Medicare Crash Course, aka Everything I Know About Medicare

First off, for specific figures, I recommend this page on the Medicare.gov website. It explains what the key terms mean, like Part A, B, and D, how coinsurance works, etc. Importantly, it also mentions what those all cover, and how much you pay (or could pay) for them. And it does so in plain English. Super useful. Start here: https://www.medicare.gov/basics/costs/medicare-costs 

Secondly, I recommend you work with a Medicare enrollment agent. It doesn’t increase your premiums at all to do so, and for the most part, they will know far more than I do about the process. Both about your particular situation and Medicare in general. 

They will ask you about your medical history, your medications, which doctors and clinics you visit, and whether you expect to be mostly in the same area when receiving care or if you expect to travel significantly. Your “snowbirdiness” is an important consideration, actually. 

As far as enrollment goes, there are basically three categorical options, and your Medicare enrollment agent will introduce you to more sub-categories within those. 

Option 1: Original Medicare (without Medigap)

Option 2: Medicare Advantage. 

Option 3: Medigap (aka Original Medicare with Medigap)

Here’s the problem with Option 1: There’s no out-of-pocket max. As a financial planner, I really like to limit your potential liabilities, so this option makes me sweat a little. 

That means you’re paying 20% of medical service costs provided, plus a per-day cost for hospital stays. Each “stay” in the hospital has a deductible of $1676. Because of how "stays" are defined, you could potentially pay this deductible multiple times in a given year (see that website for more details). You get 60 days (lifetime limit) in the hospital for free, then start paying $419 per day on the next thirty days, then $838 for the next 60 days, then you’re on the hook for everything after that. Again, these are not per year, these are lifetime limits. 

Depending on how things go for your health, you may never need any of these services, or you could face an utterly massive healthcare bill. Worse, relative to other areas of your life, you have little control over whether you need these services. No matter how you tilt the odds in your favor, you could still end up with cancer, or a neurodegenerative disorder. There are no guarantees in life. Heck, you might twist your knee the wrong way and need surgery. No one plans on injuring themselves. It just happens. 

On to Option 2, Medicare Advantage. You’ll have to talk to an enrollment agent about costs. Generally, the “advantage” with Medicare Advantage is that it has cheaper premiums than Medigap. It’s probably not unlike the insurance plans you’re used to, particularly if you’re mostly using the cheaper, higher deductible plans, that is. It has a deductible, an out of pocket-maximum, and a care network of approved doctors and clinics that you can visit. It can be a good, cost-effective option, but there are drawbacks. 

The biggest downside is that it’s harder to change plans later on if you start with Medicare Advantage. Starting with Medigap is easy, and doesn’t raise much issue. But getting back on Medigap after Medicare Advantage may require a physical exam, and you could get denied. 

Lastly, you have a higher deductible. So while premiums are lower, you might still end up paying a similar total amount in a medium-to-high-cost year. 

You might sense that I lean slightly in favor of Medigap. Medigap has higher premiums, but also offers much more flexibility and comprehensive coverage. Too, these premiums are higher than Medicare Advantage, but are…kind of reasonable? The premiums I’ve seen proposed to clients are in the $400-$600 a month range, which is a good deal cheaper than what many of them were paying for private insurance, but with better coverage. Too, it gives them flexibility to receive care anywhere in the US, and also to downgrade to Medicare Advantage down the road if they so choose. 

As always, talk to an enrollment agent, get some specific numbers, and then we can make a decision. 

Other interesting things I’ve learned:

Medicare won’t pay for long term care, but it will pay for hospice. The thing is, once you’re on hospice, you can no longer receive treatment for your medical issues. You really only get help with pain management. This becomes important because you also won’t get resuscitated. So if you have a heart attack, that’s just the way you’re leaving us. To elaborate further, if you’re found on the ground and someone calls an ambulance for you, Medicare will not reimburse you for that. You will be financially responsible for that ambulance ride and any medical care you receive as part of that whole process.  

More details here: https://www.medicare.gov/coverage/hospice-care 

Your Part B and Part D premiums go up with income. This is based on your tax return 1040, line 11, Adjusted Gross Income (AGI). The first step up comes when your AGI exceeds $106,000. Then again when it exceeds $133,000. Then $167,000. Then $200,000. That’s for single people. For married couples, those breakpoints are $212,000. Then $266,000. Then $344,000. Then $400,000. 

Somewhat unusually, these numbers are based on your income from 2 years ago. However, you can submit a form to request relief if the income from 2 years ago no longer reflects your circumstances. Qualifying events include things like marriage, divorce, retirement (or work reduction), or loss of income-producing property (such as selling your business, farm, or whatever). 

Here’s the form to request that: https://www.ssa.gov/forms/ssa-44.pdf