What every family needs to know about Medicare by Suze Orman

If you are nearing age 65, or you are the adult child of someone reaching the age when they are eligible to enroll in Medicare, I hope you will be open to working as a family to make smart choices.

While the program provides broad coverage, it is not free for the majority of enrollees and the cost can be hundreds of dollars a month. That catches plenty of people by surprise. And if parents haven’t planned for the costs, it can mean their adult kids may need to eventually step in to help cover costs.

The other unwelcome surprise is that you must make important—and often irrevocable decisions—when you first enroll.

I want to help both parents and their adult children know how to make smart, informed choices.  Here’s a short list of key Medicare considerations I want every family to be aware of.

Understand there are actually two Medicare programs

Right off the bat you must decide between the two different ways to participate in Medicare: Traditional Medicare or Medicare Advantage (MA).

In the Traditional Medicare program—also referred to as Original Medicare—average annual out of pocket costs these days are more than $6,000. Much of that is to cover premiums for basic Medicare (called Part B) plus a supplemental policy, called Medigap.

A Medigap policy covers the 20% of your care costs that aren’t paid for by Medicare Part B. (I told you this was complicated! More on Part B in a sec.)  The good news is that with a comprehensive Medigap policy in place you don’t have to worry about copays if you need care. And with Traditional Medicare you can be treated anywhere in the U.S. by anyone who accepts Medicare.

Medicare Advantage doesn’t require buying a separate Medigap policy—in fact it’s not allowed. The majority of Medicare Advantage premiums don’t charge a premium, and for those that do it’s typically a lot less than the premium for a Medigap policy.  If you’re a night owl, you likely have come across Medicare Advantage adds on tv, talking about how they are much less expensive than Traditional Medicare.

That’s true, but only if you never get sick. When you need care, you will owe copays with Medicare Advantage.  The maximum out-of-pocket cost in 2022 for MA  in-network care can be $7,500. If you use out-of-network providers, the max can be as high as $11,300 this year. Those limits are adjusted each year.

And keep in mind that a key feature of most Medicare Advantage plans is that you are typically required to seek care from the plan’s approved local network of doctors and facilities.

Master the Medicare Alphabet

Time for a quick class in the complex world of how Medicare actually works.

Medicare Part A

This covers hospitalization costs. If you paid into Medicare for at least 10 years there will be no premium cost for Medicare Part A coverage. (If you were a W-2 employee, those FICA deductions on your paycheck were for your share of Social Security and Medicare contributions. If you are self-employed, you paid in through your quarterly self-employment tax payment.)

If you choose Traditional Medicare, there’s a deductible you pay once for the first 60 days of a hospitalization. In 2022 it’s $1,556. (As I mentioned earlier, if you consider Traditional Medicare it is crucial to also purchase a supplemental Medigap policy. There are standardized Medigap plans you choose from. A Medigap Plan G is the most comprehensive, and will cover your Medicare Part A deductible.)

Most MA plans don’t impose a deductible for hospitalization, but they do charge a daily copay. An analysis by the Kaiser Family Foundation found that out-of-pocket costs for a hospitalization of at least six days will likely be higher if you have MA coverage, than if you have Traditional Medicare. And with Medicare Advantage, your copay is all on your back, as you won’t have a Medigap policy to cover the cost.

Medicare Part B

This covers everything else outside of the hospital, excluding prescription medication.

I need everyone to pay extra attention here: Medicare Part B charges a monthly premium for each enrollee. The premium is based on your income. In 2022 the lowest possible premium—unless you qualify for premium assistance—is $170.10 per month. That is per person; a couple will pay at least $340.20 for coverage.  And you pay this regardless of whether you choose Traditional Medicare or MA.  Higher income enrollees will pay even more each month.

The reason many people think that Part B is free is because it is automatically deducted from your Social Security benefit each month, if you’ve already enrolled in that program. (You can get Medicare before you begin collecting Social Security; when you sign up you will simply arrange direct monthly payment.)

Medicare Part C

This is the Medicare Advantage Program.

Medicare Part D

This is the prescription drug coverage. If you enroll in Traditional Medicare you purchase Part D as a separate policy. If you enroll in MA, your prescription drug coverage is typically rolled into your coverage. The standard deductible is $480 this year. And even after you’ve covered that, you will always pay a portion of your drug costs. More than one million Part D enrollees had Part D out-of-pocket costs of more than $2,000 in 2019, according to the Kaiser Family Foundation. You can—and should—shop for the best Part D coverage each year, as insurers change the cost for drugs from year to year.

Okay, that was a lot of info. Deep breath. Here’s a simplified version:

Traditional Medicare: You will be enrolled in Part A and Part B, but you will need to purchase a separate Medigap policy to cover the 20% of Part B costs Medicare doesn’t pay for. You will also need to purchase a Medicare Part D policy for prescription drugs, unless you have drug coverage through a former employer.

Medicare Advantage: Parts A, B and D are typically all provided under a single plan. But each part will have its own copays.

Don’t assume you can wait to enroll if you are still working at 65

If you are still working at age 65 at a job that provides you health insurance, please be very careful.

If your employer has at least 20 employees you can indeed stay on the company plan and delay signing up for Medicare.

But if your employer has fewer than 20 employees, they get to decide if they will continue to provide coverage. Don’t assume you will stay on the company plan. Even if HR says you will, get it in writing from the actual insurer.

The train wreck you need to avoid is submitting a claim after you turn 65 and being told by the insurer that it considers Medicare to be the “primary” payer. Translation: the insurer isn’t obligated to cover your claim because you could have it covered by Medicare. If you haven’t yet enrolled in Medicare, well, the insurer considers that your problem, not theirs.

It’s not easy to switch between Medicare Advantage and Traditional Medicare

If you are healthy when you first become eligible for Medicare, you might be thinking you will choose Medicare Advantage (less costly!) and if you ever develop a serious condition, you will switch to Traditional Medicare if you want care from a doctor or facility not in your MA network, or to reduce your out-of-pocket costs.

I hear you. But that’s not going to work. Technically you can indeed switch from one program to the other during the annual open enrollment period. But on a practical level it may be impossible.

When you first become eligible for Medicare—at age 65 for most people—you are entitled to purchase a supplemental Medigap policy to complement your Traditional Medicare coverage, regardless of any pre-existing condition.  And you won’t pay extra for any pre-existing conditions. That’s referred to as “no medical underwriting.”

But that window of no medical underwriting for a Medigap policy is only good for when you first enroll in Medicare. If you start with Medicare Advantage and then a year, or five, or 10 years down the line you want to switch to Traditional Medicare, you are going to run into a problem getting Medigap coverage if there’s now a pre-existing condition. Outside of the one-time window when you first enroll for Medicare, Medigap insurers will put you through medical underwriting. If there’s a pre-existing condition, they will either turn you down or insist on an astronomical premium.

And you are nuts to consider using Traditional Medicare without a supplemental Medigap policy. Remember I mentioned that for Medicare Part B covers 80% of your bills and a  Medigap policy covers the other 20%? Well, there’s no annual dollar maximum on how much that 20% can be, so you definitely want a Medigap insurance policy to cover whatever your 20% might come to.

Make an informed choice

I realize I just threw a lot at you. But this is such an important decision—for retirees and their adult kids—that can end up causing plenty of financial stress for years after you enroll. 

The official Medicare website has plenty of information on all the moving pieces.

And I encourage you to find independent Medicare insurance agents who can help you find the best program for your budget and your health needs. Start your research at least a few months before you turn 65, so you understand your options. It’s also important to make sure you sign up on time, as there are permanent late-enrollment fees for Medicare Part B and Medicare Part D.  Just be sure to seek out independent agents who will help you comparison shop among all the different options you have.

*Programs like Medicare may change. Consult your insurance agent for the most up to date information.

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Suze Orman is the author of 10 consecutive New York Times bestsellers, a two-time Emmy award winner, and your go-to for honest answers on everything finance. She is the most recognized personal finance expert in America today and host of the Women & Money (and Everyone Smart Enough to Listen) podcast. Suze is excited to be a contributor for Money Mentor.

Suze and Alliant teamed up to help Alliant members make the most of their life by teaching them to make the most of their money. New Alliant members are also eligible for The Ultimate Opportunity Savings Account.