Personal Finance

72% of Older Americans Are Sorely Misguided on Medicare

Doctor talking to older male patient

Millions of seniors depend on Medicare to cover their health-related needs during retirement. But there's a lot of confusion surrounding this crucial program, and it could end up hurting future retirees financially. In fact, 72% of older adults say they wish they better understood how Medicare works , according to a new study by the Nationwide Retirement Institute, and if they don't get their facts straight, they're apt to pay for it later.

Medicare isn't free

Medicare has several distinct parts. Part A covers hospital visits, Part B covers diagnostics and preventive care, and Part D covers prescription drugs. While Part A is usually free for enrollees, Parts B and D come at a premium. Yet in the aforementioned survey, 53% of respondents didn't know that Part B isn't free.

Doctor talking to older male patient

IMAGE SOURCE: GETTY IMAGES.

For the current year, Part B's standard premium is $134 per month. This can change, however, depending on your income. On top of your premium costs, you'll also pay for the individual services you use under Medicare's various parts. For example, coinsurance for hospital stays will kick in under Part A, and copays for appointments and prescriptions will apply under Parts B and D. You'll also have deductibles you'll need to meet under Medicare's various parts.

You can't just sign up for Medicare whenever you want

Though eligibility for Medicare begins at age 65, you get a seven-month window to enroll that begins three months before the month in which you turn 65 and ends three months after the month of your 65th birthday. If you're already collecting Social Security by age 65, you'll generally be enrolled in Medicare automatically. Otherwise, you'll need to sign up, and it pays to do so on time. If you enroll outside of that initial seven-month period, you'll face a permanent 10% increase on your Part B premiums for each 12-month period you were eligible for benefits but didn't sign up. In the aforementioned study, however, 23% of respondents thought they could just sign up for Medicare anytime.

Medicare doesn't cost the same for everyone

The amount you pay for Medicare will actually depend on your income level in retirement -- something 29% of older Americans aren't aware of. Here's what Part B premiums look like for 2018 depending on income:

Income: Individual Tax Filers Income: Joint Tax Filers Part B Premium Cost
$85,000 to $107,000 $170,000 to $214,000 $187.50
$107,000 to $133,500 $214,000 to $267,000 $267.90
$133,500 to $160,000 $267,000 to $320,000 $348.30
Over $160,000 Over $320,000 $428.60

DATA SOURCE: MEDICARE.GOV.

As you can see, you'll have a certain amount tacked on to Part B's standard premium if your earnings exceed a certain level, so you'll need to prepare for that cost. Your Part D costs, meanwhile, will depend on the specific plan you choose. If you're a higher earner, though, you'll generally have a surcharge tacked on to your plan's standard premium.

You're not stuck with the same Medicare plan for life

In the above-referenced survey, 33% of older adults didn't know that you're allowed to switch Medicare plans from year to year. And that's a key fact to get straight, since it often pays to change up your prescription plan from year to year. That's because plan formularies change, and so you might get better coverage for your specific medications under different plans from one year to the next. Similarly, your prescription needs might change, in which case it pays to find a plan that offers the best coverage for those medications. Even seniors who are happy with their Part D plans would be wise to review their options on an annual basis to ensure that they're not overpaying.

The more you know about Medicare, the more likely you are to maximize those benefits once enrolled. So if you're clueless about the program, do some research and get educated. You'll be thankful for it later on.

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