When adults enter their mid-60s, applying for Medicare goes to the top of the priority list. Our government system is designed to help seniors 65 and older get free and reduced health care. It is quite complex, however, and usually goes through a lot of changes during each presidential administration. By understanding the ins and outs of this system including coverage, how premiums are determined and how you can save money, you can optimize Medicare to make it work for your medical needs and budget.
First off, how did Medicare come about? According to The National Academy of Social Insurance, a nonprofit with an online database for citizens' economic and financial security, Medicare was created in 1965 to help seniors battle the aggressive insurance market, in which it was impossible for retired seniors to get and/or afford private health insurance. Given a lack of preventative health care measures in the '60s, Medicare was primarily a reaction to the system, with the intention of protecting seniors from astronomical hospital bills incurred from injury or illness. Over time, as better drugs and medical innovations have kept more seniors living longer and out of the hospital, Medicare has evolved to offer more comprehensive coverage, highlighted in its several policy sections.
Broken up into Part A, B, C and D, this system offers seniors several options to itemize their health care costs. More often than not, seniors pay a separate premium for each part. According to the Medicare website, the parts are broken down as follows:
-- Part A is the original Medicare and covers inpatient hospital care, care in a skilled nursing facility, home health care and hospice care. This part is almost always free.
-- Part B is focused on medical coverage and certain doctors' services, outpatient care, durable medical equipment and many preventive services. Part B is where seniors incur most of their Medicare costs.
-- Part D is add-on coverage for prescription drug costs.
-- Many seniors opt for Part C, the Medicare Advantage Plan, a bundled/all-in-one alternative to individual part coverage. It includes Part A, Part B and usually Part D, and although it won't allow for as much customization in coverage and premiums, it is often the simplest route.
Medicare premiums are determined by several factors, according to Laurie Backman, a contributing writer for MedicareResources.org. One factor is eligibility. When you sign up for Medicare actually plays a large role in premium costs. Seniors are eligible to sign up three months before the month of their 65th birthday and up to three months after their birthday month. There is also an open enrollment period from Jan. 1 through March 31 each year. But if seniors delay signing up, costs for Part B coverage raise by 10% each 12-month period.
The AARP Social Security Resource Center explains that income further affects this equation. To determine your Medicare premiums for 2020, Social Security will likely rely on your 2019 tax return detailing your 2018 earnings. So, what can be done to lower premiums? First, a little perspective from Boomer Benefits chief blogger Danielle Kunkle Roberts: If your modified adjusted gross income for 2018 was less than or equal to the higher-income threshold -- $87,000 for an individual or $174,000 for a married couple filing jointly -- you pay the standard 2020 Medicare Part B rate of $144.60. If you have higher income, your premium is called an income-related monthly adjustment amount, or IRMAA. Oftentimes, seniors get assigned higher premiums because they recently retired, but the income listed on their previous two tax returns was higher than their income since they've stopped working. If income exceeds $500,000 for an individual and $750,000 for a couple, premiums can raise to a maximum monthly premium of $491.60. If this happens to you, Roberts recommends filing an IRMAA Medicare appeal with Social Security, which will require proof of income changes but can ultimately establish more appropriate rates.
There are several other ways to save money on Medicare premiums, according to Kimberly Lankford, contributing editor for Kiplinger's Personal Finance magazine. The first is lowering your Part D coverage. Many people go on autopilot once they select a plan, but with the ever-changing political and economic environment, Medicare legislation can also change from year to year. Lankford recommends a yearly reevaluation of your plans (especially Part D) during the open enrollment period. Using the Medicare Plan Finder online, you can compare costs for the specific drugs you know you'll be using. Finally, Backman recommends low-income seniors seek out Medicare Savings Programs. These are funded by Medicaid and help seniors pay for Medicare costs including Part B. To apply, you'll need to make an appointment with your local Medicaid office.
There is a lot of complexity in applying for and receiving Medicare benefits, but with the proper planning and some smart money moving, all seniors should be able to take advantage of this system they've been paying into for several decades.