
When you picture retirement, it’s often filled with thoughts of travel, new activities, time with friends and family, and enjoying life. What may not come as readily to mind is when you or your spouse may require extensive medical care.
One of the most significant concerns when preparing for retirement should be ensuring that healthcare costs don’t derail your financial plan. Understanding Medicare and Medicaid, their benefits, and their limitations, is crucial for anyone who wants to create a comprehensive financial strategy for later in life.
If you are nearing retirement, our team of Birmingham CFP® professionals can assist you with integrating Medicare and Medicaid planning into your retirement plan strategy. This can help you avoid unexpected expenses, optimize your healthcare coverage, and protect your financial security later in life.
In today’s blog, we’ll discuss why it’s essential to factor Medicare and Medicaid into your financial and retirement plans, ensuring you have the right healthcare coverage and resources to support you throughout the retirements of both spouses that could last 30 years or more. We’ll also look at eligibility, benefits, and key open enrollment dates for 2024 and 2025.
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The Basics: Understanding Medicare
You’re likely familiar with Medicare, a federal program primarily providing health insurance to individuals aged 65 or older. However, younger people with certain disabilities or medical conditions could also be eligible.
Medicare Eligibility
- Most people qualify for Medicare once they reach the age of 65
- Typically, individuals (or their spouses) must have paid Medicare taxes for at least ten years to qualify for premium-free Part A, which covers hospital stays
- Those under 65 can qualify for Medicare if they have received Social Security Disability Insurance (SSDI) for 24 months or if they have a qualifying condition
Medicare Parts and Coverage
Medicare is broken down into several parts, each covering different aspects of your healthcare requirements:
- Part A of Medicare covers hospital stays, skilled nursing facility care, hospice care, and other home health services. Most people don’t pay a premium for Part A.
- Part B: Covers doctor visits, outpatient care, preventive services, and home health services. There is a premium for Part B, which varies based on your income.
- Part C (Medicare Advantage or Medigap Supplements): An alternative to Original Medicare that bundles Parts A, B, and D into a private health plan.
- Part D: Covers prescription drug costs. This plan is optional but recommended for those with ongoing medication needs.
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Supplemental Medicare Coverage (Medigap) vs. Medicare Advantage: Key Differences
Many retirees find that Original Medicare (Parts A and B) doesn’t cover all their healthcare expenses. Supplemental Medicare Coverage, also known as Medigap and Medicare Advantage, provides additional options to help cover the gaps.
While both aim to reduce out-of-pocket costs, they differ in structure, benefits, and flexibility.
What is Supplemental Medicare Coverage (Medigap)?
Medigap is a type of private insurance that works alongside Original Medicare (Parts A and B) to help pay for expenses that Medicare doesn’t fully cover – for example, co-payments, deductibles, and coinsurance. These plans are designed to fill the “gaps” in traditional Medicare coverage.
Key Features of Medigap include:
- The federal government standardizes Medigap plans, meaning each plan offers the same basic benefits regardless of the insurance provider. For example, a Plan G from one insurer will provide the same coverage as another company.
- Medigap policies cover various out-of-pocket expenses, such as hospital stays, skilled nursing care, and some preventive services that Medicare doesn’t fully cover. This helps to limit your risk of escalating healthcare costs.
- With Medigap, you can visit any healthcare provider that accepts Medicare. This is particularly beneficial if you want/need more flexibility in choosing doctors, particularly specialists.
- Medigap plans do not offer additional benefits beyond what Medicare covers. For instance, they generally don’t cover dental, vision, hearing aids, or prescription drugs, meaning enrollees will need a separate Part D medication plan.
- Because Medigap offers more comprehensive out-of-pocket protection, it generally comes with higher monthly premiums than Medicare Advantage plans. However, this also means fewer unexpected medical costs.
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What is Medicare Advantage (Part C)?
Medicare Advantage, or Part C, is an alternative to Original Medicare. Private insurance companies offer these plans and bundle Medicare Parts A, B, and usually Part D (prescription drug coverage).
Medicare Advantage plans often include extra benefits not covered by Original Medicare, such as dental, vision, hearing, and wellness programs.
Key features of Medicare Advantage include:
- Medicare Advantage combines hospital, medical, and, in most cases, prescription drug coverage into a single plan. This can simplify managing healthcare coverage, as all services are bundled together.
- Many Medicare Advantage plans offer additional perks unavailable through Original Medicare or Medigap, such as dental, vision, fitness programs, and sometimes even transportation to medical appointments.
- Unlike Medigap, Medicare Advantage plans often operate within provider networks (HMO or PPO). You may need to use doctors and hospitals in your plan’s network for the lowest costs. Out-of-network care may be more expensive or not covered unless it’s an emergency.
- Medicare Advantage plans usually have lower monthly premiums than Medigap plans; some even offer $0 premiums. However, they tend to have higher out-of-pocket costs for care, and expenses can add up quickly if you require frequent medical attention.
- Medicare Advantage plans can change their coverage, provider networks, and costs yearly. Therefore, beneficiaries must review their plans annually to ensure their coverage(s) still meet all their healthcare needs.
2024 and 2025 Medicare Open Enrollment Dates
Knowing when to enroll or make changes is vital for those already on Medicare or those approaching eligibility. This will avoid penalties and ensure proper coverage.
- Medicare Annual Enrollment Period (AEP): From October 15 to December 7, 2024, and October 15 to December 7, 2025, individuals can change their Medicare plans, including switching from Original Medicare to Medicare Advantage, changing Medicare Advantage plans, or altering Part D prescription drug coverage.
- Medicare Advantage Open Enrollment: This period runs from January 1 to March 31. Medicare Advantage plan holders can switch to another Medicare Advantage plan or return to Original Medicare.
Understanding Medicaid
Conversely, Medicaid is a state and federal program designed to help individuals and families with low incomes and limited resources cover their healthcare costs. If you have an eligible family member, here are the guidelines, which vary by state.
In certain instances, Medicaid can complement Medicare coverage, particularly for those who qualify as “dual-eligible” (enrolled in both Medicare and Medicaid).
- Overall Income Threshold: For most states, Medicaid eligibility is determined by the Federal Poverty Level (FPL). In 2024, the FPL for a single individual is $14,580 per year. Medicaid is available to individuals or families whose income is at or below a certain percentage of the FPL, typically 133% or 138% for expanded Medicaid states.
How BCR Wealth Strategies Can Help You Plan for Healthcare Costs in Retirement
At BCR Wealth Strategies, our team of Birmingham financial planners can discuss personalized healthcare planning as part of your retirement strategy. We can help you estimate future healthcare costs to incorporate Medicare and long-term care into your financial plan.
This comprehensive approach ensures you’re prepared for rising medical costs and understand how unexpected healthcare expenses can affect your finances, giving you a more secure financial plan for retirement.
Ready to learn more? Connect with us today.
