4 Steps to Smart Medicare Decisions

Recently I was talking to a friend about her upcoming 65^th birthday. I anticipated some misgivings about aging, but she surprised me. She was excited to reach this milestone because she couldn't wait to be eligible for Medicare.

On the one hand, I admired her positive attitude. On the other, I knew she was in for a bit of a challenge as she started to navigate Medicare enrollment. And I was right. She didn't know that Medicare doesn't start automatically if you haven't begun collecting Social Security yet. Also, she had no idea how many choices and decisions there were to make. On top of that, Medicare was going to cost her more than she expected.

While my friend's attitude about turning 65 may have been a surprise, her questions and concerns about Medicare were not. Because as welcome as Medicare can be—and as many benefits as it provides—it's complicated.

Here's what I suggested for my friend and anyone facing this important turning point.

When it comes to enrolling in Medicare, there are many more factors than just turning 65. For instance, are you planning to retire, or will you keep working? Will you have continuing healthcare coverage through your own or your spouse's employer?

If you won't have employer-based coverage, enroll sooner rather than later. If you will, generally it may be best to delay Medicare enrollment. But that depends on the size of the employer, current employment status, and which insurance is considered primary—Medicare or your employer plan. It's not always straightforward, so speak with your employer's benefits experts to understand your options. Also, realize that once you enroll in Medicare, you can no longer contribute to a Health Savings Account.

In any case, timing is crucial because there are important enrollment windows that I'll talk about next.

Original Medicare includes Part A, which provides inpatient/hospital coverage, and Part B, which covers outpatient/doctor care. If you began taking Social Security before age 65, you'll automatically be enrolled in both parts. But if you didn't, it's up to you to act.

In general, the best time to enroll in both Parts A and B is during a 7-month Initial Enrollment Period. This automatically starts three months before you turn 65 and ends three months after the month you turn 65. However, if you still have coverage through an employer, you may be able to delay enrolling in Part B until what's called a Special Enrollment Period.This extends eight months from the time you leave your employment or lose coverage.

The Initial Enrollment Period is important because missing it can mean you are stuck paying late-enrollment penalties, which are added to your monthly premium, for the rest of your life.

This leads to the question of cost. People are often surprised that Medicare isn't free. While Part A is typically free if you or your spouse paid Medicare taxes for at least 10 years while working, Part B comes with a premium. And that premium varies with your modified adjusted gross income. In 2023, monthly premiums range from $164.90 up to a max of $560.50.

Another surprise is that Medicare doesn't cover everything. You'll need to pay for things like deductibles, copays for doctor visits, and coinsurance for X-rays, hospital stays, or medically necessary surgeries—and there's no out-of-pocket maximum. Medicare also doesn't pay for things like prescription drugs, vision, dental, and long-term care. How you'll manage these costs is another important Medicare decision. Fortunately, you have choices.

There are two main ways to get additional coverage to handle extra expenses:

• Medigap plus Medicare Part D: These are supplemental policies offered through private insurance companies. A Medigap policy helps cover out-of-pocket costs for Medicare-covered expenses like copayments, deductibles, and coinsurance. There are 10 standardized plans. Premiums and out-of-pocket expenses depend on the type of plan and insurance provider. And, as long as the doctor or hospital accepts Medicare, your Medigap policy can generally be used anywhere in the U.S.

Medicare Part D offers prescription drug coverage. Again, premiums vary by policy and provider, and like Part B premiums, if you have a higher income you should expect to pay more. Unless you have other drug coverage, say through an employer, it's important to sign up for Part D when you first enroll in Medicare to avoid a late enrollment penalty.

• Medicare Advantage: Sometimes called Medicare Part C or an MA plan, Medicare Advantage is an alternative to Original Medicare that you can choose when you enroll. It's offered through private insurance companies approved by Medicare and covers all services that Parts A and B offer. It often includes additional benefits like dental care, eyeglasses, wellness programs, and usually drug coverage. Premiums for MA plans may be lower than for Medigap and Part D, but frequently there are network restrictions, meaning you'll likely be more limited in your choice of doctors and providers. You also may have to go through a primary care physician to see a specialist. You can see providers outside the network, but it will cost more.

With Medicare Advantage, you must choose a specific plan when you enroll, so make sure to check and compare available providers and facilities in your area, as well as plan costs such as premiums and copayments. You can do this at Medicare.gov.

I wish I could say once you've made these decisions, you're done. But over time things can change—your health, your needs, and your finances. The same goes for health plans, especially MA and Part D where your coverage and out-of-pocket costs can change year-over-year. I encourage you to review your Medicare choices annually. Again, there are specific windows when you can make changes. The annual open enrollment period during which you can change MA and Part D plans is October 15 to December 7.

As I said to my friend, it's important to take the time to research and get answers before you enroll. Sure, there's a lot to understand, but think of it this way: how much time do you spend researching a vacation? Doesn't healthcare for your retirement years deserve the same kind of thoughtful planning?

And you don't have to do it alone. Talk with a knowledgeable financial planner to discuss questions you may have. Review the Medicare & You handbook. Check out the State Health Insurance Assistance Program.Talk to a local insurance agent specializing in Medicare. It will be worth the effort. With your major Medicare decisions behind you, you can really enjoy your 65^th birthday—and all the birthdays to come.