Medicare is a health insurance program run by the U.S. government.
The plan generally covers people who are age 65 and older, though some programs are available to those who are younger and who have certain medical conditions.
Medicare is divided into several parts that cover different types of medical care, supplies and treatments.
Part of Medicare is free to most people, other parts carry a cost of coverage.
Medicare offers a wide range of coverage, but there are a number of areas that Medicare does not cover.
You will typically need to enroll during a window of time around your 65th birthday, though there are exceptions.
Failing to enroll during the initial enrollment period can result in penalties.
Who Is Eligible For Medicare?
If you are at least age 65 you qualify for Medicare coverage if:
- You are a U.S. citizen or a permanent legal resident who has lived in the United States for at least five years.
- You are receiving Social Security or Railroad Retirement benefits or have worked long enough to be eligible for them.
- You or your spouse are a current or retired governmental employee who has paid into Medicare.
For those who are under age 65, you might be eligible if:
- You have been eligible for Social Security disability benefits for at least 24 months.
- You are receiving a pension from the Railroad Pension Board.
- You suffer from ALS also known as Lou Gehrig’s disease.
- You suffer from renal failure.
What Does Medicare Cover?
Medicare is divided into several Parts.
Medicare Parts A and B are what is often called original Medicare.
Part A is known as hospital insurance. It covers things like:
- Inpatient care in a hospital
- Care in a skilled nursing facility for a limited time under specified conditions.
- Care on a long-term care hospital
- Hospice care
Medicare Part B is medical insurance and covers things like:
- Doctor’s visits
- Preventative treatments such as tests and screenings
- Flu shots
- Outpatient mental health services
- Physical therapy
- Diabetes screenings, supplies and self-management advice
- Durable medical equipment such as wheelchairs
Medicare Part D is prescription drug coverage.
Part D plans are offered through private insurance companies that are approved by Medicare.
Another type of coverage is the Medicare Advantage Plan, also referred to as Medicare Part C.
Medicare Advantage plans typically offer Medicare Parts A and B plus prescription drug coverage.
They might also offer other coverages as well.
A Medicare Advantage plan would be purchased in lieu of original Medicare and a separate drug plan.
There are other types of comprehensive or supplemental Medicare plans as well that are available via private insurers offering various types of coverages.
What Medicare Doesn’t Cover
While Medicare is a comprehensive program, there are services and procedures that are not covered.
- Long-term care or custodial costs related to a person being unable to perform activities of daily living such as bathing, toileting, getting dressed and others.
- Most dental care and procedures
- Eye exams related to getting prescription glasses
- Cosmetic surgery
- Hearing aids and exams related to fitting them
- Medical care administered outside of the U.S.
- Routine foot care
Note that some Medicare Advantage Plans and other Medicare Health plans may cover some or all of the items not covered by Medicare Parts A and B.
How Much Does Medicare Cost?
Medicare Part A is free for most people.
It’s free if you are at least age 65 and:
- You are already receiving retirement benefits from Social Security of the Railroad Retirement Board or are eligible for these benefits but have commenced them as of yet.
- You or your spouse worked for the government and you paid into Medicare.
There are certain conditions under which you can qualify for free Part A coverage if you are under age 65, these include:
- If you suffer from end stage renal failure and meet certain conditions.
- If you have been receiving or eligible for either Social Security of Railroad Retirement Board disability benefits for at least 24 months.
For those who don’t meet the criteria for free Medicare Part A, the cost is $458 per month if you paid Medicare taxes for less than 30 quarters over the course of your working career.
If you paid Medicare taxes for 30-39 quarters, then your monthly cost is $252.
These costs are as of 2020, the premiums may change over time.
How Much Is Medicare for Part B?
Medicare Part B costs are a function of your modified adjusted gross income (MAGI) for a base year.
For 2020 the base year is 2018.
There is a range of premiums based upon tax filing status and 2018 MAGI:
- For an individual filer whose 2018 MAGI was $87,000 or less, the 2020 monthly premium is $144.60. A couple who file jointly will also pay this premium if their 2018 MAGI was $174,000 or less.
- At the highest end, single filers with a 2018 MAGI of $500,000 or more, and married joint filers with a MAGI of $750,000 or more pay a premium of $491.60 per month for 2020.
In all there are six premium levels for Part B in 2020. The premium levels are generally adjusted each year.
Besides the cost of the monthly premiums, there are deductibles and coinsurance costs for Part B covered services.
For 2020 the deductible is $198, you would then pay 20% of the Medicare approved amount on covered services once you’ve met this deductible.
Note the Medicare approved amount may be less than the full amount of the service or procedure.
How to Enroll in Medicare
One may enroll in Medicare by visiting medicare.gov.
You are generally required to enroll in original Medicare (Parts A and B) when you reach age 65.
You have a seven month window in which to do so.
This window includes the three months prior to and after the month in which you reach age 65, plus the month of your birthday.
For those who are receiving benefits from Social Security or the Railroad Retirement Board, they will be enrolled in Parts A and B automatically when they reach 65.
If you are not automatically enrolled in Medicare and don’t complete your initial enrollment within the seven month window, you will incur penalties when you do enroll.
An exception to this is if you are covered by a workplace medical plan either through your own employer or via your spouse’s coverage.
For employers with 20 or more employees, their coverage is primary.
For those working for employers with fewer than 20 employees, Medicare is primary, and they may be required to enroll.
You must also enroll in a Medicare Part D prescription drug plan, have coverage through a Medicare Advantage or other supplemental plan or have creditable prescription drug coverage elsewhere.
Creditable coverage would generally mean that you are covered by an employer plan directly or through your spouse at age 65 or after.
The penalties for late enrollment in a prescription drug plan are steep and remain with you for as long as you are covered.
Note that employer coverage does not include coverage under COBRA upon leaving an employer. You must either be covered by an employer’s health insurance directly or through your spouse.
Beyond initial enrollment in Medicare, there is an annual enrollment period that runs from November 15 to December 7 each year.
During this period, Medicare users can change their coverage. You might do this if your drug coverage won’t cover a needed prescription or provider in-network.
During this period you can switch Medicare Advantage providers, prescription drug plan providers or move from original Medicare to a Medicare Advantage plan for example.
Medicare is a comprehensive medical insurance program run by the government. It offers retirees a key tool in managing their healthcare costs in retirement. It’s important to be sure you understand Medicare as you approach retirement to ensure you reap the full benefits of the program.
If you have any more questions about this topic, feel free to connect with a financial advisor in San Clemente, CA. For those of you who live outside the area, please check out our financial advisor page instead.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.