Helping retirees understand Medicare

October 25, 2023

helping woman understand medicare

Securing one’s continued insurance coverage through retirement is critical. With so much to take care of, it can be overwhelming for retirees to make sure everything is in order as they sunset out of working life. Medicare in particular can be confusing.

Those on the cusp of retirement may begin to have more questions about how to navigate the complexities of Medicare. Here’s an overview of Medicare’s parts and retirees’ healthcare options that can help inform financial and human resources professionals who often face questions from workers as retirement approaches.

What do retirees spend money on?

A clearer picture of where retirees are putting their resources can help financial professionals see how Medicare fits into the puzzle. Healthcare is the third-biggest retirement expenditure behind housing and transportation/travel, with those ages 65 to 74 spending $6,695 a year on their healthcare.1 That’s even more than they spend on food!1 

There’s no denying Medicare is a necessary expense. Contrary to what many folks may believe, Medicare isn’t free and doesn’t cover everything (more on that in a moment). That’s why seniors would be wise to have some money stashed away and earmarked specifically for healthcare expenses.

Medicare basics

President Lyndon B. Johnson signed Medicare into law in 1965 to make health insurance more available and affordable to people age 65 and older regardless of their income or health status.2 Today, Medicare has four parts: Part A (hospital coverage), Part B (physician services), Part C (Medicare Advantage) and Part D (prescription drugs).

Unlike most commercial health insurance, Medicare separates inpatient hospital stays, skilled nursing and home health care from physician or outpatient services. Medicare Part A is sometimes called hospital insurance, while Medicare Part B is also known as medical insurance.

Medicare misunderstandings

There’ve been numerous misperceptions and false claims about Medicare over the years, and many persist in spite of the facts being widely available. The following six statements are all FALSE:

  • Medicare is free healthcare
  • Medicare costs the same for everyone
  • Medicare covers everything, including long-term care
  • Costs and coverage won’t change
  • Coverage is automatic at age 65
  • People can enroll in Medicare whenever they want

It’s important to get these misconceptions out of the way immediately in order to move forward with valuable conversations on how retirees can make the most out of Medicare.

Medicare Part A

Medicare Part A is free for most seniors as long as they’ve worked for more than 10 years (40 quarters) and their employer deducted Medicare payroll tax during that time (1.45% of their wages). A person’s spouse, ex-spouses and survivors are also eligible for free Part A.

What about those who worked fewer than 10 years? They can pay a monthly premium to receive Part A coverage. In 2022, those premiums were $274 for those who worked 30 to 39 quarters, and $499 for those who worked under 30 quarters.3

Premium or no premium, Medicare Part A participants may still be responsible for covering some of the costs of their care, including deductibles and coinsurance per benefit period. A benefit period is the time in which a person is admitted to an inpatient hospital or skilled nursing facility. In 2022, those amounts were a $1,556 deductible for each benefit period ($1,600 in 2023) and a $389 copayment per day for days 61 to 90.3

The lesson here? It’s important for retirees to know that while they may be covered by Medicare, they will still have significant financial responsibilities for care received and should plan accordingly.

Medicare Part B

Medicare Part B covers services such as doctor visits, diagnostic x-rays, lab tests and other physician and preventive services that don’t require a hospital stay.

Enrollment in Part A means automatic enrollment in Part B. Unlike Part A, however, there is no way of receiving Part B for free. In 2022, the monthly premium was $170.10 ($164.90 in 2023), with an annual deductible of $233 ($226 in 2023) and a 20% coinsurance requirement for most charges.3

There’s no limit on how much a person can spend on out-of-pocket expenses with Medicare Part B. Plus, if someone has a modified adjusted gross income over $91,000 as a single filer ($97,000 in 2023) or $182,000 for joint filers ($194,000 in 2023), they may receive an additional charge.3

Part A and Part B enrollment

Knowing when the enrollment period arrives is crucial. It’s a limited window that could result in delayed coverage or late enrollment penalties if it’s missed. Work with retirees to understand the following timeline.4

  • To receive Part A and/or Part B the month a retiree turns 65, they must sign up within three months before the month they turn 65
  • Waiting until the last four months of the initial enrollment period to sign up will result in a delay of coverage

This timeline may still be in effect for those who have delayed taking their Social Security benefits until after age 65, as Social Security and Medicare are two distinct scenarios.

Special enrollment periods

Some circumstances may warrant special enrollment periods. For example, if a retiree or their spouse is covered by an employer group plan with 20 or more participants at age 65, their special enrollment period begins when they leave employment or when the group coverage ends, whichever occurs first, and extends to eight months after the coverage is terminated.4

Still, enrolling in Medicare before the group coverage ends is important to avoid a gap in coverage.

Medicare Part D

Medicare Part D refers to prescription drug coverage delivered through private insurance companies in a contract with Medicare. Everyone eligible for traditional Medicare is eligible for Part D and, like Parts A and B, it has associated costs as well as annual income-related adjustments.

Medicare offers a framework for the Part D plan, but the private insurers are free to build on it.

Medicare supplement (Medigap)

Medicare supplements, or Medigap, are precisely what they sound like: Plans that fill in some of the gaps in coverage of Medicare Parts A and B. Medicare covers a lot, but not everything. And even with covered services, patients still have financial responsibilities for deductibles and coinsurance.

Medigap can help pay for remaining costs like copayments, coinsurance and deductibles, and to participate in Medigap coverage, an individual must be enrolled in Parts A and B.5 One other important note: The plan cannot include prescription drug coverage.5

People can be turned down for Medigap coverage due to health status unless they apply during the open enrollment period, which begins the month a person is 65 and has Part B and extends for six months.6

Medigap Plan Overview

Take a look at how different available Medigap plans cover certain costs.7MediGap_Benefits

* Plans F and G also offer a high-deductible plan in some states. With this option, you must pay for Medicare-covered costs (coinsurance, copayments, and deductibles) up to the deductible amount of $2,490 in 2022 before your policy pays anything. (Plans C and F aren't available to people who were newly eligible for Medicare on or after January 1, 2020.)
** For Plans K and L, after you meet your out-of-pocket yearly limit and your yearly Part B deductible, the Medigap plan pays 100% of covered services for the rest of the calendar year.
*** Plan N pays 100% of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that don't result in inpatient admission.

Medicare Part C

Medicare Part C — also known as Medicare Advantage — is offered by private insurers and typically provides the services under Parts A, B and D. Additional options exist in Medicare Part C to help with some of the services not covered by original Medicare, such as vision, hearing, dental and wellness programs.

Individuals must be enrolled in Parts A and B, and if Part C doesn’t have prescription drug coverage, they can receive it through Part D — but cannot receive drug coverage through both.8 Medicare Part C has the same initial enrollment period of Parts A and B, as well as the annual coordinated election period that runs from October 15 to December 7 each year.8

What Medicare won’t cover

One major service Medicare won’t cover? Long-term care. That’s especially concerning for seniors who may need more assistance as they age. Medicare only covers medically necessary skilled nursing care or home health care up to a maximum of 100 days with certain conditions being met.9 But a lot of long-term care isn’t necessarily for health-related reasons; it’s custodial care that assists seniors with everyday activities such as dressing and personal hygiene.

This is why retirees can’t count on Medicare to meet their every need, and should only look at it as one piece of the retirement puzzle.

Guiding retirees down the right path

Different Medicare paths exist for retirees. What works for one may not work for another. It’s important to help individuals see the bigger picture and truly understand their needs before making their choices. One of the biggest takeaways here is that even with Medicare, retirees can still have significant costs associated with healthcare — costs they need to prepare for.

1U.S. Bureau of Labor Statistics, Consumer Expenditure Surveys, September 2021
2Social Security Administration, History of SSA During the Johnson Administration 1963 - 1968, Costs, When does Medicare coverage start?, What’s Medicare Supplement Insurance (Medigap)?, When can I buy Medigap?, How to compare Medigap policies, How do Medicare Advantage Plans work?, Skilled nursing facility (SNF) care