How Does Medicare Work After Retirement?

Planning for retirement includes obtaining appropriate and affordable healthcare coverage. For Americans 65 and older any conversation about health care must include Medicare. Your eligibility for it at age 65 means that your health insurance will likely become more affordable and (as is also true under the Affordable Care Act), you won’t be denied coverage for pre-existing conditions. It’s important to understand what happens with regard to Medicare when you retire and how you can obtain the best and most cost-effective coverage. 

Medicare Has Four Parts

Part A (Hospital) pays for your care in a hospital, skilled nursing facility, nursing home (as long as it’s not just for custodial care), hospice and certain types of home health services. 

Part B (Medical) covers medically necessary services or supplies needed to diagnose and treat a medical condition. It also covers preventive services for illnesses such as the flu. This includes inpatient and outpatient physician services and, in some cases, limited outpatient prescription drugs. 

Part C (Medicare Advantage), also known as MA plans, are sold by private companies. MA plans come in two varieties – HMO plans and PPO plans – and take the place of Medicare Part A, Part B and, often, Part D coverage. Many offer extras such as vision, dental, hearing aids and wellness services.

Part D (Prescription Drugs) provides prescription drugs from a list (called a formulary). Each Medicare prescription drug plan has its own list. Most plans place drugs into different “tiers,” with each tier having a different cost. (For more, see Medicare 101: Do You Need All 4 Parts?)

Medigap Option

It’s hard to predict Medicare costs. Because of that, many retirees who don’t choose a Part C (MA) plan purchase a Medigap plan instead. Such plans come in 10 standardized policies that offer a great deal of variety and fill in many out-of-pocket costs associated with traditional Medicare. Some even provide additional services not covered by traditional Medicare. Medigap plans, however, do not provide Part D (Prescription Drug) coverage, so if you obtain a Medigap policy you may also need Part D. 

A one-time Medigap open-enrollment period starts the month you turn 65 and are enrolled in Part B and lasts six months. During this period you can buy any Medigap policy sold in your state regardless of your health. Afterward, if you want a Medigap policy you could be denied coverage or forced to pay a higher premium. (See Medigap vs. Medicare Advantage: Which Is Better?)

Initial Enrollment Period

Your initial enrollment period for Medicare (all four parts) begins three months before the month you turn 65 and lasts until the end of the third month after your birthday month – a total of seven months. If you don’t sign up during the initial window, you can sign up between Jan. 1 and March 31 each year for coverage that begins July 1. Failure to sign up during the initial enrollment period, however, could result in permanently higher premiums – unless you qualify for a special enrollment period. 

Special Enrollment Period (SEP)

If you are still covered by a group health plan provided by your employer (or your spouse’s) when you turn 65, you may qualify for a special enrollment period. In general the SEP requires you to enroll in Medicare no later than eight months after your group health plan or the employment on which it is based ends (whichever comes first). One important exception to SEP rules: If your group health plan or employment on which it is based ends during your initial enrollment period, you do not qualify for a SEP. 

Other Enrollment Periods

There is an open enrollment period for Medicare Advantage and prescription drug coverage each year, from Oct. 15 to Dec. 7. There is also a special annual Medicare Advantage disenrollment period, from Jan. 1 to Feb. 14during which you can switch to traditional Medicare from an MA plan and join a Medicare prescription drug plan to add drug coverage.

Costs

Most people pay enough into the Medicare system during their working lives that they do not have to pay for their Medicare Part A coverage. For more on Part A costs, go .

The 2016 standard monthly premium for Medicare Part B coverage is $121.80. If you make more than $85,000 ($170,000 for couples), you will pay more. For more on Part B costs, go .

Some Part C (MA) plans do not charge a premium. Other costs can include copayments for doctor visits and other services. For more on Part C costs, go .

Part D coverage includes a monthly premium that will vary depending on the plan you choose and the drugs you use. Significant coverage gaps with Part D include the dreaded “donut hole,” which could force you to pay a larger portion of drug costs until you reach the “catastrophic coverage” amount of $4,850. More information about Part D costs is available .

Costs for Medigap coverage depend on the type of policy you have and where you live; they can range from $50 per month to several hundred dollars. More about Medigap costs can be found . For even more on typical Medicare costs, including out-of-pocket costs, go .

Sorting Out Your Options

All of this can lead to confusion about which sign-up options are best for you. Most people sign up for parts A, B and D, with many adding Medigap coverage as well. Others choose Medicare Advantage instead of A, B and D. If you choose an MA plan and want prescription drug coverage, make sure it is provided by your MA plan. If not, you may need to add Part D coverage to your plan. 

Because Medicare normally pays first (before other coverage), chances are that any available retiree policy will require you to have a minimum of Medicare Part A and Part B. Check out costs and coverage before signing up for Medicare. 

If you decide to go back to work after retirement and are eligible for group health plan coverage, it will likely work differently with Medicare. Check with the human resources department of your new employer to avoid overlaps or lapses in coverage. If you have retiree health insurance from a former employer, find out what happens if you cancel that coverage but want it back at a later date. (For more, see What Does Medicare Cover?)

The Bottom Line

Visit the and use it to review topics discussed in this article before deciding on Medicare coverage for you. Shop around using Medicare’s . This helpful tool will let you specify your health situation, including up to 25 drugs you take. Then it will display plans, with costs, available to you in your area. 

When online, you may come across many non-Medicare information websites. Be aware that they could be biased in favor of a sponsoring health-care provider. Finally, don’t forget to review your full complement of Medicare coverage every year to make sure you are getting the best plan(s) for you. More information is available in the .