Financial Planning

As people approach age 65 and consider retirement, health care planning becomes a higher priority. It also becomes a common area of confusion. After years of having health care coverage through an employer provided plan, the various parts of Medicare and additional coverage options can be overwhelming.

Are all Medicare plans the same?

No. While participation in Medicare Part A is the same for everyone, the decisions you make about signing up for Medicare Part B, Part C (through a private insurer), Part D (drug coverage), and/or one of many available Medigap policies effectively shapes the way your “plan” looks, acts and feels. Depending on the combination you choose, your cost and coverage can vary considerably. Unfortunately, there is no single answer that helps determine which health insurance option in retirement is the most appropriate. A certified Medicare broker in your area can assist in narrowing down options and finding the best fit for your needs and budget.

Will I have to change doctors?

Not necessarily. In general, many physicians will accept Medicare coverage, including Medicare Parts A and B, and Medigap policies. However, with a Medicare Advantage Plan (Part C), you may need to choose providers within a particular network.

When do I have to enroll in Medicare?

You become eligible for Medicare at age 65. If you are already receiving Social Security, you will receive Medicare information approximately three months before age 65 and will be automatically enrolled in Medicare Part A at age 65. If you qualify for premium-free Part A (as most do), enrollment in Part B occurs automatically and you must waive the benefit if you do not want it. If you are not yet receiving Social Security benefits, you should contact Social Security about three months prior to your 65th birthday to begin the enrollment process.

You should be aware that you generally have only a seven month window to sign up for Part B at the stated costs (counting the month they reach age 65, plus the three month periods preceding and following that month). Those who enroll outside of this window will have to wait for a general Part B enrollment period (January 1 - March 31 of each year, with coverage becoming effective July 1 of the same year). You may also have to pay a late enrollment penalty which will cause your premium to be higher for as long as you remain covered under Part B.

I plan to keep working after age 65. Can I keep my employer-sponsored health insurance?

That depends, primarily on the number of employees working at your company. If your company has fewer than 20 employees, Medicare will be your primary plan and your employer plan will be secondary. You will need to enroll in both Medicare Part A and Part B in order for your employer plan’s coverage to continue.

If your company has 20 or more employees, your employer plan will be primary and Medicare will be secondary. You may delay enrollment in Part B without penalty as long as you continue to work and maintain coverage in your employer plan. You will be eligible for a Medicare Part B Special Enrollment Period for eight months after you stop working or your employment-based coverage ends, whichever occurs first. You may also delay enrollment in Part D without penalty, provided that the employer plan that covers you provides creditable prescription drug coverage. Contact your employer’s Human Resources Department for information on whether your plan provides creditable prescription drug coverage.

I am relocating to be near my kids in another state. Can I take my Medicare Advantage plan with me?

You typically can’t switch your coverage outside of the open enrollment period (see below), although there are exceptions (e.g., if you move outside of the plan’s service area). Also, you can switch to a Medicare Advantage Plan or Medicare Prescription Drug Plan that has a five-star rating at any time during the year. This five-star special enrollment period can only be used once per year. The Medicare system has an open enrollment period each year that typically runs from October through December. During open enrollment, you can select Medicare Parts A, B, C, and/or D, as well as Medigap coverage.

I intend to travel a lot in my first few years of retirement. Is my Medicare coverage portable?

Potentially. In general, many physicians will accept Medicare coverage, including Medicare Parts A and B, and Medigap policies. However, with a Medicare Advantage Plan (Part C), retirees may need to stay within a particular network of doctors. If you plan to travel a great deal, a plan that provides access to a broader network of providers is worth investigating.

I have a Health Savings Account (HSA) with a substantial balance. What happens to my HSA when I turn 65?

When you turn 65 you can use your HSA, tax-free, to pay Medicare premiums or to cover out of pocket expenses such as co-pays and deductibles, to pay long-term care premiums, or for other medical expenses as defined by the IRS. Keep in mind; you are responsible for keeping records of your expenditures to prove how you spent the money in case of audit by the IRS. If you die, your HSA can pass to either a spousal or non-spousal beneficiary. Non-spousal beneficiaries will owe regular income taxes on expenditures from the account.

Does Medicare cover long-term care (or custodial care)?

No. Medicare does not cover indefinite stays in a nursing home, assisted living facility, or adult day care as a result of needing assistance with activities of daily living, such as bathing, dressing, eating, toileting, continence, and transferring. You will have to cover those expenses through personal savings, long-term care insurance, or possibly Medicaid (if you qualify due to low income/asset levels). However, Medicare does cover portions of skilled nursing care (up to 100 days), home health care (due to illness or injury), and hospice care.

Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.