When it to comes to nearing retirement, there can be a lot of emotions.

On the one hand, there’s reason to celebrate what you’ve accomplished and look forward to the next chapter of your life – maybe it’s more traveling or spending time with your grown children and grandchildren.

On the other, you are also suddenly faced with a lot of crucial decisions that can have a major impact on your life for the next 20-30 years. These decisions include when to claim Social Security benefits, how to begin drawing from your investment portfolio instead of contributing to it, and how you will cover the medical expenses that are often associated with getting older.

In this article, we’re looking at that last decision, and specifically, Medicare. We’ll explain when and how someone can enroll in Medicare and the various costs associated with it.

To help us better understand the process, let’s take a look at a hypothetical of someone named David (just like me!) who is in his 60s and facing these decisions…

The Scenario

Let’s say David is a 63-year-old corporate executive who is planning to retire in the next couple of years. Financially, David feels secure – he has his 401(k) and investments, but there’s one thing that’s making him anxious: Medicare.

David doesn’t fully understand how Medicare works or how much it might cost him to see his regular doctors. This confusion is making him nervous about leaving the safety net of his corporate health insurance, so he’s hesitant to leap into retirement.

David’s feelings are shared by many Americans but understanding how Medicare works and what to expect can ease his (and others’) concerns. Medicare, while complex, offers a range of options to ensure that 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 he’s properly covered.

When and How to Enroll in Medicare

As we mentioned, David is two years away from 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 sign up for 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): Covers inpatient 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 (Medical Insurance): Covers outpatient care, doctor visits, preventive services, and some home health services. Part B has a monthly premium, which is $174.70 in 2024 for most people, but it could be higher depending on David’s income.
  • Part D (Prescription Drug Coverage): If David needs prescription medications, Part D will help cover those costs. The monthly premium for Part D varies depending on the plan he chooses.
  • Medicare Advantage (Part C): Alternatively, David could opt for a Medicare Advantage plan, which bundles Parts A, B, and usually D into a private insurance plan. Medicare Advantage often includes additional benefits like vision, dental, and hearing coverage.

Understanding Medigap for Additional Coverage

Medicare Parts A and B cover many healthcare services, but they don’t cover everything. For example, Medicare doesn’t cover vision, dental, or hearing aids, and there are out-of-pocket costs like deductibles, copayments, and coinsurance.

David may want to look into 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, like copayments and coinsurance. The cost of a Medigap plan varies, depending on factors like David’s location, the plan he chooses, and his health.

Key point: Medigap policies don’t cover prescription drugs, so if David chooses this option, he’ll still need to enroll in Part D for drug coverage.

Costs to Expect for Doctor Visits

Many people are concerned about how much it will cost to see their regular doctors once they are 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 medications, 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 might also be worried about whether his current doctors will accept Medicare. Most doctors do accept Medicare, but it’s essential to double-check. Before retiring, David should call his doctors’ offices to confirm that they accept Medicare patients. If they don’t, he can use Medicare’s Physician Compare tool to find doctors in his area who do.

If David chooses a Medicare Advantage plan instead of traditional Medicare, he’ll need to ensure that his doctors are in the plan’s network. Medicare Advantage plans often have specific networks of healthcare providers, and going outside of the 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 who specializes 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 healthcare is likely to cost him in retirement and ensure that his budget can accommodate those expenses.

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