Health insurance is a leading cause of stress among working-aged adults. It’s no wonder that Medicare is so popular. The government’s single-payer system provides affordable coverage to Americans after they retire.
Let’s take a look at the four steps to file for Medicare and some important considerations along the way.
Step #1: Familiarize Yourself with Medicare
Medicare is a federal health insurance program for citizens or legal permanent residents that are 65 years or older. The program also applies to certain younger people with disabilities. It’s funded through federal income tax, payroll taxes, and beneficiary premiums and has funding through at least the 2030s.
The program is divided into four parts:
- Medicare Part A, or Hospital Insurance, covers inpatient hospital stays, skilled nursing facilities, hospice care, and some home health care. Most people paid Medicare tax while working, so they don’t have to pay a monthly premium for this coverage. They can take it immediately at age 65.
- Medicare Part B, or Medical Insurance, covers doctors’ services, outpatient care, medical supplies, and preventative services. Everyone pays a monthly premium for this coverage, which is based on your income and when you enroll in the coverage. You may choose to delay this coverage.
- Medicare Part C, or Medicare Advantage Plans, is a type of Medicare health plan offered by a private company that contracts with Medicare. These plans are becoming less common since Medicare is reducing subsidies to private insurers but is still an option. These plans include all the benefits of Part A and B. They may also include additional coverage for things like vision, dental, hearing or prescription drugs.
- Medicare Part D, or Prescription Drugs, adds prescription drug coverage to Medicare, some Medicare cost plans, some Medicare Private-Fee-for-Service plans, and Medicare Medical Savings Account plans. The disadvantage of Part D is the coverage gap, or doughnut hole, that’s reached when the combined cost of prescriptions exceeds a certain point. You must then pay the entire amount.
Step #2: Determine If & When to File for Medicare
Most people become eligible for Medicare during the 7-month Initial Enrollment Period. This period begins three months before they turn 65 years old and ends three months after the month they turn 65 years old.
You will automatically receive a Medicare Initial Enrollment Period package three months before your 65th birthday if you are receiving Social Security benefits before age 65.
Full Medicare benefits are still possible if you aren’t eligible for full Social Security retirement benefits at age 65. You must contact the Social Security Administration to enroll. Then you may choose to take Medicare Part A, Part B, and/or Part D at that time, depending on your situation.
You may be automatically enrolled in Medicare if you are disabled or have certain medical conditions.
Medicare.gov provides a handy eligibility and premium calculator that you can use to determine your eligibility and see how much you will owe in premiums.
Step #3: Determine the Coverage You Want
The next step is determining what level of coverage you want to receive. Even if you are automatically enrolled in Medicare Part A and Part B, you must still choose whether to enroll in Medicare Part D or purchase supplemental coverage.
Medicare Part A
Most people should enroll in Medicare Part A when they turn 65 years old—even if they have health insurance from an employer. There is no cost for the coverage and you can receive benefits above and beyond the coverage that you receive from an employer, retiree plan, or other types of coverage.
Medicare Part B
The decision of whether to take Medicare Part B is a bit more nuanced. While it’s usually a good idea to take Part B coverage immediately, you may want to delay the decision if you receive existing coverage through an employer (or a spouse’s) group health plan if the premiums are cheaper than Medicare’s premiums. You then have eight months to sign up for Part B coverage after the coverage ends without paying a penalty.
Medicare Part B premium amounts depend on your income and when you enroll, but the standard premium amount for 2018 is $134.00 per month. If you’re considering delaying Part B coverage, you may want to compare these amounts with the amount that you pay through an employer to see what’s a better deal.
The late enrollment penalty for Part B coverage is up to 10 percent for each full 12-month period that you could have had Part B coverage but didn’t sign up for it.
Medicare Part C
Medicare Part C plans include both Part A and Part B insurance, but they’re provided through a private insurer rather than the government. The decision to opt-in for Medicare Part C depends on your health care needs and the cost differences. Unlike Medicare, you will need to choose health care providers who participate in the plan’s network.
Medicare Part D
Medicare Part D covers prescription drug costs, which can quickly add up as you get older. Most people that are retired by age 65 should immediately enroll in Medicare Part D to take advantage of these cost savings.
There are a couple instances where you want to delay or avoid enrollment in Medicare Part D:
- Employer or other group health plans may offer better coverage than Medicare Part D coverage.
- Medicare Advantage Plans (Part C) or Medicare Cost Plans may already include prescription drug coverage.
You may also face a lifelong penalty if you aren’t eligible for full Social Security retirement benefits at age 65. The penalty is equal to one percent of the average monthly prescription drug premium times the number of months that you were late. The worst part is that this penalty is permanent!
Supplemental Coverage
Supplemental coverage can help cover health care costs that Medicare doesn’t cover. This might include things like copayments, coinsurance, and deductibles. These so-called Medigap policies can help you deal with unexpected costs and keep your monthly payment stable over time.
Step #4: File for Medicare
The final step is to file for Medicare to receive coverage.
You will receive a red, white and blue Medicare card and packet in the mail about three months before your 65th birthday or on your 25th month of disability if you automatically receive Medicare Part A and Part B.
If you don’t qualify for automatic benefits, you can file for Medicare online during your enrollment period to get started.
You can also receive personalized health insurance counseling at no cost from your local State Health Insurance Assistance Program (SHIP).
The Bottom Line
The process of applying for Medicare can be intimidating with its many moving parts and costly penalties for making mistakes. You can ensure that you’re on the right track by following this guide. You can also consult with a free counselor using the SHIP in your state or speak with a financial advisor to ensure you’re making the optimal decisions.
