TRAILER

Welcome to episode 79 of the One for the Money podcast. I am always glad and grateful you have taken the time to listen. This part 1 of a 2 part series on Medicare. Medicare is a significant part of every single American’s retirement planning. Knowledge of Medicare is critical to making the most of your retirement. In this episode I’ll share what you need to understand about Medicare and in Episode 80 airing on February 15th, I’ll share the Misunderstandings and Mistakes people make with Medicare.

In the tips, tricks, and strategies portion I will share a tip regarding Medicare enrollment.

In this episode...

• Rising Healthcare Costs [1:53]
• Medicare Basics [2:57]
• Importance of Annual Medicare Reviews [12:03]

MAIN

In Episode 79 of the One for the Money podcast, I shared how the first wealth is health. I also shared the importance of exercise and nutrition and how they can increase not only one’s life span, but their health span, which is the years one has good health.  Because healthier retirees incur fewer health related expenses it really is in retirees long term financial interest to INVEST in their health because health care related expenses in retirement are WAY higher than what most people anticipate.

In fact last August, the investment company Fidelity released its Fidelity's latest Retiree Health Care Cost Estimate, which surveyed retirees. Most individuals surveyed expect their share of health care related expenses in retirement to be ~ $75,000 retirement (or $150k per couple), but current retiree healthcare expense data shows that each individual should expect to pay $165,000 or $330k/couple in retirement for health care expenses. That is more than double what people estimate they will have to shell out.  Now these estimates assume that these individuals have health care coverage through Medicare. This might have many scratching their heads wondering what Medicare actually pays for. Quite a lot actually, it’s just that health care is incredibly expensive especially as one ages.

I’ll first explain what Medicare is and what it takes to be eligible before explaining why health care costs in retirement are still expensive even with Medicare. 

Medicare is health insurance for retired Americans. According to usdebtclock.org, the the US government spent ~ $1.8 Trillion dollars on Medicare/Medicaid in 2024 which accounts for over 25% of the annual Federal budget. 

Some of Medicare is paid for through payroll taxes. Employees pay 1.45% of their income and employers pay another 1.45% of their employees income to the government to help fund Medicare and Medicaid. These are part of the Federal Insurance Contributions Act or (FICA) taxes that we pay on our income. Social Security is funded with a tax of 6.2% paid by the employee and another 6.2% paid by the employer. However this is only paid on the first $176,100 of income. Any income earned above that level is not subject to the SS tax, and that’s because there is an upper limit on the social security benefit one could receive.  However, the 1.45% medicare tax has no income limit so whether a person earns income of $10,000 or $10 million  the Medicare taxes are applied to the entire amount. 

Now Medicare has been around for a long time. 

In 1935: President Franklin D. Roosevelt’s New Deal included the Social Security Act, which provided retirement benefits but did not include health insurance. Efforts to include health coverage in the program were unsuccessful due to political opposition.

By the 1960s, about half of Americans over 65 had no health insurance, as private insurers found them too risky to cover.

1965: Medicare was established under President Lyndon B. Johnson as part of the Social Security Act amendments. It aimed to provide health insurance for Americans aged 65 and older, regardless of income or medical history. Former President Harry S. Truman was the first enrollee, symbolizing his earlier advocacy for national health insurance.

Initial Structure

Medicare initially had two parts:

Part A (Hospital Insurance): Covered hospital stays, nursing facility care, and some home health services.

Part B (Medical Insurance): Covered doctor visits, outpatient care, and preventive services.

Since then there have been several notable Expansions and Changes

1972: Medicare expanded to include people under 65 with long-term disabilities and individuals with End-Stage Renal Disease (ESRD).

1997: The Balanced Budget Act created Medicare Advantage (Part C), allowing private insurance plans to offer Medicare benefits.

2003: Medicare Prescription Drug Improvement and Modernization Act added Part D, a prescription drug benefit, which became available in 2006.

2010: The Affordable Care Act (ACA) expanded preventive services coverage and reduced costs for beneficiaries in the Part D.

Today, Medicare covers over 65 million Americans and consists of four main parts: Part A: Hospital insurance; Part B: Medical insurance; Part C: Medicare Advantage, a private insurance alternative to traditional Medicare; Part D: Prescription drug coverage.

While Medicare has improved healthcare access and affordability for millions of Americans, it continues to face challenges, including rising costs, the aging population, and calls for reform to ensure long-term sustainability.

Eligibility for Medicare is based on a few factors

Eligibility by Age

Age 65 or older:

Most people qualify for Medicare when they turn 65 if they meet one of the following conditions:

- They are U.S. citizens or permanent residents who have lived in the U.S. for at least 5 consecutive years.

• Medicare part A covers inpatient hospital care, skilled nursing facility stays, hospice care, and some home health care,
• They or their spouse have worked and paid Medicare taxes for at least 10 years (40 quarters), which qualifies them for premium-free Part A. Those who don’t qualify can still buy Part A by paying a monthly premium. If they have at least 30 quarters of coverage, it will be $285/month in 2025, fewer than 30 quarters of coverage, $518 a month
• Medicare Part B (Medical Insurance):.
• Part B is optional and available to anyone who qualifies for Part A. It requires a monthly premium, regardless of work history.
• Part B covers doctor visits, outpatient care, medical services like lab tests, and most preventive services, essentially differentiating between "hospital insurance" (Part A) and "medical insurance" (Part B)
• Medicare Advantage (Part C) and Prescription Drug Plan (Part D):
• Eligibility for these plans requires enrollment in both Part A and Part B.
• Non-citizens:
• Legal permanent residents (green card holders) are eligible if they meet the 5-year residency requirement and have worked enough to qualify for Social Security benefits (or have a qualifying spouse).
• By meeting one or more of these criteria, individuals can enroll in Medicare during specific enrollment periods to avoid penalties or coverage delays.
• Enrollment Process:
• Some are enrolled automatically (e.g., those already receiving Social Security benefits).
• Others must apply through the Social Security Administration, especially if not receiving Social Security benefits or living in Puerto Rico/abroad.
• Specific Enrollment Periods:
• Initial Enrollment Period (IEP): A 7-month window around the person’s 65th birthday or 25th month of disability benefits.
• There is a General Enrollment Period (GEP) and Special Enrollment Period (SEP) which is available for those with group health coverage from current employment.
• Employer-based coverage from current employment may allow delay of Part B enrollment.
• COBRA coverage does not qualify as current employment coverage, so delaying Medicare may result in penalties and coverage gaps.
• it’s hugely important to enroll into Medicare at the right time as there will be a monthly penalty for life if one does not. 

Now back to the healthcare expenses in retirement. On average people expect to pay $165,000 or $330k/couple in retirement for health care expenses even with Medicare. Parts A, B, C and D. Of that $165k/person 43% of that will be Medicare Part B and Part D premiums, out-of-pocket prescription drug costs account for 10%, and other medical expenses (e.g., co-payments, coinsurance, and deductibles) make up the remaining 47%.

Part A Deductible and Coinsurance Amounts for Calendar Years 2024 and 2025

by Type of Cost Sharing

2024

2025

Inpatient hospital deductible

$1,632

$1,676

Daily hospital coinsurance for 61st-90th day

$408

$419

Daily hospital coinsurance for lifetime reserve days

$816

$838

Skilled nursing facility daily coinsurance (days 21-100)

$204.00

$209.50

Beneficiaries who file individual tax returns with modified adjusted gross income:

Beneficiaries who file joint tax returns with modified adjusted gross income:

Income-Related Monthly Adjustment Amount

Total Monthly Premium Amount

Less than or equal to $106,000

Less than or equal to $212,000

$0.00

$185.00

Greater than $106,000 and less than or equal to $133,000

Greater than $212,000 and less than or equal to $266,000

74.00

259.00

Greater than $133,000 and less than or equal to $167,000

Greater than $266,000 and less than or equal to $334,000

185.00

370.00

Greater than $167,000 and less than or equal to $200,000

Greater than $334,000 and less than or equal to $400,000

295.90

480.90

Greater than $200,000 and less than $500,000

Greater than $400,000 and less than $750,000

406.90

591.90

Greater than or equal to $500,000

Greater than or equal to $750,000

443.90

628.90

As one can see healthcare is a significant expense in retirement and is something I assess with all of my clients in their financial plan to ensure they are viable. 

And while 63% of Americans approaching retirement say they plan to review their Medicare options annually, a separate survey found that retirees aged 75 and older are the least likely to review their coverage each year (despite the potential for savings by comparing plans, given greater medical needs at this point in their lives).

Assessing your medicare options on an annual basis is a hugely important part of your financial planning. I strongly recommend you invest the time with experts to help you with that decision each year.

In conclusion, understanding Medicare is a critical part of any successful retirement and yet many people don’t make the effort to plan better with Medicare and as a result they make critical mistakes. That will be the focus of my next podcast episode, episode 80. 

TIPS, TRICKS AND STRATEGIES

Welcome to tips, tricks and strategies portion of the podcast where I will share a tip regarding enrolling in Medicare. As I noted previously in this episode, most people qualify for Medicare when they turn 65 if they meet one of the following conditions:

- They are U.S. citizens or permanent residents who have lived in the U.S. for at least 5 consecutive years.

• They or their spouse have worked and paid Medicare taxes for at least 10 years (40 quarters),
• Initial enrollment - As I mentioned there is a 7-month window around the person’s 65th birthday or 25th month of disability benefits. If they don’t have employer coverage they need to enroll in part B
• If they enroll late, there is a permanent penalty. It’s called the 
• The Medicare Part B late enrollment penalty (LEP) and it is an extra 10% of your monthly premium for each year you could have signed up for Part B, but didn't: 
• You'll have to pay this penalty for as long as you're enrolled in Medicare.
• If your monthly premium is calculated to be $250/month. That’s an extra $25/month, $300/year. Over a 25 year retirement that adds up to an extra $7500. so be sure to enroll at the right time.

References

Fidelity Investments® Releases 2024 Retiree Health Care Cost Estimate as Americans Seek Clarity Around Medicare Selection

 The Five Biggest Medicare Mistakes - Sensible Financial Planning

5 things you need to know about signing up for Medicare | CMS

2025 Medicare Parts A & B Premiums and Deductibles | CMS