Making the Most of Medicare

If you’re approaching age 65, it’s time to plan ahead.

While those of you who are approaching age 65 have many things to consider, the issue that deserves special attention is the healthcare expenses you’ll be facing in retirement. This is important because those expenses can have a significant impact on the type of lifestyle you can afford in your golden years.

Age 65 is a big milestone because it is the age when people typically qualify for Medicare. Traditionally, 65 is also the age where many people either retire or begin to make serious plans to do so.

Health care can be one of your biggest costs in retirement. In fact, it is estimated that an average 65-year-old (in 2023) may need approximately $157,500 saved (in today’s dollars, after taxes are paid) in order to cover healthcare expenses. And this figure does not include the cost of any long-term care needs that might become necessary.

Know Your Medicare Options

Medicare is the federal health insurance program in the US for qualified individuals who are age 65 and older, as well as for some who are under the age of 65 and have certain disabling conditions.

There are two primary options for receiving Medicare benefits: Original Medicare and Medicare Advantage.

In the past, there was only Medicare Part A (for hospitalization coverage) and Part B (for doctors’ services, equipment and supplies, and certain preventive-care services). That’s why Medicare Parts A and B are often referred to as Original Medicare.

While Medicare Part A and Part B provide coverage for a long list of healthcare items and services, the important benefits that are omitted from these plans include prescription drugs, dental, and vision coverage.

If you want to add prescription drug coverage, you can do so by purchasing a stand-alone Medicare Part D plan. Unlike Medicare Part A and B, which are offered through the government, Part D prescription-drug plans are sold through authorized independent insurance carriers. Therefore, depending on the policy and the insurer, your premium amount for Medicare Part D can vary.

In addition, because there are many out-of-pocket charges with Original Medicare—such as deductibles and co-payments—it is a good idea to also purchase a Medicare Supplement insurance plan that can pay for some or all of these charges. Medicare Supplement coverage is often referred to as Medicare Part C, or “Medigap,” because the benefits help to fill in various gaps in Original Medicare coverage.

There are actually ten different Medigap supplemental plans to choose from: Plans A, B, C, D, F, G, K, L, M, and N. Plan A provides the most basic set of “core” benefits, while the other plans offer core benefits plus additional coverage.

If you participate in Original Medicare as well as Medicare Supplement and/or Part D, you can typically see any doctor(s) and receive services from any provider or hospital.

If you participate in Original Medicare as well as Part C, or Medicare Advantage, you will have similar coverages as Medicare Parts A and B, and you may also have additional benefits such as vision and/or dental. However, many Medicare Advantage plans are less flexible and require you to receive your healthcare services from providers that are listed within a specific network—either a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO).

Medicare Advantage plans are sold through insurance companies, so the actual list of covered benefits and premium costs can vary from one Medicare Advantage plan to another.

When to Enroll in Medicare

As you prepare for retirement, you may wonder whether you must apply for Medicare coverage—especially if you are still working. The answer is: It depends.

For instance, you (and/or your legally married spouse) will need to have earned a certain number of “work credits” through the years in order to qualify. In 2023, one credit is earned for every $1,640 in covered earnings you generate. You are allowed to earn up to four credits per year, and you will be qualified for Medicare (as well as Social Security retirement benefits) after you have accumulated 40 credits.

If you have 40 credits, you will not be required to pay a premium for Medicare Part A. If you do not have 40 credits, though, you may still be eligible to purchase Medicare Part A coverage, but the premium could be over $500 per month (in 2023) if you must pay for Part A outright.

If you have the credits to qualify for premium-free Medicare Part A, this coverage will begin during the month in which you turn age 65, without the need to actively enroll. It is, however, necessary for you to enroll in Medicare Part B.

There are also different Medicare “enrollment periods,” which can help you narrow down what, if anything, you need to do in order to secure the coverage you need. These are the:

  • Initial Enrollment Period
  • General Enrollment Period
  • Special Enrollment Period
  • Open Enrollment Period

Your Initial Enrollment Period will begin three months before the month in which you turn age 65 and continue for three more months after your birthday month.

If you did not enroll in Medicare during the Initial Enrollment Period, you can sign up during the General Enrollment Period, which runs between January 1 and March 31 of each year. In this case, because you waited to enroll in Medicare, you will be “penalized” with a higher monthly premium cost for the rest of your life.

In some circumstances, if you were covered by health insurance via an individual plan or an employer-sponsored one (either through your own or that of your spouse or partner), then you can enroll in Medicare Part B during a Special Enrollment Period. Because you had “creditable” health coverage during your Initial Enrollment Period, you will not be penalized with a higher premium in this instance.

There is also an annual Open Enrollment Period that runs from October 15 to December 7 of each year. During this period, you are allowed to switch from Original Medicare to Medicare Advantage or vice versa. Not everyone’s situation is the same, though, so there is not a one-size-fits-all strategy for choosing the best enrollment period.

A Medicare specialist can help you to determine how much you’ll have to pay for your Medicare premiums, based on the income you’ve earned. For example, even if you receive Medicare Part A for free, the Medicare Part B premium is $164.90 per month (in 2023) for most participants.

But based on how much taxable income you earned two years prior to turning 65, you may have to pay an additional surcharge known as the Income-Related Monthly Adjustment Amount. IRMAA is an amount you may pay in addition to your Part B or Part D premium if your income is above a certain level. The Social Security Administration sets income brackets that determine your (and your spouse’s) IRMAA.

Therefore, depending on your taxable income when you were 63, as well as your income tax filing status (i.e., single, married filing jointly, married filing separately, or head of household), your monthly Medicare Part B premium could currently be as high as $560.60.

It is a similar scenario with the additional Medicare Part D prescription drug coverage. In this case, based on your age 63 taxable income and tax filing status, the monthly premium you pay for your plan (in 2023) would be the base premium amount (which is set by each individual insurance company) plus an additional $76.40 per month.

So if you are retired, or plan to be retired soon, these added premium amounts could make a big difference in the amount of retirement income you have remaining for other expenses.

Solving the Retirement Puzzle

As you can see, the many different “cogs” of  your retirement plan must all fit seamlessly together to keep your retirement wheels spinning properly. If you have a spouse or partner and you are preparing for retirement together, that can add even more pieces to the overall puzzle. That is why working with a professional financial planner who is also well versed in issues facing the LGBTQ community can be extremely beneficial.


Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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