Medicare: Separating Fact from Fiction, Part 1

Along with Social Security, Medicare is the most widely-used federal entitlement program, providing comprehensive health insurance for over 59.9 million individuals—mostly for people aged 65 and older. Healthcare costs are regularly cited as the major concern of Americans approaching retirement, so it’s important to know some Medicare fundamentals, specifically, addressing some common myths surrounding Medicare.

Myth 1: Medicare is free healthcare

This is really a half-myth. Medicare has four aspects of healthcare coverage:

  • Part A-hospital insurance
  • Part B-medical insurance
  • Part C-Medicare Advantage
  • Part D-prescription drug coverage

Only Part A is free, and, even then, it’s not free for everybody; the other parts of Medicare come with a monthly premium, although at a reduced rate compared to Americans not eligible for Medicare.

Myth 2: Medicare costs the same for everyone

Out-of-pocket costs under Medicare include premiums, deductibles, coinsurance, and copayments—or copays. Your premium for Part A depends on your Medicare payroll tax status, (i.e., how much in Medicare taxes you paid during your working years). Your premium for Part B depends on your income. There is a standard Part B premium everyone pays. The higher your income, the more you will pay above the standard premium. The deductibles and coinsurance for Part A and Part B are the same for everyone. The out-of-pocket costs for Part D, Medigap, and Medicare Advantage depend on the plan you choose. However, people with higher incomes will pay higher premiums for Part D.

Myth 3: Medicare covers everything

This seems to be the big myth that needs to be addressed. Even though many people know Medicare isn’t free and some premiums will be necessary, they still might be under the impression that it will cover all healthcare costs. The truth is Medicare covers most basic healthcare needs. It covers hospital stays, lab tests, doctor visits, same-day surgery, and preventive services. It also covers durable medical equipment, some home health services, short-term skilled nursing care, and hospice. It doesn’t cover long-term care. And people are often surprised to find out it doesn’t cover most dental care, vision care, hearing services, prescription drugs, or care outside of the United States. You need additional insurance to cover these needs.

Myth 4: Medicare coverage is automatic when you turn 65

Yes, enrollment is automatic for Part A and Part B, but only if you’re already receiving Social Security benefits. You’ll even receive a ‘Welcome to Medicare’ packet a few months before your 65 birthday. If you have not begun receiving Social Security benefits at least four months before turning age 65, you will actively have to enroll. Part C and Part D are voluntary.

We think this covers a few of the big Medicare questions. Even if Medicare isn’t the free healthcare many people were expecting, Medicare is still a major component in your overall retirement plan. If you have any further questions, don’t hesitate to ask.

Stay tuned for part 2 of our Medicare discussion next month.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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