Navigating the Intricacies of Medicare, Part I

Plan ahead to avoid unexpected medical costs and keep your retirement on track.

By Andy Fass
Senior Vice President
Wealth Management Branch Manager
Hilltop Securities Inc.


Health care is one of the largest expenses seniors must face during retirement and it’s often the least expected. Even if you reach retirement in good health, you will likely spend a significant portion of your income on preventative care. To help offset some of these medical costs, the government offers retirement-age Americans an insurance program known as Medicare.

While previous insurance programs you experienced—either through your employer, parents or independently purchased—may have been simple to manage, Medicare tends to be especially difficult to navigate. Many individuals approaching retirement continue to have difficulty understanding the complicated federal health insurance program.

Unfortunately, if you’re confronted with unexpected medical costs, failing to learn the intricacies of Medicare or to plan accordingly could eventually deplete your savings. Knowing how Medicare works can help you anticipate any coverage gaps and expenses you may encounter during retirement.

To help you wade through Medicare’s complexity, I’ve outlined some important facts and misconceptions associated with the program below:

What is Medicare?
Medicare is a national federal health insurance program for people 65 and older who have been citizens for at least five consecutive years. It primarily serves seniors and a small percentage of young people with disabilities by paying for a variety of their medical expenses. Launched in 1965, Medicare was designed to make health care a universal right for senior citizens and currently provides coverage for over 61 million Americans.

If you’re new to Medicare, you may be unfamiliar with the way its menu of coverage options is divided. The most utilized programs are Part A (hospital insurance), Part B (outpatient insurance), Part C (Medicare Advantage), and Part D (prescription drugs).

Although the alphabetized plans read like a simple multiple-choice question, deciding which is right for your lifestyle is far from elementary. When first enrolling, beneficiaries have two main ways of getting Medicare coverage:

  • Original Medicare, also known as Traditional Medicare, combines Part A, Part B and optional Part D. When you use Original Medicare, the federal government pays for a portion of your medical visits and expenses.

  • Medicare Advantage is offered by private insurance companies who provide bundled coverage plans. Unlike Original Medicare, which provides coverage throughout most of the U.S., Medicare Advantage users must select doctors within their network.

Keep in mind that depending on your age, health status, and other mitigating factors, you have one of two paths when signing up for Medicare. If you’re already receiving Social Security or Railroad Retirement Board (RRB) benefits, you automatically get Parts A and B when you turn 65. However, you do not need to be enrolled in your Social Security benefits to receive Medicare1. If you’re close to 65 but not getting Social Security or RRB benefits, you’ll need to sign up for Medicare by contacting the Social Security Administration three months before turning 652. Finally, be sure to pay attention to your initial and special enrollment periods.

What Does Medicare Cover?
Despite what many think, Medicare does not cover all health care costs. Although Medicare provides all recipients at least a basic level of care, there are still coverage gaps. Financial responsibility falls on the consumer for dental care, vision care, long-term care, and medical expenses when you travel outside the U.S. Having a basic understanding of what each program part covers can help you fill those gaps and budget for your retirement.

  • Part A – Hospital Insurance
    Part A helps you pay for hospital stays, inpatient medications, home health care, and hospice care.

  • Part B – Medical Insurance
    Part B is devoted to covering outpatient expenses including preventative services, medical supplies, and doctors’ services.

  • Part D – Prescription Drug Coverage
    Part D offers price breaks on prescription drugs. Part D is not automatically included in Original Medicare (Part A and B). However, if you’re enrolled in Part A and B, you are also eligible for Part D.

The Price of Medicare
Because the same benefits are offered to all who are eligible, people frequently assume everyone pays the same price. In actuality, your work and earnings history can dictate how much you’ll pay for Medicare benefits. Depending on your status, you might be charged a deductible and premium, which is taken directly from your Social Security check if you have already started collecting your retirement benefit. If not, you will receive a quarterly invoice from Medicare.

The cost for the different parts of Medicare are:

  • Part A
    Even though Medicare Part A pays for most inpatient services and most people are not charged a premium, everyone must pay an annual deductible. In 2019 the Part A deductible was $1,364 and is projected to be $1,420 in 2020. Other than the deductible, you typically won’t be charged anything else as long as you or your spouse paid into payroll taxes from employment for 10 or more years.

  • Part B
    Part B charges a premium in addition to a deductible. This year, the deductible is $185 and is projected to be $197 in 2020. The Part B premium also tends to increase each year, but the amount varies based on beneficiaries’ income.

    If you’re a higher income beneficiary, the Social Security Administration mandates you pay an additional premium amount for Part B and D. That amount is calculated using your adjusted gross income and tax-exempt interest income. Because less than five percent of Medicare beneficiaries are considered high income, most people pay a Part B premium of $135.50 per month.

  • Part D
    For Part D, the average premiums range from $28 per month to $76 per month.

Planning Ahead
Projecting your health care costs during retirement is a significant challenge. Many retirees don’t realize they will likely spend a large percentage of their savings and income on medical needs. Milliman, an international actuarial and consulting firm, estimates a healthy 65-year-old couple retiring in 2019 will spend $369,000 on health care over their lifetime and a healthy 67-year-old couple will spend 39% of their pre-tax Social Security benefits on health care.

Regardless your stage in life, you should consider Medicare costs and unforeseen medical expenses as a key part of your financial planning for retirement. Of course, nobody expects to get sick, but planning ahead can help preserve the longevity of your retirement funds, especially if you’re surprised by future medical complications or gaps in Medicare coverage.

Your financial advisor can provide guidance and advice to help you achieve the retirement you envision. To learn more about how you can smooth your transition into retirement, find an advisor near you or call 214-953-4000.



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