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Be Sure to Understand Your Medicare Rules

Christine Benz

Christine Benz: Hi, I'm Christine Benz for Most retirees rely on Medicare for their health care during retirement, but they might not understand the specific rules governing the program. Joining me to discuss some of them are Doug Nguyen and Andrew Salata of the Social Security Administration.

Andrew and Doug, thank you so much for being here.

Doug Nguyen: Thank you for having us.

Andrew Salata: Thank you.

Benz: So, we've spent a lot of time talking about Social Security on with you guys, and we've also been doing some work ourselves in this area. But we've spent less time talking about Medicare. So, I'd like to discuss the program generally, and then discuss some specific areas that seemed to confuse people in relation to Medicare.

Let's start with the first one, Doug, and this is something you say is a common misconception. People assume that if they are going to file and enroll in Medicare that they really don't need to worry about their health-care costs. Let's talk about why that's a problem?

Nguyen: Christine, certainly one of the most often overlooked areas in retirement planning is the health-care portion of retirement, and Medicare is going to cover most of the expenses. But not all. Part A, which I'll get into, covers the inpatient hospitalization costs, most of them; and then Part B covers the outpatient costs; it covers 80%. The patient is going to be responsible for the 20%, which they can get additional insurance...

Benz: Supplemental policy.

Nguyen: …a supplemental policy to take care of that 20%, but there is an additional cost to that. Andrew will talk about the Medicare Advantage Plans, Part C, in a little bit. But Part D is a prescription drug benefit, which also has some costs associated with it. There are premiums; there are deductibles that individuals will pay in. Of course, Social Security has a subsidy program for those with limited income and resources that they can help and so do the states.

Benz: So, Andrew, let's talk about some of those premiums associated with A, B, and D for sure, and then maybe you can talk a little bit about Part C, the Medicare Advantage piece. Let's talk about the costs that people can expect once they are enrolled in Medicare?

Salata: Well, for enrolling in Medicare, that's one to keep in mind, the magic number for that is 65 for enrolling in Medicare. But the premium for individuals who have worked and paid into Social Security and are eligible for a retirement benefit, the Medicare taxes people pay throughout the years of work also cover the enrollment for Part A hospital insurance. So, there is generally no premium.

However, for the 2% of the workers who work at a public or government job where they may pay into a different retirement system and not pay into Medicare, they may have to pay a premium of up to $441 a month. However, if you've had at least 30 credits--and credits are just the Social Security or Medicare taxes we pay throughout the years--then it's a little less. It's about $243 a month.

Most individuals though can also be eligible for the free premium Part A, if they're married and have coverage through a spouse or the spouse had the 40 credits.

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Benz: So, you mentioned 65 is the magic number here for Medicare. So, it's not in sync with the Social Security program where you've got that upward trending full retirement age. It's still 65 for Medicare?

Salata: Correct. Yes. Generally, we are saying the full retirement age is 66 now, but Medicare still starts at 65, so it's pretty important to keep that date in mind, especially because when we come to the Part B premium. Everyone does pay a Part B premium, and this year's standard premium is $104.90. And what I mean by a standard premium is that that reflects about 25% of the cost of Medicare, and what we do have is we have income-related Medicare adjustment amounts, or IRMAA as the acronym goes.

But what that is, is for individuals with higher incomes into their retirement years may pay a higher set premium. It could be for individuals that have over $85,000 in income or couples with over $170,000 and filing jointly, they may be paying anywhere from $46 more to up to a $335 total premium; the top 1% earning over of around $400,000 would get that amount.

So, income into retirement may affect those premiums as well and that also affects the Part D premium. The Part D premium could be a standard premium of around $33 a month, but it can go up to $100 or more depending on the type of coverage you want and the deductibles you may want to pay.

One of the best things to use is online. They have a resource tool where you can go onto it, and you can actually research the Medicare Advantage Plans, which I'll talk about in a little bit it, as well as the Part D prescription or any supplemental plans. You can put in what you want, what type of coverage, or additional coverage you'd like. Or if you are taking prescription drugs, you can actually list the prescription drugs, and they will give you which of those plans will work the best and how much it will cost.

Benz: Let's briefly touch on what Medicare Advantage is than before we move on?

Salata: Medicare Advantage is the traditional parts of Medicare A and B and usually D rolled up into a plan offered by a private insurance company. The Medicare Advantage part of it is, is that it works hand-in-hand with the traditional parts of Medicare, but it also as an Advantage plan if we do have any difficulties or if you have letters and bills that were not covered and you need an explanation, Centers for Medicare and Medicaid Services, CMS, which handles the Medicare part of it can help you and intercede on your behalf. And that's where the Medicare Advantage Plan comes in. Whereas if you may get a supplemental plan, a Medigap policy to act in to cover what Medicare doesn't cover, you're getting it from a private insurance company as well, but you have that limited intercession from Medicare.

Benz: One thing that you all noted to me is a common pitfall associated with Medicare: simply forgetting to file for benefits. Let's talk about, A, why that happens. And B, why that can be problematic.

Nguyen: Christine, this is the number-one mistake that people make, and we get heartbreaking calls from individuals from the emergency room or their loved ones calling us because the individual had passed up not filing for Medicare when they should've. Or they thought they had coverage in place and they didn't.

We encourage everyone at age 65 to take a hard look at their insurance situation. Most people file for Medicare at 65 unless they are still working and covered by a group health insurance plan. If they stop working or if the group health insurance plan stops, whichever occurs first, they need to file for Medicare if they're 65 or older.

Younger individuals who become disabled and get on Social Security Disability Insurance benefits, there is a 24-month waiting period after their initial month of entitlement that Medicare kicks in, and that's for younger workers who become disabled. But for the vast general public, March 31 is the initial enrollment period deadline, that's general enrollment period that anybody can file.

Otherwise, if they stop working or if their group health insurance plans stops, they have an eight-month window in which to file and that's what we call the special enrollment period. A very important thing that people need to consider is that even though they file now before the end of March, the benefits don't start until July. And so there is a four-month lag time there, so very important.

Benz: Say you forget to file or don't file for whatever reason, and you want to get into the program, you note that there is a penalty that you'll face on an ongoing basis for your future premiums. Let's talk about that.

Nguyen: That's right. As Andrew referred to earlier that the monthly premium, the base premium this year, is about $104, there is a 10% premium penalty for every 12 months which a person delays filing for Medicare when they should have filed for when they first became eligible, so that's very important. So, we've seen people get penalized an extra $50 to $60 in premiums penalty, and so they took all the time and planning for their retirement only to find out that the few dollars that they saved are now going to premium penalties. Well, it defeats the purpose.

Benz: So, there are a few exceptions, workarounds that would let someone out of that penalty. Let's talk about what those are?

Nguyen: Again, the only two exceptions are if they're working; and they are covered under a group health insurance plan. COBRA is not considered a group health insurance plan, and that's a mistake a lot of people make. They think that, "Oh, I stopped working. I'm now covered by COBRA, so that covers the exception." It doesn't. So when they call us they find out that  COBRA is not considered group health insurance, and they're now going to be penalized with that 10%-per-year penalty.

Benz: Andrew, with Social Security, spouse's benefits are interwoven and the benefits may change depending on when each partner takes Social Security benefits. How is Medicare different from the way Social Security works for spouses?

Salata: Well, I guess the main difference is, we do have a spousal benefit where you can get benefits as a dependent for a child or a spouse under a worker's record. With Medicare, you do get the same coverage as a spouse, but you have to be an aged spouse at 65. So you can receive Medicare coverage based on your spouse's work and credits paid into Social Security, but it starts at 65 just like the worker's does.

Actually it goes further because we do have Medicare for end-stage renal disease. So, if you have dialysis or a kidney transplant for as a dependent spouse or even a dependent child under the age of 22, they can receive Medicare coverage for these conditions as well. So it's interwoven in the part that the worker still will provide coverage for an aged spouse or in some situations dependent spouses or children.

Benz: On the flip side, how about for single folks who have not had much of a working history? What are their benefits like as far as Medicare is concerned?

Salata: We'll, for individuals who may not have had a large working history, once they reach 65 they will just need to have just the 10 years of work, the 40 credits that we talk about for retirement. So, as little as 10 years of work can get 40 credits and enough for a Social Security benefit for your life, as well as Medicare from 65 on.

But as I had mentioned earlier, Medicare does have a premium. So, if you do not have the 40 credits, you can still buy into the Medicare. With Part B everyone pays a premium, but the Part A even though it's a little steep depending on how many credits you have, it may not be as high as the $441. It could be about 60% or $243.

Benz: Well, thank you both so much for being here. This is a really important topic for retirees and pre-retirees. We appreciate you taking the time on your schedules to be here.

Doug Nguyen: Thank you, Christine.

Andrew Salata: Thank you for inviting us.

Benz: Thanks for watching. I'm Christine Benz for