Medicare Malaise

Christopher Long CFA ® , CFP ® , AAMS ® |

As healthcare costs continue to rise, choosing the right insurance remains a critical component of any financial plan. These choices become even more important in retirement because your decisions can have lasting, and expensive consequences.

Most Americans expect Medicare to cover their healthcare expenses in retirement. However, it’s estimated that Medicare only pays about 60% of current retirees’ medical expenses. By understanding the limitations of Medicare and how to mitigate those limitations, you can determine how to incorporate healthcare into your overall retirement plan.

Given the somewhat complicated Medicare coverage options – Part A, Part B, Part D, Part C, Medigap – it’s easy to get lost on the Medicare enrollment journey. Being informed is the best way to avoid costly mistakes. Take the time to learn about Medicare and rely on your financial advisor as a resource to help clarify issues. Your advisor can help you estimate what your healthcare needs and costs will be in retirement, and together, you can identify unique healthcare issues and adjust your plan accordingly.

Working with your advisor, plan to enroll in Medicare with a timeline in place. Late enrollment can increase monthly premiums, costing you money or leaving you with a gap in coverage. Waiting to enroll in part B until the month you turn 65 (or the 3 months after you turn 65), will delay coverage. Also, if you don’t sign up for Medicare Part B when you’re first eligible, you’ll have to pay a late enrollment penalty. You will then have to pay this penalty for as long as you have Part B.

Most U.S. citizens become eligible for Medicare coverage on the first day of the month in which they turn 65. If you already collect Social Security benefits, you will be automatically enrolled in Parts A and B. If not, there are a few enrollment scenarios.

  1. Initial Enrollment Period: You can apply during a seven-month window around your 65th birthday – the month of your birthday, plus the three months prior and three months after.
  2. Special Enrollment Period: If you have group coverage through current employment, yours or your spouse’s, check whether the employer requires you to enroll in Medicare when first eligible. If not, you can wait for a special enrollment period that extends to eight months after the employment or coverage ends.
  3. General Enrollment Period: If you did not sign up during initial or special periods, you can enroll each year from Jan. 1 to March 31. Be aware: You could pay a higher premium for late enrollment.

Keep in mind, even if you are automatically enrolled in Parts A and B you may need to enroll in a private Part D drug plan, or in a Medicare Advantage plan that includes Part D coverage.

Every year you have the option to make changes to your Medicare Advantage plan (Part C) and Medicare prescription drug coverage (Part D) for the following year during an open enrollment period that runs from October 15 to December 7.

Once enrolled in any of the Medicare plans, most people will pay the standard premium. However, if your adjusted gross income is above a certain limit, you may have to pay an Income Related Monthly Adjustment Amount (IRMAA). This is an additional charge within your premium. Medicare will look at your modified gross income that was reported to the IRS on your tax return from two years prior. This means that your modified gross income from 2019 could impact your Medicare premiums for 2021. Another important component to remember is that Medicare does not cover dental, vision, hearing, or long-term care. Work with your financial advisor to determine if long-term care or other safeguards are appropriate for you.

Even with supplemental insurance and Medicare, out-of-pocket healthcare costs in retirement can be expensive, with the potential to thwart even the best-laid retirement plans. That’s why it’s so important to incorporate those costs into your overall retirement income plan as soon as possible. Planning for these essential expenses could mean the difference between a confident retirement and one fraught with concern.

Within any retirement plan, healthcare coverage should be considered an essential need. When it’s time to decide---choose wisely, visit our website to download our Medicare Manual to help you make an informed and intentional decision.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. and Intentional Wealth Strategies. Intentional Wealth Strategies is not a registered broker/dealer and is independent of Raymond James Financial Services.

This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.