Each day, approximately 10,000 baby boomers turn 65 -- and thereby become eligible for Medicare. Many would argue that unlike most signs of getting older, that's a good thing, considering how expensive individual health insurance has become.
But becoming eligible for and actually enrolling in Medicare are two very different things. In fact, if you miss the initial window to sign up for certain parts of Medicare and later decide to enroll, you could wind up paying significantly higher premiums for the rest of your life.
If you're approaching 65, you might want to become familiar with these Medicare basics now, rather than waiting until you need to make last-minute decisions:
Medicare provides benefits to people age 65 and older (and those under 65 with certain disabilities or end-stage renal disease). For most people, the initial enrollment period is the seven-month period that begins three months before the month in which they turn 65. If you miss that window, you may enroll between January 1 and March 31 each year, although your coverage won't begin until July 1.
Medicare offers several plans and coverage options, including:
Medicare Part A helps cover inpatient hospital, skilled nursing facility and hospice services, as well as home health care. Most people pay no monthly premium for Part A, provided they or their spouse have paid FICA taxes for at least 40 calendar quarters. However, deductibles, copayments and coinsurance may apply, depending on the service provided.
Medicare Part B helps cover medically necessary doctor's services, outpatient care, durable medical equipment and many preventive services. It's optional and has a monthly premium -- $104.90 for most people, although higher-income people pay more. For most people there's a $147 yearly deductible; after that's met, you'll be responsible for 20 percent of the Medicare-approved amount of the service, provided the doctor or other provider accepts Medicare. Note: There's no annual limit for out-of-pocket expenses.
Medicare Part C (a.k.a. Medicare Advantage) plans are offered by Medicare-approved private insurers as alternatives to Original Medicare Parts A and B. They're usually structured like typical HMO or PPO plans. Most cover prescription drugs and some include additional benefits such as dental and vision coverage for an extra cost. You're usually required to use the plan's doctor, hospital and pharmacy provider network, which may be more restrictive than providers you can access through Parts A and B.
Medicare Part D helps cover the cost of prescription drugs. It's optional and carries a monthly premium. These privately run plans vary widely in terms of cost, copayments and deductibles and medications covered. If you're enrolled in a Part C plan that includes drug coverage, you don't need Part D.
Medigap Insurance. Many people opt to purchase additional Medigap (or Medicare Supplemental) insurance, which is offered by private insurers and helps pay for many items not covered by Medicare, including deductibles, copayments, coinsurance and sometimes, coverage when traveling abroad. Some employers and unions offer Medigap coverage to their retirees.
Medigap plans can vary widely in terms of cost, covered benefits and states participating so compare your options carefully. Note that Medigap policies don't pay for Medicare Advantage plan deductibles and copayments, so if you want to join an Advantage plan, you may want to cancel your Medigap coverage. Also, if you already have an Advantage plan, it's illegal for anyone to sell you Medigap insurance unless you are switching back to original Medicare Part A and B coverage.Keep in mind:
- People who aren't eligible for free Medicare Part A (usually because they didn't pay sufficient FICA during their working years) may be eligible to purchase it provided they also buy Part B. (Monthly premiums cost up to $426.) However, if they don't sign up when first eligible, they may have to pay a late enrollment penalty.
- With Parts B and D, you'll often face sizeable penalties if you don't enroll when first becoming eligible -- Part B premiums could increase 10 percent for each 12-month period you were eligible but didn't sign up (the Part D late enrollment penalty is somewhat more complicated to calculate); however, if you're currently covered by an employer's plan you can enroll later without penalty.
- Terms of Medicare Advantage and Part D plans such as premiums, copayments and covered medications can change from year to year, so carefully review enrollment materials from your current plans to make sure they still match your needs.
- Helpful publications, including Medicare & You 2014, a detailed guide that explains Medicare in easy-to-understand language.
- Tools to compare prescription drug plans, hospitals, nursing homes, home health agencies and Medigap plans in your area.
- A resource to find local doctors and other health practitioners who participate in Medicare.
- Services covered by various Medicare plans.
- Enrollment instructions.
AARP also provides a great Medicare Starter Kit that answers many common questions.
Bottom line: Choosing the right Medicare coverage is not as easy as shopping for a new pair of pants, so be sure to allow plenty of time to explore how the program works.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.