As more baby boomers focus on retirement, health insurance has become an increasingly hot topic. In fact, it’s one of the things I get asked about most often. So, in this article, I’m going to explain some of the basics and highlight a few things that tend to surprise future retirees.
What is this?
Medicare is a federal health insurance program for anyone over age 65, certain younger people with disabilities, and people with end-stage kidney disease. Medicare has three main parts: Part A, Part B, and Part D.
Part A is what is commonly called “hospitalization insurance”. This covers hospital stays, care in a qualified nursing home, palliative care and some health insurance. Part B is your “medical insurance” and covers certain doctor visits, outpatient care, and other preventative services. Part D is prescription drug coverage that helps cover the costs associated with your medications.
History of Medicare
The program dates back to July 30, 1965, when President Lyndon B. Johnson signed a bill that led to the creation of Medicare and Medicaid. The program was originally created to provide basic medical coverage to Americans who lacked health insurance.
In 1972, coverage was expanded to cover people over 65, young citizens with certain disabilities, and those with end-stage renal disease. Part D for prescription drugs only went into effect in 2006, as part of a modernization of the program in 2003, marking the most significant change Medicare has seen so far.
It’s not free
It is important to note that Medicare is not free. I can’t count the number of times I’ve had to break this news to people who mistakenly assume it’s a completely free program. Although this should make health care much more affordable than before listing, this is not always the case. It is therefore crucial to understand the costs associated with the program.
Let’s break it down
Original Medicare, which includes Part A and Part B, pays most, but not all, of the cost of covered health services and supplies. Part D for prescription drugs is separate. You pay for services as you go and usually pay a deductible at the start of the year, plus around 20% of approved services called coinsurance. Many people also benefit from a Medigap policy, which costs extra to make up the gaps over what the original Medicare won’t pay.
Alternatively, Medicare Advantage bundles Parts A and B together, and often includes Part D as well, in one plan from a private provider. This is a Medicare-approved plan and often includes vision, dental, and hearing services that original Medicare does not provide. Usually these plans are for one year and changes may occur at the end of the contract. You will be notified of these changes and may need to switch Advantage plans if a change interferes with something vital to your needs. Each plan can charge different amounts and have different rules for how you receive your care, which has led to a lot of confusion among people who use Advantage.
Problems with health insurance
There are currently several key issues with Medicare, with the enrollment process being at the very top. Failover can be a confusing and complex process. Many people who don’t have help can make good faith mistakes that lead to additional fees and late registration fees. Another glaring problem is the lack of full dental, vision and hearing coverage. As we all know, these three areas can deteriorate with age – and the failure of the original Medicare to cover them is a huge oversight, in my opinion.
As the average lifespan in our country continues to increase, I anticipate that other issues will arise unless these issues are addressed. In the meantime, for anyone age 65 or older who needs to enroll in Medicare, it’s a good idea to discuss your options with a qualified financial advisor. These professionals can help you determine the types and amount of coverage that are right for you.
Jennifer Pagliara, CFP, CTFA, is Executive Vice President and Financial Advisor at CapWealth. For more information, visit capwealthgroup.com.