing up for Medicare to avoid paying premiums on coverage you do not currently need.
Keep in mind that if you incorrectly put off Medicare, it could cost you 10% of the Part B premium for each year you delay enrollment. There may also be a waiting period, which could force you to be uninsured for a certain time period. If you do choose to postpone, plan ahead and make sure you won’t be left with a gap in your coverage.
Making Sense of the Mystery
As you can see, Medicare is complex and ever-evolving. If you feel overwhelmed, you are not alone. The best way to feel more confident is to do your research. Take time to research your options and potential costs you face.
If you need help evaluating your options or just want to ask a couple of questions, We are here to help. Give me a call at the office at (913) 624-9548 or email me at BKeen@KeenWealthAdvisors.com.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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