Making the most of Medicare

Turning 65 soon? Don't procrastinate. Learn about your Medicare options and enroll when it's time.

01 May 2019

Key takeaways

  • Medicare eligibility begins at age 65. If you don't take action ahead of time, you may be hit with a late enrollment penalty that will increase monthly premiums for the rest of your life.
  • What you pay for your type of Medicare will depend on the state you live in and your income.
  • Learn more from the UBS Chief Investment Office about when to give your Medicare coverage an annual checkup (PDF, 202 KB).

If you are approaching the age of 65, it's an excellent time to learn about how Medicare works. In the years before retirement, many people have misconceptions about Medicare. The two biggest ones are that Medicare is free and that coverage is automatic. Different parts of Medicare cover different services, and while certain parts of Medicare are free, these parts represent limited coverage, explains Ainsley Carbone, Total Wealth Strategist with UBS.

Medicare coverage can involve paying monthly premiums, co-pays and several other out-of-pocket expenses. Not only that, you have to choose your plan—either Original Medicare or Medicare Advantage. “Your plan won't be picked for you, so you need to enroll and make the decision," Carbone says. Procrastinating on enrolling can hurt you. If you don't take the right steps to elect coverage when you turn 65, you are penalized financially, which adds up over time.

If you're feeling a bit overwhelmed, you're in good company. “Most people aren't aware of how Medicare works until it's time to enroll and they are essentially forced to sit down and read all of the information about it," Carbone says. Waiting until the last minute makes planning for a comfortable retirement even more challenging than it already is.

She compares educating yourself about Medicare benefits  to educating yourself about employment benefits. “When you start a job, the enrollment packet and the options are laid out for you. Think of Medicare's website like your enrollment package and the coverage is like the employer-provided health plan but it's for your retirement career." The human resources person tells you the options, but they don't make choices for you. You have to make the choices, or you lose out. The same is true of Medicare.

Types of Medicare

Original Medicare is very basic. It includes hospital benefits (Part A) and medical benefits (Part B), but no prescription drug coverage or vision/hearing coverage. You can purchase Medicare Part D for  prescription drug coverage, as well as supplemental policies, such as Medigap, which helps with other gaps in coverage.

Medicare Advantage, or Part C, is an all-in-one plan. “It's a one-stop-shop. You purchase one policy and it typically comes with all (or most) of those benefits — depending on the plan," Carbone says. Upfront costs may be higher, but there are limits on your annual out-of-pocket  costs. “If you are concerned about costs that may accompany the worst case scenario, Medicare Advantage might provide comfort in knowing there's a limit on your annual out-of-pocket costs for medical services."

What you pay for your type of Medicare will depend on the state you live in and your income. Also, keep in mind that there is no annual out-of-pocket maximum with Original Medicare — once deductibles are met, you'll still be responsible for a portion of the costs.

While Medicare benefits certainly do offset the high cost of paying for healthcare on your own, you should expect to spend a considerable amount throughout your retirement. How much? A 2018 report by HealthView Services says that a 65-year-old couple in good health can expect to spend approximately $363,946 on healthcare costs in retirement.1

Sign up for Medicare, or be penalized

Medicare eligibility begins at age 65. If you don't take action ahead of time, you may be hit with a late enrollment penalty that will increase monthly premiums for the rest of your life.

Some people will be enrolled in Medicare automatically, some will have to enroll themselves at age 65, and some will be able to delay coverage without incurring a penalty.

Contact Social Security or visit Medicare's website to confirm which group you fall under. The key thing to remember is that everyone's situation is unique. If you want to make the most of Medicare, you do have to  take action to figure out which Medicare option is best for you.

“There are so many factors to consider for your Medicare coverage, and it's important to review your options ahead of time in order to choose wisely," Carbone says. If your 65th birthday is in sight, now is the time to start reviewing those options.

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