I’m 63 and want to retire soon, but I’m confused about Medicare – how much will it cost me?

Meet David, a 63-year-old corporate executive who plans to retire in the next two years. Financially, David feels secure—he has his 401(k) and his investments—but there is one thing that worries him: Medicare. David doesn’t fully understand how Medicare works or how much it might cost him to see his regular doctors. This confusion has made him nervous about leaving the safety net of his corporate health insurance, so he’s hesitant to take the leap into retirement.

David may be nervous about leaving his corporate job and transitioning to Medicare, but understanding how Medicare works and what to expect can ease his worries. Medicare, while complex, offers a range of options to ensure retirees have access to the care they need. Let’s walk David – and anyone else in a similar position – through how Medicare works, what costs to expect and how to make sure you’re properly covered.

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When and how to enroll in Medicare

David is soon turning 65, which is the age at which most people become eligible for Medicare. Here’s how the timeline works:

• Initial Enrollment Period (IEP):
  

  David’s initial enrollment period begins three months before his 65th birthday and extends to three months after. During this seven-month window, David can enroll in Medicare without penalty.

• Medicare Parts:
  

  Medicare is divided into different parts and each covers different types of healthcare services. David will need to decide what type of coverage he needs based on his health, regular doctors, and expected medical expenses.

  • Part A (Hospital Insurance): It covers hospital stays, skilled nursing care, hospice care, and some home health services. Part A is generally premium-free if David (or his spouse) has paid Medicare taxes for at least 10 years.
  • Part B (Health Insurance): It covers outpatient care, doctor visits, preventive services, and some home health services. Part B has a monthly premium viz $174.70 in 2024 for most people, but could be higher depending on David’s income.
  • Part D (Prescription Drug Coverage): If David needs prescription drugs, Part D will help cover those costs. The monthly premium for Part D varies depending on the plan you choose.
  • Medicare Advantage (Part C): Alternatively, David could opt for a Medicare Advantage plan, which includes Parts A, B, and usually D, in a private insurance plan. Medicare Advantage often includes additional benefits such as vision, dental, and hearing coverage.

Understanding Medigap for additional coverage

Medicare Parts A and B cover many health care services, but they don’t cover everything. For example, Medicare does not cover vision, dental, or hearing aids, and there are out-of-pocket costs such as deductibles, copayments, and coinsurance.

David may want to look at a Medigap policy (also known as Medicare supplement insurance) to help cover these gaps. Medigap plans are sold by private insurance companies and can help pay for costs that traditional Medicare doesn’t cover, such as copayments and coinsurance. The cost of a Medigap plan varies, depending on factors such as David’s location, the plan he chooses, and his health.

Key point: Medigap policies do not cover prescription drugs, so if David chooses this option, he will need to enroll in Part D for drug coverage.

Expected costs for doctor visits

David is understandably concerned about how much it will cost to see his regular doctors once he gets on Medicare. Here’s a breakdown of what to expect:

• Part B costs (doctor visits and outpatient care):
  

  David will pay a monthly premium for Part B ($174.70 in 2024 for most people). When he visits the doctor, Medicare will cover 80% of the approved amount for most services, meaning David will be responsible for 20% of the cost, known as coinsurance. If David has a Medigap plan, it could help cover some or all of these out-of-pocket costs.

• Part D costs (prescription drugs):
  

  If David needs prescription drugs, the cost will depend on the Part D plan he chooses. Each plan has a formulary (a list of covered drugs) and different tiers for generic and brand name drugs. He will have a monthly premium for Part D as well as out-of-pocket costs for the drugs he needs.

What if his doctors don’t accept Medicare?

David may also be concerned about whether his current doctors will accept Medicare. Most doctors accept Medicare, but it’s essential to double check. Before he retires, David should call his doctors’ offices to confirm that they accept Medicare patients. If they don’t, he can use the Medicare Physician Compare tool to find doctors in his area who do.

If David chooses a Medicare Advantage plan instead of traditional Medicare, he will need to make sure his doctors are in the plan’s network. Medicare Advantage plans often have specific networks of health care providers, and going out of network can result in higher costs.

Working with a professional to understand Medicare

Given how complex Medicare can be, it’s a good idea for David to work with a professional to help him understand his options and costs. A Medicare broker or financial advisor specializing in retirement planning can provide personalized advice based on David’s health, financial situation and needs. These professionals can guide him through choosing the right Medicare plan, whether it’s Original Medicare with a Medigap plan or a Medicare Advantage plan.

They can also help David project how much health care will cost him in retirement and make sure his budget can cover those expenses.

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