As you approach retirement, it’s really important to understand Medicare thoroughly. A lot of financial advisors tend to overlook Medicare since it doesn’t directly contribute to your retirement income. However, at J.A. Lawrence Wealth Management, we believe that knowing all about your expenses, including healthcare, is vital for a successful retirement plan. So, diving deep into Medicare is crucial.
Medicare is a federal health insurance program mainly for people aged 65 and older. During our working years, we pay into Medicare through the FICA tax. This tax has two parts: OASDI (which stands for Old Age, Survivor, and Disability Insurance and makes up about 80% of the FICA tax) and Hospital Insurance (which is the other 20% and is also called Medicare Part A).
Medicare has four main parts: Part A, Part B, Part C, and Part D. Understanding each part can help you plan your health insurance better.
Part A: Known as Hospital Insurance, Part A covers your hospital stays but not the doctors’ fees. It’s funded by the FICA tax and is generally available to anyone 65 or older. This is the basic coverage that everyone who has paid into Medicare during their working life should sign up for.
Part B: This part covers doctors’ services, tests, medical equipment, home health care, and outpatient care. If Part A covers your hospital admission, Part B takes care of what happens in the hospital. It’s not funded by FICA and costs about $135 per month on average. If your income is over $170,000 a year when married, it can cost more. Part B is just as essential as Part A.
Together, Parts A and B make up the original Medicare, covering about 80% of your health needs, while Parts C and D cover the remaining 20%.
Part C: This is the Medicare supplement that lets you see doctors or specialists for non-emergency issues. This includes Medigap and Medicare Advantage plans.
Medigap: This insurance usually costs between $100 to $200 per month and is accepted by any doctor who takes Parts A and B. If you sign up for Medigap when you enroll in Parts A and B, you can get Medigap regardless of your age or health. If you initially skip Medigap for Medicare Advantage and want to switch later, you’ll need to go through underwriting. Medigap plans are sold by insurance companies, but the benefits of each plan are the same no matter the provider. So, if one company charges more, you can find a cheaper plan with the same benefits.
Medicare Advantage: Also managed by insurance companies, this works like private healthcare with a network. If you live within the network area, it could be a cheaper alternative to Medigap. But remember, Medicare Advantage policies change frequently, so you need to stay updated, especially in retirement.
Part D: This covers prescription drugs. Some Medicare Advantage plans include Part D, but Medigap does not. Part D costs about $35 per month on average. If you go with Medicare Advantage, it’s a good idea to work with a broker instead of a captive agent because the policies can be complex and change often.