You may have seen notices that Medicare Open Enrollment season began October 15 and runs through December 7th of this year, with changes becoming effective Jan. 1, 2017. Before we break down what you can change, let’s take a look at what Medicare is and what you get.
During your working years, your employer likely provided you accesses to health insurance for you and your dependents. However, as you reach age 65, your health coverage is provided by Medicare, a federal health care insurance program for people 65 and older and for the disabled. Medicare is broken into four parts. Part A, is hospital insurance for inpatient hospitalization, nursing facilities, hospice and some home health care. Part A is generally premium-free if you have paid Medicare taxes during your working years. Part B is medical insurance that covers doctors’ services, outpatient care, supplies and preventive services. Generally your premium for Part B, determined by your modified adjusted gross income (MAGI), is deducted from your Social Security benefit payment. These two combined are considered original Medicare.
Part C, Medicare Advantage Plans, are optional Medicare plans provided by private insurers with premiums varying from plan to plan. These plans may have different deductibles, co-pays, coverage options or include a drug plan. Part D is prescription drug coverage that also has a premium that varies by plan.
If you are taking your Social Security benefits, you will likely be automatically enrolled in Medicare Part A and Part B the first day of the month you turn 65. If you are not automatically enrolled, your enrollment window begins three months before you turn 65 and closes three months after you turn 65. If you miss this window, you are penalized with a 10% increase in your Part B premium for every year you are late. This increase isn’t just a one-time fee either. This is a permanent increase in your premium. Furthermore, your Part D premium is increased by 1% of the national base beneficiary premium for every month you are late. Now, if you are still employed and your company is providing your health insurance, Medicare will waive the penalty when you sign up. However, it is important to be aware that your window to enroll begins on the date you terminate employment, regardless of whether your employer provides you COBRA coverage in retirement.
Back to the current open enrollment window—if you currently receive Medicare benefits, you have a window to change your coverage options. If your health circumstances have changed or if you are unsatisfied with your level of coverage, you may want to look for a plan that provides coverage for your situation. For example, some Part D plans cover different drugs and have different co-pay options. Others may want to opt to pay more for a Medicare Advantage Plan that incorporates prescription drug coverage.
The standard premium for Medicare Part B is $121.80; however, if your MAGI, calculated as your adjusted gross income plus any tax-exempt interest income, is above $85,000 for individuals or $170,000 for those married filing jointly, you will likely pay an Income Related Monthly Adjustment Amount. For 2017, Medicare will be looking at your 2015 tax return to determine your premium. Your MAGI also affects your premium for Part D. Of course, there are always exceptions. If you’ve been enrolled and have not received a cost-of-living increase in your Social Security benefit, you may pay a different premium amount based on the Social Security Act’s hold harmless provision.
Medicare premiums can be complicated, and if you are receiving substantial required minimum distributions from retirement accounts, you may likely be subject to the income-related adjustments. Despite these adjustments, it is better to be earning money on your investments for your retirement than not. After all, you began investing for a comfortable retirement.
If you have questions on how Medicare fits into your overall financial plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
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