🏥 Medicare Parts A–D explained clearly
⏳ Enrollment timing & avoiding lifelong penalties
🧑⚕️ Medicare Advantage and Medigap basics
Executive Summary:
This blog post is for anyone approaching or navigating Medicare enrollment. Ryan Wyatt of Wyze Wealth Advisors sat down with Medicare Planning experts Albert Intrieri and Rob Martier from Focus Senior Benefits, the Medicare planning arm of Neishloss & Fleming, to provide a roadmap to navigating your Medicare coverage options.
In this post, you’ll learn:
- The different Parts of Medicare.
- What Medicare Part A and B (“Original Medicare”) cover, and what they don’t.
- How to address coverage gaps.
- An overview of the Medicare enrollment process, including critical enrollment deadlines that must be met to avoid penalties.
- The value a trusted expert can add by relieving stress as you navigate the enrollment process.
Our goal is to equip you with the knowledge to make informed decisions, avoid costly mistakes, and confidently choose a plan providing the right coverage for your future.
Medicare Basics
Medicare is a complex system with different parts, each covering specific healthcare services.
- Part A (Hospital Insurance): This covers services within a hospital. Think of “A” for “Admission (to a hospital)”. This part is typically provided at no cost for individuals who have worked for at least 40 quarters (10 years) in the U.S. However, it does come with a deductible that can change annually.
- Part B (Medical Insurance): This part covers outpatient services. Think of “B” for “Medical.” It includes doctor visits, specialist appointments, and certain other medical treatments such as physical therapy. You pay a monthly premium for Medicare Part B. The standard premium can increase based on your income from two years prior*. This is known as the Income-Related Monthly Adjustment Amount (IRMAA).
* If you recently retired and are worried that your Part B premiums will be higher because of your employment income, please contact us so we can walk you through the process of declaring a “life-changing event,” which, when submitted correctly, can lower your Part B premiums.
- Part C (Medicare Advantage): This is an alternative to Parts A and B offered by private insurance companies. These plans often bundle additional benefits such as dental, vision, and hearing. The key difference is that a Medicare Advantage plan has a maximum out-of-pocket spending limit, which protects beneficiaries from ruinously high costs in bad health years. These plans are a form of cost-sharing, meaning you pay a premium and often co-pays for services.
- Part D (Prescription Drug Coverage): This part covers prescription medications. It’s offered by private insurance companies and can be a standalone plan or included in a Medicare Advantage plan. Recent changes, such as the Inflation Reduction Act, have capped out-of-pocket prescription drug costs at $2,000 annually for certain individuals.
Parts A and B are administered by the U.S. government. Enrollment in these parts is mandatory. Parts C and D are optional. You can stick with Original Medicare (Parts A and B) and pay out-of-pocket for additional services, or you can supplement that coverage with a private plan.
Addressing Coverage Gaps
Original Medicare (Parts A and B) does not cover everything. It’s important to understand what is not covered so you can determine if additional insurance is right for you. Common coverage gaps include:
- Routine dental, vision, and hearing services: Many Medicare Advantage plans include some of these benefits, but they are not included in Original Medicare.
- Long-term care: This includes services such as nursing homes and assisted living facilities.
- Cosmetic surgery: Non-medically necessary procedures are not covered.
- Chiropractic services: These are not usually covered.
When looking to fill these gaps, you can choose between a Medicare Advantage (Part C) plan or a Medicare Supplement (Medigap) plan.
- Medicare Advantage: This type of plan replaces Original Medicare. It often has low or no premiums but includes co-pays for services. It is a cost-sharing model.
- Medicare Supplement (Medigap): This type of plan supplements Original Medicare to help cover costs not paid by Parts A and B, such as deductibles and co-insurance. It is a cost-certainty model, where you pay a monthly premium to cover many of the costs Original Medicare doesn’t. A key benefit of Medigap plans is that they are portable. They are accepted anywhere in the U.S. that accepts Medicare.
If you have a chronic condition or anticipate frequent doctor visits, a Medigap plan may be a good option as its cost structure is more predictable. However, you may be denied a Medigap plan if you apply after your initial six-month enrollment window* and must go through underwriting. Medicare Advantage plans, on the other hand, cannot be denied due to pre-existing conditions.
* Medigap’s Open Enrollment Period lasts six months. This window opens the first day of the first month you are both age 65 (or older) and enrolled in Medicare Part B. During this time, you have a guaranteed right to buy any Medigap policy, and companies cannot deny you coverage based on your health. This is a one-time opportunity. You do not get another chance.
The Importance of a Timely Application
The process of enrolling in Medicare can be complicated, and timing is critical. Your initial enrollment window is a seven-month period that includes the three months before your 65th birthday, the month of your birthday, and the three months after.
Applying late can result in permanent penalties for Parts B and D. For Part B, the penalty is a 10% increase for each year you were eligible but did not enroll. For Part D, the penalty is a 1% increase for each month you were eligible but did not have credible drug coverage.
It’s crucial to plan proactively. Processing applications takes time, and you don’t want to risk a lapse in coverage. Even if you have group coverage through an employer, it’s a good idea to speak with an expert to determine whether you should enroll or defer.
Beyond the initial enrollment period, there are other times you can make changes to your plan.
- Annual Enrollment Period (AEP): This runs each year from October 15th to December 7th. During this time, you can switch from Original Medicare to a Medicare Advantage plan, or vice versa, and change or enroll in a Part D plan.
- Medicare Advantage Open Enrollment Period: This runs from January 1st to March 31st and allows individuals on a Medicare Advantage plan to switch to another plan or return to Original Medicare.
Special Scenarios for Individuals and Couples
Medicare is not a “one-size-fits-all” solution, particularly for individuals who are still working, or couples with significant age differences. Mistakes can lead to lack of coverage, coverage gaps, and late enrollment penalties.
Scenario #1: Individual Still Working at Age 65
An individual may turn 65 with plans to continue working. Their Medicare enrollment strategy depends on the size of their employer.
- For an employer with 20 or more employees, the group plan is considered the primary payer. The individual can typically stay on this plan and defer Medicare Part B without a penalty. However, they should still consider enrolling in the premium-free Medicare Part A.
- For an employer with fewer than 20 employees, Medicare becomes the primary insurance. The individual should enroll in both Part A and Part B at age 65 to avoid coverage gaps and penalties, as their employer-sponsored plan would only act as a secondary payer.
Scenario #2: The Spousal Coverage Scenario
For a married couple where only one spouse is working and has a group health plan with 20 or more employees, the non-working spouse can remain on that plan.
- The non-working spouse can defer Medicare Part B enrollment without penalty as long as they have credible coverage through their spouse’s employer.
- The decision to stay on the group plan or transition to Medicare is a personal choice, but it is important to apply for Medicate Part A regardless.
Scenario #3: Retiring Before 65
When retiring before 65, there are two primary options to bridge the gap between retirement and Medicare eligibility:
- COBRA: This option allows you to continue coverage on your former employer’s group plan. However, you are responsible for paying both your and your employer’s share of the premium, plus an administrative fee. COBRA coverage lasts for 18® months. You will then need to make other arrangements for health insurance.
- Private Exchange: The second option is to seek a health insurance policy on a private exchange. This may make sense if COBRA coverage is prohibitively expensive or otherwise unsatisfactory. If your COBRA coverage expires before you turn 65, you will need to purchase insurance on a private exchange to bridge the gap.
Regardless of which path you take, it is critical to proactively plan for the transition. Enrolling in Medicare Part B requires processing time, so you must begin your application a few months before your planned retirement or the end of your current coverage to avoid coverage gaps. Delaying enrollment may result in double coverage and additional expenses.
The world of Medicare is constantly changing, so staying informed is essential. Working with an expert can provide peace of mind that you’ve chosen the right coverage for your specific needs, protecting both your health and wealth in retirement.
Authors:
Ryan Wyatt, CFP®, CIMA®
Nick Lewandowski, CFA®, CFP®
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