Medicare began in 1965. Since then, it has continued to evolve.
Significant changes were made in 2010 with the passage of the Affordable Care Act. Additional changes occurred more recently with the passage of the Inflation Reduction Act. And so I am not surprised that many people are unaware of all the nuances. However, there are fundamental aspects of the program that continue to be misunderstood.With that in mind, let’s review some of the most common misconceptions…
“Medicare is free.”
Medicare Part A (inpatient care)
Part A is, in fact, free for most people, provided they have worked the requisite 40 quarters (10 years) in the US during their lifetime. If they have not, they can still enroll, but there is a cost. Individuals will pay $278/month if they’ve worked between 30 and 39 quarters (7.5–10 years) and $506/month if they’ve worked fewer than 30 quarters.
Note that based on the work history of a spouse, an individual may still be eligible for Part A at no cost.
Medicare Part B (outpatient care)
This component always has a cost associated with it.In 2023, the base premium decreased to $164.50 from $170.10/month.
Individuals who fall into higher income categories must pay more — IRMAA (Income Related Monthly Adjustment Amounts) — in addition to the standard Part B premium and Part D premium. Both the ranges of income and the amounts required to pay changed in 2023.
“Medicare covers everything.”
On average, Medicare covers approximately 80% of healthcare costs. The remaining 20% is the responsibility of the individual and the amount is not capped.
In order to mitigate the risk of this uncapped 20%, one may purchase a Medigap / Medicare Supplement Plan that will cover some or all of the balance. Another option is to enroll in a Medicare Advantage Plan that has an out-of-pocket maximum, in lieu of traditional Medicare. If you meet this maximum, the plan pays all balances at 100% for the rest of the year.
“COBRA is a good option if I am over 65 and retiring.”
COBRA allows the continuation of employer-sponsored health insurance. However, the full cost of the plan, along with an administrative fee, now becomes the responsibility of the insured. For those who did not realize how much their insurance had been subsidized by their employer, this can come as a surprise!
Although you may be eligible for COBRA, when you are over 65, it is not a good option and could leave you underinsured. This is because once you reach 65, Medicare is considered your primary coverage — whether you’ve enrolled in it or not. Your COBRA coverage will cover health insurance claims only after what Medicare paid or should have paid, so you may be held responsible for covering the first 80% of health insurance costs.
We frequently see misunderstandings about this topic when an employee negotiates a Separation Agreementwith an employer that includes the employer paying for some or all of the cost of COBRA for a period. Because the individual assumes they have adequate health insurance coverage, they don’t enroll in Medicare when they are supposed to.
In our experience, and although companies are trying to do a good thing for their exiting employee, we find the human resource professionals executing the arrangements are not always fully aware of how the rules surrounding Medicare work. Despite their positive efforts, they provide inaccurate advice that can lead to significant issues related to coverage and enrollment down the line.
“I must do something about Medicare as soon as I turn 65.”
We often receive anxious calls from clients who have heard something to this effect from a family member, neighbor, employer, etc. Let me assure you, it is not always true. Everyone’s situation is different and decisions about when to enroll in all components of Medicare must be made in the context of your life situation. Considerations include:
- Whether you are continuing to work beyond the age of 65 and work for an employer with greater than 20 employees
- Whether you have health insurance through a spouse
- Whether you are participating in a Health Savings Account (HSA) with a high deductible health insurance plan
- Whether you are eligible to participate in some form of retiree medical plan through your own employment or through that of a spouse
You can enroll in Medicare at different times, such as during an Initial Enrollment Period (IEP) or a Special Enrollment Period (SEP). Provided you follow the rules, you can remain continuously insured and can enroll for an effective date you desire without suffering any penalties. If you don’t enroll then, you will still have an opportunity at the beginning of every year during a General Enrollment Period (GEP). (Note that if you wait to enroll then, you may have an interruption in coverage and be required to pay a penalty.)
Steps to Take
- One year before your 65th birthday, begin to research the topic of Medicare. This will allow you to develop a timeline for when you need to act in the context of your individual circumstances.
- Enroll in a My Social Security account. This will help you identify if you are eligible for premium-free Part A. If you are not, and you think you may be eligible under a spouse’s work history, call Social Security to verify your understanding and ask about the process for enrollment. This may require a phone appointment with Social Security, rather than enrolling online.
- Consider any dependents on your current health insurance plan and develop a strategy for each of them, whether you plan to work beyond the age of 65 or if you plan to retire and transition to Medicare. You may have different solutions for each member of the family, such as COBRA coverage for one, an individual open market plan for another, or a university-sponsored health insurance plan for a college student.
- Conduct a thorough analysis of the Medicare options you have and the cost of each so that you can make an informed decision and budget accordingly. Be sure to consider both the cost of the premium and the out-of-pocket costs you will incur.
Final Thoughts
Medicare is a comprehensive program that covers our healthcare costs when we are over the age of 65. However, as you can see, there are a lot of nuances regarding when to enroll, the enrollment process, and the available choices and products.
Do your homework well in advance of when you should enroll! This will allow you to take actions that provide the best, most appropriate coverage for you and your family.