Understand Medicare to Get the Most Out of It

As with any government program, Medicare can be complicated and missteps costly.

— -- During their entire working lives, Americans pay into the Medicare system, yet many fail to understand the basics of how it works and how to use it.

Medicare is government-sponsored health insurance for Americans 65 and older. As with any insurance, the goal is to get the most out of it for the lowest cost. Medicare is a complex, often confusing system that involves choices that users must understand to configure the right coverage for their needs.

By the time you reach the Medicare eligibility age of 65, you may find that you need regular medical care for one or more conditions. This is particularly the case with the 23 million American women who are 65 or older. Women tend to have more chronic conditions than men and, because they live longer, their care lasts longer. Yet, because they earn less than men, women have fewer resources to pay it, so using Medicare advantageously is especially important for women.

Misconceptions about Medicare abound. Contrary to popular belief, the federal government isn’t necessarily going to send you a Medicare card on your 65th birthday. If you are 65 and receiving Social Security retirement benefits or Railroad Retirement benefits, then you will be enrolled in both Medicare Part A and Part B automatically. But if you aren’t receiving these benefits, you’ll need to enroll in Medicare. Also, many people think Medicare has no cost for participants, but most pay monthly premiums. And there are co-pays. However, total costs for participants are far lower than those charged by private health insurers.

Another misconception holds that Medicare is a standard package of the same benefits for everyone, and that once you’re receiving them, nothing changes. In reality, Medicare benefits must be individually configured from several options, and choices offered can change annually.

As your needs for care can change significantly over time — for example, changes in the medications you’re taking  — it’s a good idea to reevaluate current and anticipated needs against the new Medicare options as they’re presented annually. Like the private insurance industry, Medicare calls this annual opportunity to change options open enrollment.

Open enrollment for Medicare plans that start Jan. 1 is happening now, and lasts until Dec. 7. Information can be found on the federal Medicare website. (Medicare open enrollment shouldn’t be confused with the current open enrollment period for state or federally run health insurance exchanges created by the federal Affordable Care Act.)

Open enrollment for current Medicare participants is entirely different than registering for Medicare initially. To be eligible for full benefits, you must have worked 40 quarters (10 years, cumulatively) and must have paid Medicare tax during those quarters -- for most people, through payroll deduction. People who meet this requirement can enroll at any time between three months before the month that they turn 65 and three months afterward. Waiting too long can bring costly penalties that might stay with you the rest of your life. (The system imposes these penalties to maximize participation, increasing premium revenue needed to run the system.) Regardless, you’ll want to enroll before you turn 65.

While many Americans are acutely aware of the amounts they pay into the system during their working years (this awareness is heightened as they stare drearily at their pay stubs and at the amounts deducted for Medicare and Social Security), some fail to realize that they aren’t paying enough.

For example, single women (and men) who forgo employment to stay home with their children get no credit toward the required 40 quarters during those years. Typically, there’s plenty of time after children are grown for these women to get those quarters on the books. But those who fail to do so and are unable to obtain benefits via the work record of their spouse may find that they aren’t eligible for premium-free Part A benefits. These people must pay a monthly premium for Part A of $234 or $436 (in 2014), depending on how many quarters fewer than the 40 required that they’ve worked.

This is one among many reasons for women to seize their financial power by pursuing their own working lives, even if they don’t start until middle age.

Making the right choices for your situation from Medicare options involves understanding the system’s basic components or parts. These include:

  • Part A. This covers hospitalization and skilled nursing facilities, and any care or services that occur in hospitals, including drugs and physician fees. Skilled nursing care isn’t the same thing as long-term care, which Medicare doesn’t cover. So it’s a good idea to get private long-term care insurance.
  • Part B.  Doctor visits, laboratory tests and services such as X-rays and MRIs.
  • Part D. “D” stands for prescription drugs. Various tiers of drug coverage are available. Which one is right for you depends on the medications you take. Choosing the right drug plan for your needs is particularly critical because the complex, sometimes arcane rules of Medicare can put you at great financial risk if you don’t accurately line up your likely prescription drug needs each year, during the open enrollment period each fall, with the right drug coverage options available for the ensuing calendar year.
  • Part C, also known as Medicare Advantage plans. These are private, Medicare-approved insurance plans for those eligible for or already participating in Part A and Part B. These umbrella plans cover participants for doctors, hospitalization and drugs with one card.
  • Which choices are right for different people depends on their current and changing needs for care and medications. Regardless of which options you choose, it’s important to understand that Medicare doesn’t cover all medical expenses. Even after premiums and co-pays, there can be major costs to you. For example, the government only covers 80 percent of Part B costs.

    Another option to consider is a private supplemental policy, also known as a gap or Medigap policy, to cover the charges that Medicare doesn’t. Links to websites of state agencies detailing gap plans available in each state can be found on this page of the federal Medicare site. Each state has State Health Insurance Program counselors who can explain Medicare options.

    The key to using Medicare to your best advantage is taking the time and trouble to get your arms around this complex system and plan your options well in advance of your 65th birthday. Doing so is critical to your physical and financial health.

    Any opinions expressed here are solely those of the author.

    Laura Mattia is a partner with Baron Financial Group, and a fee-only financial advisor. She's a Certified Financial Planner professional (CFP®), a Chartered Retirement Plan Specialist (CRPS®) and a Certified Divorce Financial Analyst (CDFA™) and holds an M.B.A. in accounting/finance. Her Internet radio show is Financially Empowering Women™ with Laura Mattia. A former professor at the Rutgers University Business School, Mattia is completing a Ph.D. in financial planning from Texas Tech University; her dissertation is on how to help women plan for retirement.