Retirement can spur more life satisfaction, relaxation, freedom, free time and travel opportunities. In retirement, however, health often replaces money as the number one priority. As we age, healthcare becomes more expensive, and it’s important to have the right plan in place to keep health expenses manageable. Now through Dec. 7 is the annual Medicare Open Enrollment period. Medicare recipients can now make changes to their coverage for 2020. Rather than rushing through the process, be in-the-know on these essential Medicare facts so you can make a more informed decision.
What is Medicare and who is eligible?
Medicare and Medicaid first became available in 1966 after President Lyndon B. Johnson signed the Medicare Act of 1965. They are the government’s second-largest expenditure after Social Security. Medicare is the national health insurance program for people age 65 or older and people with qualifying disabilities and medical conditions. Medicaid is a joint federal and state program providing healthcare for qualified low-income individuals.
Medicare Parts and Costs
Medicare consists of four different parts, and each helps cover specific services. Part A is for hospital services, Part B covers doctor visits and outpatient services, Part C is Medicare advantage plans and Part D covers prescription drug costs. Part A is generally free if you or your spouse paid Medicare taxes for 10 years or more. The 2020 cost for Part B is approximately $145 per month (7 percent higher than 2019), and Part D depends on the prescription plan you choose (the national average is about $33 per month). Seniors can also elect to purchase a Medicare supplement policy from private insurance companies to help fill the gaps of Part A and B (e.g., copayments, co-insurance and deductibles). According to recent studies, the average health insurance cost for single coverage premiums ranges from $200 to $400 a month. Finally, Part C is an Advantage Plan where you get coverage for Part A and B through a private insurance company with possible options, including prescription drugs, dental and vision insurance, and more.
Income Related Costs
You may have to pay additional costs for Parts B and D based on your income through an income-related monthly adjustment amount (IRMAA). Medicare claims that less than 5 percent of insureds are affected. The additional costs start at a modified adjusted gross income (MAGI) of $87,000 for single taxpayers and $174,000 for joint taxpayers for the upcoming year. Your MAGI is calculated by adding your Adjusted Gross Income and municipal bond income – consult your tax expert. Your cost is determined by your income two years ago. Depending on your income, the additional costs could range from about $500 to $4,000 annually for Part B and $150 to $500 annually for Part D.
Tips to Reduce IRMAA Costs
One of the biggest IRMAA planning opportunities considers your income levels before and after you retire. Medicare’s two-year look-back period could involve your highest income-earning years. But you can appeal Medicare’s IRMAA calculation if you’ve had a “life-changing event that significantly reduced your income” including the death of a spouse, work reduction or stoppage (including retirement), and more. Discuss eligibility with your tax expert and, if necessary, contact the Social Security Administration and appeal to use your current income instead of the two-year look-back income. Form SSA-44 might save you thousands of dollars.
Deciding which Medicare plan options are best for you can be confusing. Other issues you may encounter include when to enroll and how to incorporate other assets like health spending accounts. Be sure to consider needs like assisted living or custodial care. Keep a pulse on health policy developments like the recent executive order pushing for medical savings accounts and high deductible Medicare Advantage plans. Talk with your family and your trusted advisors to determine what’s best for you.
Secure your future wisely.