Make the most of your Medicare benefits and options

On turning 65, every U.S. citizen or permanent resident who qualifies for Social Security is also entitled to hospitalization coverage under the national health insurance program known as Medicare. Financed by the Social Security withholding tax and the Self-Employment tax, this coverage, labeled Medicare Part A, is provided to recipients without cost. An additional low-cost insurance program ($45.50 per month in 2000), Medicare Part B, is available as an extra option that can either be deducted from Social Security payments or paid directly by individuals. Part B provides coverage for nonhospital medical services such as doctor's fees, outpatient hospital and mental health services, x-rays and lab tests.

While Medicare Part A and Part B are generous in their coverage, both involve coverage limits, co-insurance payments and deductibles. It is, therefore, important to understand how these programs work and how to use them. In addition, most insurance professionals agree that you should consider carrying some kind of supplemental medical insurance (known generically as Medigap) to cover deductibles and/or extend policy limits.

If you will turn 65 in the next few years, now is the time to educate yourself about Medicare and begin planning. Even if you work past the age of 65, Medicare with its mandated benefits can cover you from your 65th birthday. Combining your automatic Part A benefits with the optional low-cost Part B insurance gives broad though incomplete medical insurance. Is it enough? Probably not. Furthermore, because the rules are complex and situations vary, you need to examine your options and choose carefully in order to provide yourself with the appropriate coverage for your circumstances.

Should you enroll in Part B?

About three months before turning 65, individuals who qualify for Social Security and Medicare will receive a Medicare card in the mail. Unless you respond otherwise, you will be automatically enrolled in both Medicare Parts A and B, and your monthly Part B premium will be deducted from your Social Security check. Certainly most individuals who will not continue working past their 65th birthday are well advised to enroll in Part B.

If, however, you plan on working past the age of 65 and you are covered under an employer health plan, the factors affecting your decision are more complex, but certainly the most important factor is the size of your firm. If you work for a firm with fewer than 20 employees, then Medicare takes precedence as your insurer. This means that your employee health insurance bases its premiums on the presence of Medicare Part B and only covers expenses after the Medicare limits are reached. If you don't opt for Part B, you leave yourself uninsured for all covered services up to Medicare limits. Under these circumstances, it's imperative that you subscribe to Part B.

On the other hand, if you work for a firm with 20 or more employees, your employer health plan becomes the primary insurer. In this situation your Part B insurance is for the most part redundant. So, why not delay enrolling in Part B until you are no longer covered at work? You may, but there is yet another concern. If you don't enroll in Part B when you reach the age of 65, for each year that elapses before you subscribe, a 10 percent penalty may be added to your premium, and you will pay the higher premium for the rest of your life. Thus, if you wait until the age of 70 to enroll in Part B, your premium might be 50 percent higher than it would have been had you enrolled at age 65. If you're turning 65 and expect to continue working in a firm with more than 20 employees, you need to carefully examine the long-term impact before deciding whether to take part B or delay this coverage until you quit working.

Medigap insurance

In addition to Medicare Parts A and B, federal law has mandated Medigap medical insurance to extend Medicare limits, lower deductibles, and cover services not included in Medicare. Ten such plans, designated by letters A through J, are available. Each plan offers a different combination of benefits, with Plan A representing the basic package and plan J offering the most extensive benefits.
If you are interested in purchasing the maximum coverage, Plan J, which includes among its many benefits considerably higher limits for prescription drugs, then you should act during the three months prior to turning 65. Gary Barnhart, Senior Vice President for Seabury & Smith, explains that "during this period you have guaranteed issue for this plan. After turning 65 your enrollment is not guaranteed and even if you do qualify, your premiums may be higher."

Further options and information

In addition to standard Medicare benefits and supplemental insurance, some individuals may want to consider the possibility of enrolling in a Medicare managed care plan (HMO). Others may be covered by a former employer's retirement health plan. If you fall in either category, it's important to understand your benefits and how they work in conjunction with Medicare.
For further information on how Medicare works, take a look at the Medicare Web site, www.medicare.gov. You can also call the California regional office of the Health Care Financing Administration at (415) 744-3602 or the State Health Insurance Assistance Program at (800) 434-0222.