Medicare: A Brief Guide

September 11, 2023 Financial Planning By: Yusuf Abugideiri, CFP

While your 65th birthday no longer signifies reaching the “Full Retirement Age” milestone (marking your eligibility to receive your full Social Security retirement benefit), turning 65 still has a unique perk – gaining eligibility for Medicare. Being eligible for the program, however, doesn’t mean that it’s easy to decipher the best course of action among the array of options available. What follows is a brief guide to understanding Medicare’s various components, how they work together, and suggestions for making your journey through the enrollment process as seamless as possible.

What is Medicare?

Medicare is the federal health insurance program available to all people age 65 and older. It has multiple components, which are summarized below:

PART A: Coverage for hospital stays, home health services and hospice care.

PART B: Coverage for doctor’s services, outpatient care and medical equipment.

PART C (Medicare Advantage): Private plans that provide Part A, B and (often) D services as an alternative to traditional Medicare (usually through managed care).

PART D: Prescription drug coverage, offered through private “stand-alone” drug plans or Medicare Advantage plans.

TRADITIONAL MEDICARE: The original program that covers Part A and B benefits.

MEDIGAP: Private, optional supplemental insurance that covers many of traditional Medicare’s out-of-pocket expenses. These plans are also sometimes called “Medicare Supplement Plans.”

Who is eligible for Medicare?

You are eligible if you or your spouse has at least 10 years of Medicare-covered employment. You may also qualify based on the work record of a former spouse or under certain other conditions. You do not have to be eligible for full Social Security retirement benefits to qualify for Medicare and you can be eligible even if you are still working. To determine your eligibility call the Social Security Administration (1-800-772-1213) or visit Medicare’s website.

How does one enroll in Medicare?

If you are receiving Social Security, the enrollment is automatic and you will receive correspondence from Medicare. Otherwise, there is a 7-month window (the Initial Enrollment Period) that includes:

The three (3) months prior to the month you turn 65,

The month you turn 65, and

The three (3) months following the month you turn 65.

You will generally want to apply during your Initial Enrollment Period – you can initiate the process by contacting Medicare during this time period (1-800-MEDICARE).

There is also an open enrollment period each year (October 15 through December 7), but note that your Part B and D premiums may increase if you do not apply during your first window of eligibility (see below for more details).

Medicare Part B cannot be elected during the Open Enrollment Period. This is a time when clients can pick up Part D or Part C for a January 1 start date. For those who delay Medicare Part B and do not have a Special Enrollment Period, you must use the General Enrollment Period (January 1 to March 31) to enroll in Part B for a July 1 start date.

How much does Medicare cost?

PART A: Generally free to anyone 65 and over, based on eligibility as outlined above. Note, you can’t be enrolled in Part A Hospital and continue HSA contributions.

PART B: Entails a small annual deductible, and measurable additional cost that varies according to your income from two years prior. Cost increases by a penalty for any time after age 65 that you apply, unless you are covered under a large employer plan (if you do not initially purchase Part B because this is the case, it is important to apply for Part B coverage before losing employer coverage). Generally not necessary if you have employer coverage, but verify this with your HR department.

PART C (Medicare Advantage): Costs vary by plan.

PART D: Entails an annual deductible and additional cost that varies according to your income from two years prior. Cost increases by a penalty for any time after age 65 that you apply, unless you are covered under an employer plan that Medicare deems equivalent (called “creditable”) (if you do not initially purchase Part D because you have creditable coverage, it is important to apply for Part D coverage before losing this creditable employer coverage). Generally not necessary if you have employer coverage, but verify this with your HR department.

MEDIGAP: Costs vary by plan. Generally not necessary if you have employer coverage but may need to be coordinated with the purchase of Medicare Part B.

When do the steps of Medicare enrollment need to be completed?

Initial Enrollment Period

The 7-month window described above (three (3) months before your birth month, your birth month, and three (3) months after your birth month).

During this period, you should enroll for Medicare Parts A and B. Coverage begins:
- On the first day of your birth month if you enroll before your birth month;
- On the first day of the month following your birth month if you enroll in your birth month;
- Two (2) months after you complete your enrollment if you enroll in the month after your birth month; or
- Three (3) months after you complete your enrollment if you enroll in the second or third month after your birth month.

Open Enrollment Period: October 15 through December 7

During this period, you can
- Revise your Part D prescription plan,
- Switch to a different Medicare Advantage plan, and
- Enroll in a Medicare Advantage plan.

Any updates to your coverage made during this time become effective on January 1 of the following year.

Medicare Advantage Disenrollment Period: January 1 through February 14

During this period, you can
- Discontinue your enrollment in a Medicare Advantage plan, and
- Enroll in “stand-alone” prescription drug coverage for Part D.

General Enrollment Period: January 1 through March 31

During this period, you can register for Medicare Part B (if you’ve not done so during your Initial Enrollment Period). Coverage begins July 1.

Medigap Open Enrollment

This 6-month window begins in the month you turn 65 (Ex.: if your birthday is November 7, the window opens on November 1 and closes on April 30).

Please note that failing to enroll by the applicable deadline will result in penalties:

Medicare Part B: For each 12-month period that you delay enrollment, you receive a 10% penalty on top of your premium. If you delay for three years, you will pay an extra 30% per month for life.

Medicare Part D: For each month you delay enrollment you will be charged 1%. If you delay for three years, you will pay an extra 36% per month for life.

Where can I find more information about Medicare and the enrollment process?

The Kaiser Family Foundation recently published an overview of Medicare.

To determine what prescription drug plans are available in your area, use the Medicare Plan Finder.

The Medicare site offers information about Medigap policies.

Contact Margo Steinlage Kreider of the Steinlage Insurance Agency with specific questions about your situation. She will offer a free consultation and is an expert on the topic. Margo has previously shared her wisdom and expertise with our Clients in a webinar you can watch at your convenience.

As you can see, enrolling in Medicare can be complex, but with proper planning and the right tools, it doesn’t have to be. We’re happy to help you through the process in any way we can!

Medicare: A Brief Guide