Navigating the world of healthcare can be daunting, especially as you approach retirement. One of the most important components of healthcare you’ll need to understand is Medicare. This blog aims to demystify Medicare, explaining its basics and offering insights for those with higher incomes facing an income-related monthly adjustment amount (IRMAA).
What Is Medicare?
Medicare is a federal health insurance program primarily for people age 65 and older. It also covers certain younger individuals with disabilities and people with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant).
Medicare is divided into parts, each serving a unique purpose:
Medicare Part A (hospital insurance): Covers inpatient hospital care, skilled nursing facility care, hospice care, and home health care.
Medicare Part B (medical insurance): Covers certain medically necessary services and preventive services.
Medicare Part C (Medicare Advantage plans): An alternative to Original Medicare (Parts A and B) that is offered by Medicare-approved private companies. These plans often include Part D coverage and may provide extra benefits like vision, hearing, and dental services.
Medicare Part D (prescription drug coverage): Helps cover the cost of prescription drugs.
Enrolling in Medicare
You are eligible for Medicare when you turn 65. The initial enrollment period (IEP) is a seven-month window that begins three months before your 65th birthday, includes your birthday month, and ends three months after.
If you already receive Social Security benefits, you’ll be automatically enrolled in Parts A and B. Otherwise, you’ll need to sign up through the Social Security Administration.
Costs of Medicare
Medicare is not entirely free. Here’s a breakdown of some costs you might encounter:
Part A: Most people don’t pay a premium for Part A if they or their spouse paid Medicare taxes for at least 10 years. If not, the premium could be up to $505 per month in 2024.
Part B: The standard premium for Part B in 2024 is $174.70 per month, but it can be higher depending on your income (more on this later).
Part C and Part D: Medicare Advantage costs vary by plan and provider. Part D premiums also vary but average around $55.50 per month.
What Is IRMAA?
Medicare Part B and D premiums are subject to IRMAA for those with higher incomes. IRMAA is an extra charge added to your standard premium based on your modified adjusted gross income (MAGI) from two years prior. Here’s a quick look at the 2024 IRMAA brackets:
Individuals with a MAGI above $103,000
Married couples filing jointly with a MAGI above $206,000
For example, if your MAGI in 2022 was above these thresholds, you will pay higher premiums for Part B and Part D in 2024. These additional costs can range from $69.90 to $419.30 extra per month for Part B, and $12.90 to $81 extra per month for Part D, depending on your income level.
Avoiding Late Enrollment Penalties
Enrolling in Medicare on time is essential to avoid late enrollment penalties. If you miss your IEP, you may have to wait for the general enrollment period (January 1 to March 31) to sign up, and your coverage won’t begin until July 1 of that year. Additionally, you may face a late enrollment penalty:
Part A: If you have to buy Part A and you don’t sign up when you’re first eligible, your monthly premium may go up by 10%. You’ll have to pay this higher premium for twice the number of years you could have had Part A but didn’t sign up.
Part B: If you don’t sign up for Part B when you’re first eligible, your monthly premium may go up 10% for each 12-month period that you could have had Part B but didn’t sign up. The penalty is permanent.
Part D: If you don’t join a Medicare drug plan when you’re first eligible, you might pay a late enrollment penalty that continues as long as you have Part D coverage.
Integrating Medicare into Your Financial Plan
Understanding Medicare’s complexities is important for your overall financial well-being.
Whether you’re approaching 65 or already enrolled, having a clear understanding of Medicare helps you make informed decisions, ensuring your healthcare needs are met without compromising your financial stability. If you have higher-than-average income, understanding IRMAA and its impact on your premiums should be part of your financial planning.
By understanding the basics of Medicare, you can make informed decisions about your healthcare coverage. Remember, planning ahead can save you from unexpected costs and help you gain the coverage you need when you need it. At Northstar Financial Planners, we work with clients to incorporate Medicare decisions into their broader financial strategy.
Schedule a complimentary consultation with one of our fiduciary, fee-only financial planners to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.