3 ways Medicare costs may impact your finances

Key Points

  • There are four components to our national health insurance program, each with a cost.
  • Medicare is structured like private sector health insurance. There are premiums, deductibles, co-insurance and co-pays.
  • You can change your Medicare coverage once a year so you have the right plan at the most cost-effective price.

If you’re near retirement or already retired — or helping someone who is — you’ll want to be aware of the ways Medicare can impact your finances so you can plan accordingly.

1. The cost of Medicare

Medicare has four parts, each with different costs. Take a look at the breakdown below to get a better sense of what each part entails.

Part A is hospital insurance, including in-patient care, skilled home care and hospice services.

A majority of seniors who paid taxes into Medicare during their working years do not have to pay premiums for Part A coverage. If you do not qualify for premium-free Part A but want hospital insurance, you can buy it by paying a premium of up to $437 per month in 2019.

Medicare hospital insurance involves deductibles, co-insurance and co-pays. For example, for a hospital stay in 2019, you are responsible for a $1,364 deductible.

Part B is medical insurance, including doctor visits, lab tests and some medical equipment.

Most people will pay the standard monthly amount of $135.50 for Part B insurance in 2019. The cost may be higher for people with higher reported incomes. Additional details can be found on medicare.gov.

Part B coverage also involves deductibles, co-insurance and co-pays. For 2019, the annual deductible is $185.

Part C is known as Medicare "Advantage." These are health insurance plans offered by private companies that are approved and regulated by Medicare.

What is Medicare Advantage? With an Advantage plan, you get complete Part A and Part B coverage, and you have the same rights and protections of original Medicare.

Advantage plans usually charge higher monthly premiums because they offer additional services and broader coverage. For instance, Medicare does not cover routine dental care, hearing aids or vision care, and many Advantage plans do. And, most Advantage plans offer prescription drug coverage as part of their main plan, so you don’t have to buy this coverage separately.

Part D is for prescription drug plans (PDPs).

PDPs provide insurance coverage for your prescription drug therapies, and most plans are structured with premiums, deductibles and cost-sharing guidelines.

Many PDPs classify their list of covered drugs into "tiers" each priced differently. In general, drugs in lower tiers, such as generic drugs, cost less than those in higher tiers, such as brand-name drugs.

Drug lists and costs can vary greatly from plan to plan, so it’s imperative to find out if your prescription drugs are covered and how much they cost when you choose a PDP.

2. You may be penalized if you enroll too late

You can sign up for Medicare during a seven-month window, called your initial enrollment period, which includes the three months before the month you turn 65, your birthday month and the full three months following your birthday month. If you want Part B coverage and miss this enrollment window, you may have to pay a penalty premium each month.

3. Changes can be made to your Medicare plan on an annual basis

Review your Medicare plan regularly to ensure you’re getting the right coverage at the right price. You can change your Medicare coverage once a year during open enrollment, a set period when you can review your health and prescription drug plans and change them if you want to. For example, you can switch Advantage plans, opt in or out of original Medicare (Parts A and B) or change prescription plans. Medicare open enrollment typically takes place from Oct. 15 to Dec. 7, and any changes you elect to make will take effect on Jan. 1 of the following year.

Talk with your advisor about your health care needs in retirement and find out how you can make the most of your Medicare benefits.