Medicare can be tricky. Here are some common mistakes to avoid!
The Medicare open enrollment period has begun, so we at Bonsai Financial thought it would be a great time to discuss some of the most common mistakes retirees make when it comes to their healthcare. Medicare, in addition to the accounts you’ve built to create streams of income, is one of your most important tools in retirement. Protecting you from financially devastating medical emergencies, it becomes even more important as you retire and begin to live on a fixed income.
It is, however, crucial to know that Medicare has its limitations, possibly making you susceptible to mistakes when signing up and choosing a plan. Far too often we visit with clients who aren’t aware of how Medicare works or how to correctly utilize it as a tool for protection. We believe that many of the headaches could be avoided simply by knowing the obstacles you may encounter along the way, thereby allowing you to prepare for what’s ahead. Let’s go over the five most common Medicare mistakes that we see with our clients, and how to avoid them.
- Not Understanding What It Is
In 2021, two-thirds of Americans were covered by a private insurance plan, meaning that they were either part of a group plan through their employer, or they sought out coverage from an insurance company on their own . While private insurance plans may differ on a case-by-case basis, they generally function similarly with premiums, deductibles and various amounts of coverage in each plan. In comparison with the healthcare insurance you may have had during your career, Medicare has slight yet key differences.
For example, Medicare has four parts: A, B, C and D. Parts A and B are usually referred to as Original Medicare, with Part A covering visits to hospitals and skilled nursing facilities as well as hospice care and some home-based healthcare. It is free for those who qualify, which includes those age 65 and older who have contributed Medicare taxes for 10 years or longer.
There are, however, monthly premiums for Part B, the portion of Medicare that covers the cost of outpatient care, such as standard visits to a general practitioner.
Parts C and D can be a bit trickier for those first signing up for Medicare. Part C is commonly known as a Medicare Advantage or Medigap plan, and these plans generally replace Parts A and B (and often Part D) with a plan through a private insurance company which gets subsidized by the government. Part C Medicare Advantage or Medigap plans can also include extra coverage like dental, vision and hearing.
Part D is prescription drug coverage, which is not included in Original Medicare Parts A and B but can be added for an additional premium amount.
No matter which plans you choose, Medicare premiums typically come directly out of your Social Security benefit, and it is important to account for those deductions when determining your net income.
- Overestimating Its Capabilities
As we mentioned above, Part A of Medicare is free to those who qualify, potentially generating the common misconception that Medicare as a whole is free for those in retirement. In reality, only premiums for Part A come at no cost to the insured, which still doesn’t include 2023’s $1,600 deductible for hospital visits . Part B comes with a standard monthly premium which will be $164.90 per month in 2023. Increasing and enhancing your coverage with a Medicare Advantage plan can also raise your rates, and the cost of Part D can increase with a penalty for missing your initial enrollment period.
When planning your retirement, it’s important to know that those with higher incomes pay more for Medicare, and there is a two-year look-back on your income via your tax returns when determining how much you will pay.
It’s also important to know that Medicare does not cover long-term care. While no one likes to think about the prospect of leaving their home, their possessions and their loved ones behind, 70% of today’s retirees will need some type of long-term care, and 20% will need it for longer than five years . When the national annual median cost of a private room in a nursing home can top $100,000. Are you prepared to cover that expense if needed? It may be helpful to look elsewhere for long-term care coverage, including into a long-term care insurance policy or a life insurance hybrid policy that includes assistance to pay for long-term care if you need it or a death benefit for your beneficiaries if you don’t.
- Signing Up Outside the Initial Enrollment Period
You are not automatically enrolled when you qualify for Medicare at age 65; you must enroll yourself. There is a seven-month enrollment window which starts from the three months before your 65th birthday, the month of your 65th birthday and the three months following your 65th birthday.
Failure to enroll during that period could cause you to incur permanent surcharges.
For instance, with Part D prescription drug coverage, you may incur a penalty. That penalty is calculated by taking 1% of the “national base beneficiary premium,” which is $32.74 in 2023, and multiplying it by the total number of full months you’ve gone beyond your initial enrollment period. For example, with next year’s national base beneficiary premium, if you delayed enrollment for Part D by 12 months, your premium would be an additional $3.93 per month.
- Picking the Wrong Plan
In the same way that your healthcare plan prior to Medicare probably had limited coverage, Medicare Advantage plans and Medicare Part D plans cover different providers and prescription drugs . That’s why when you’re considering Medicare options, it’s important to have a list of your doctors and medications in hand. Consider working with a Medicare specialist who can help you choose between multiple carriers rather than going it alone.
You can also consult with Bonsai Financial for help in determining which Part D plan covers the drugs you need. Working with clients in retirement gives us a great idea of how we can help, and it’s not uncommon for us to see clients who haven’t chosen a plan that satisfies their needs. With our experience, we know which resources to consult when looking for the plan that fits your medical background.
- Neglecting to Revisit the Plan During the Open Enrollment Period
Medicare open enrollment runs annually from Oct. 15 through Dec. 7, so now is the perfect time to review your options. And remember, as you get older, your needs will likely change. You may move. You may begin to see different specialists or healthcare providers. Almost certainly, your need for different prescription drugs will change. As those needs change, so can your Medicare plan.
The open enrollment period gives Medicare beneficiaries a plethora of options in changing their coverage to tailor it to their unique circumstances. For example, you can opt to change your Original Medicare plan to a Medicare Advantage plan, or vice versa. Furthermore, you can change your Medicare Advantage plan to a different one that offers more complete coverage for your care. Finally, it gives you the ability to customize your Part D coverage, whether you’re adding it to your current plan, removing it from your plan or changing it to accommodate your needs .
Too often, Medicare beneficiaries have improper coverage, leaving them scrambling to pay for their care. You can revisit your plan each year during the open enrollment period to help ensure that you aren’t stuck with medical bills you could have avoided.
If you have any questions about your retirement, please give us a call! You can reach Bonsai Financial by calling 602-343-9309!