Medicare Basics: Understanding Healthcare in Retirement

Medicare is the federal health insurance program for Americans 65 and older. Understanding how it works is crucial—healthcare is typically the largest expense in retirement, and Medicare decisions affect your costs for life.

What Is Medicare?

Key Facts:

• Started in 1965
• Covers ~65 million Americans
• Funded by payroll taxes, premiums, and general revenue
• Different from Medicaid (which is for low-income individuals)

Medicare Eligibility

Age 65

• Automatic eligibility at 65
• Enrollment begins 3 months before your 65th birthday

Under 65

You may qualify if you:

• Received Social Security disability for 24 months
• Have ALS (Lou Gehrig's disease) - immediate eligibility
• Have End-Stage Renal Disease (ESRD)

Citizenship/Residency

• U.S. citizen or permanent resident
• Lived in U.S. for at least 5 consecutive years

The Four Parts of Medicare

Part A: Hospital Insurance

What It Covers:

• Inpatient hospital stays
• Skilled nursing facility care
• Hospice care
• Some home health care

Cost:

• premium-free for most (if you or spouse paid Medicare taxes for 10+ years)
• Otherwise: Up to $505/month (2024)

Part B: Medical Insurance

What It Covers:

• Doctor visits
• Outpatient care
• Preventive services
• Medical equipment
• Some home health care

Cost (2024):

• Standard premium: $174.70/month
• Higher income = higher premium (IRMAA)
• Annual deductible: $240

Part C: Medicare Advantage

What It Is:

• Private insurance alternative to Original Medicare
• Combines Part A, Part B, and usually Part D
• Often includes extra benefits (dental, vision, fitness)

Cost:

• Often $0 premium (plus your Part B premium)
• Different cost-sharing than Original Medicare
• Network restrictions apply

Part D: Prescription Drug Coverage

What It Covers:

• Outpatient prescription drugs
• Each plan has its own formulary (list of covered drugs)

Cost:

• Varies by plan
• Average: ~$55/month (2024)
• Higher income = higher premium (IRMAA)

Original Medicare vs. Medicare Advantage

When to Enroll

Initial Enrollment Period (IEP)

7-month window around your 65th birthday:

• 3 months before
• Your birthday month
• 3 months after

Special Enrollment Period (SEP)

If you have employer coverage at 65:

• Can delay Part B without penalty
• Must enroll within 8 months of losing employer coverage
• Need proof of prior coverage

General Enrollment Period

If you missed IEP:

• January 1 - March 31 each year
• Coverage begins July 1
• Late enrollment penalties may apply

Medicare Advantage/Part D Enrollment

Annual Enrollment Period (AEP):

• October 15 - December 7
• Changes take effect January 1

Open Enrollment Period:

• January 1 - March 31
• Can switch from Advantage to Original Medicare

Late Enrollment Penalties

Part A Penalty

If you have to pay for Part A (didn't work enough quarters):

• 10% penalty
• Lasts twice as long as you went without coverage

Part B Penalty

10% for each 12-month period you could have had Part B but didn't

Example: Delayed enrollment 3 years = 30% higher premium FOR LIFE

Part D Penalty

1% of national base premium × months without creditable coverage

Example: 24 months without coverage = ~$1 higher premium per month FOR LIFE

What Medicare Doesn't Cover

Medicare Costs at a Glance (2024)

The Medicare Timeline

Before 65

• Review employer coverage options
• Understand if/when to enroll
• Create Medicare.gov account

3 Months Before 65

• Initial Enrollment Period begins
• Enroll in Part A (usually automatic if receiving SS)
• Decide on Part B timing
• Research Advantage vs. Original Medicare

At 65

• Coverage can begin on 1st of birthday month
• Make Advantage or Medigap decisions
• Enroll in Part D if choosing Original Medicare

Ongoing

• Annual Enrollment Period each fall
• Review coverage annually
• Watch for IRMAA notices

Applying for Medicare

Automatic Enrollment

If receiving Social Security at 64: Automatically enrolled in Parts A & B

Manual Enrollment

If not receiving Social Security:

• Apply at ssa.gov/medicare
• Call 1-800-772-1213
• Visit local Social Security office

Medicare and Working Past 65

If You Have Employer Coverage

Company with 20+ employees:

• Can delay Part B without penalty
• Employer coverage is primary
• Enroll in Part B when you leave/lose coverage

Company with fewer than 20 employees:

• Medicare is primary
• Should enroll in both A and B at 65
• Employer coverage is secondary

HSA Considerations

At 65:

• If enrolled in any Medicare part, you can't contribute to HSA
• Can use existing HSA funds for Medicare premiums (except Medigap)
• Stop HSA contributions 6 months before Medicare (Part A retroactive)

Common Medicare Mistakes

Resources

Official Sources:

• Medicare.gov - Official website
• 1-800-MEDICARE (1-800-633-4227)
• State Health Insurance Assistance Program (SHIP)

Tools:

• Medicare Plan Finder (medicare.gov)
• Drug coverage finder
• Provider/pharmacy lookup

The Bottom Line

Medicare provides essential health coverage in retirement, but it's not free and it's not automatic for everyone. Understanding the four parts, knowing your enrollment windows, and avoiding penalties are crucial first steps. Start planning at least 6 months before you turn 65, and review your coverage every year during the Annual Enrollment Period. Healthcare decisions you make now affect your costs for the rest of your life.