Maintaining appropriate health insurance is very important both before and during retirement. Healthcare expenses can quickly exhaust one’s savings if proper insurance is not maintained. Fewer and fewer people will receive healthcare benefits from their employer after retirement due to spiraling healthcare costs. This is where Medicare comes into play.
What is Medicare?
Medicare is a United States federal health insurance program. Americans age 65 and older and the disabled are generally covered.
If you retire before age 65, you likely won’t be eligible for Medicare until you reach age 65, and so you may have to find another source of healthcare coverage. Finding a part-time job that provides health insurance benefits or purchasing a private health insurance policy are two potential alternatives.
Once you turn age 65, you will likely be eligible for Medicare coverage, which will probably cover a lot of your medical expenses but likely not everything. It also does not cover long term care, vision, or dental expenses (neither do most private health insurance policies).
Fortunately, there exist private Medicare/Medigap policies, such as those offered by eHealthInsurance that may be purchased to cover many of the expenses ordinary Medicare does not. Long term care insurance, dental insurance, and vision plans may also be purchased to cover long term care, dental, and vision expenses.
Who Pays for Medicare?
Taxpayers fund Medicare by paying 1.45% (or 2.90% if you are self-employed) of their wages towards Medicare. Employers pay an additional 1.45%. Unlike the Social Security withheld from your paycheck which is capped, you will generally pay Medicare tax on all of your wages.
Starting in 2013, this 1.45% tax will be increased to 2.35% (double this for the self-employed) for earnings above certain thresholds. Additionally, beginning in 2013, high income taxpayers may be assessed a 3.8% Medicare contribution tax on certain types of investment income.
Some Medicare coverage is free for seniors but they must pay a monthly premium for other types of Medicare coverage.
The 4 Parts of Medicare
Medicare is made up of four parts:
1. Part A
Most people who are age 65 or older and who are permanent residents or citizens of the U.S. quality for Part A, which generally provides free hospital insurance benefits. If you don’t meet the normal Part A requirements, you still may be able to obtain hospital insurance by paying a monthly premium. There are also cases when people are eligible for hospital insurance before turning age 65.
2. Part B
Part B provides medical insurance. Anyone eligible for free hospital insurance (Part A) may receive Part B coverage by paying a monthly premium. Individuals age 65 or older who don’t qualify for free Part A coverage may still be able to purchase medical insurance (Part B) without having to purchase hospital insurance.
3. Part C
If you have Medicare Parts A and B, you may choose to receive all of your Medicare health care benefits through a Medicare Advantage Plan (Part C – like an HMO or PPO) provider in exchange for a monthly premium. Private companies offer Medicare Advantage plans, which must be approved by Medicare and which generally include additional benefits not covered by Medicare.
Generally Medicare Advantage Plan holders don’t need a Medigap policy, since the Medicare Advantage Plan also includes many of the same benefits included in a Medigap policy.
eHealthInsurance can provide quotes from multiple plans so you can find the best plan for you and save money.
4. Part D
Part D helps cover doctor prescribed medication, and is generally available to anyone who has Part A, Part B, or Part C coverage. This coverage is completely voluntary, and an additional monthly premium is generally charged for it.
Prescription drug coverage is generally available through a Medicare Prescription Drug Plan administered by Medicare approved private insurance companies. Many Medicare Advantage Plans (Part C) also offer prescription drug coverage.
Other Terms and Considerations
Medicaid is not the same thing as Medicare. Medicaid is run at the state level and provides medical and hospital coverage to the impoverished. Medicaid rules and benefits vary by state. Approved Medicaid facilities have been shown to provide lower levels of care, so Medicaid should generally only be looked at as a last resort alternative. Nobody should “plan” to qualify for Medicaid.
Private Health Insurance During Retirement
If you already have private health insurance once you become eligible for Medicare (i.e. employer provided or an individually purchased policy), it may or may not make sense to sign up for Medicare medical insurance. This decision will depend on your personal situation, the terms of your private health insurance policy, and other factors.
For example, if there are other family members covered by your current private health insurance policy, it may be wise to keep it. Additionally, keep in mind that Medicare may not cover as much as a private health insurance plan, which is why private Medicare policies are oftentimes purchased to supplement ordinary Medicare. Whatever you decide, make sure that there is no gap in coverage, and that you have either private health insurance or Medicare coverage (or both) at all times.
Medigap Insurance (Medicare Supplement Insurance)
Medigap insurance policies are sold by private companies for a monthly premium and generally cover some of the health care costs that Medicare does not (the “gaps”). However, it also does not cover dental care, vision, or long term care expenses. Medigap insurance is generally not necessary if you have a Medicare Advantage Plan.
- Make sure that you obtain proper health insurance both before and during retirement
- Even if you are happy with your current Medicare or Medigap plan, it still may be worthwhile to compare policies at a site such as eHealthInsurance since plans are constantly changing and you may find a better deal elsewhere.
- The rules surrounding Medicare are complex. Make sure you understand who is eligible, how it works, what is and isn’t covered, and when and how to register for it.
Additional Medicare Information
For additional information on Medicare, you might take a look at the following books:
- Social Security, Medicare and Government Pensions: Get the Most Out of Your Retirement and Medical Benefits
- Maximize Your Medicare: Understanding Medicare, Protecting Your Health, and Minimizing Costs