Whether your 65th birthday is on the nearing or many years away, understanding the different components of Medicare, referred to as “parts”, is critical to long term retirement planning. For good reason, many Americans are incorporating this government-sponsored program into their health care planning strategy. Learn about the different parts of Medicare to determine what plans will work for you and your health care needs.
Parts A and B: Original Medicare
There are two components. Part A covers inpatient hospital care, skilled nursing facility costs, hospice services, lab tests, surgeries, and some, limited, home health care services. While very few beneficiaries of Medicare pay Part A premiums out of pocket, the annually adjusted standard deductibles still apply.1,2
for those planning for long term care costs, pre-retirees are warned that Medicare will only cover a maximum of 100 days of nursing home care, provided specific conditions are met. Part A is the plan with these provisions and requirements. Under the current Part A rules, a beneficiary would pay nothing for days up to 20 days of care in a skilled nursing facility. During days 21–100, a $176 daily coinsurance payment will likely be required.1,2
Given the limitations of Part A, many look for alternatives to manage the costs of long term care. Part B covers physicians’ fees, outpatient hospital care, certain home health services, medical equipment, and some other services that are not covered by Part A.3
However, Part B does come with some monetary obligations which are adjusted on a yearly basis. Part B premiums vary, according to the Medicare recipient’s income level, but the standard monthly premium amount is $174.70 for 2024, and the current yearly deductible is $226.1,5
Part C: Medicare Advantage Plans
Sometimes referred to as Medicare Part C, Medicare Advantage plans are often viewed as an all-in-one alternative to Original Medicare and a supplement. Medicare Advantage plans are offered by private companies which are approved by the federal government. Although these plans come with standardized minimum coverage, the amount of additional coverage can drastically differ from one person to another. This is due to different provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits. In other words, comparing prices and services offered by different Medicare advantage suppliers may be the best way to find a Medicare Advantage plan that works for you.3
Part D: Prescription Drug Plans
While many Medicare Advantage plans offer prescription drug coverage, insurers also sell federally standardized Medicare Part D plans as a standalone product to those with Medicare Part A and/or Part B. Every Part D plan has its own list of covered medications. Visit Medicare.gov to explore the list and prices of approved medications for your Part D plan, these are organized by tier.
Income Related Monthly Adjustments (IRMAA)
Generally, Medicare is an excellent money saving opportunity for retirees 65 and older, but if you are a high earner in retirement you could pay a extra for Medicare Parts B and D. This income based adjustment uses your Modified Adjusted Gross Income (MAGI), not your adjusted gross income (AGI) or your taxable income. MAGI typically includes Social Security, pre-tax retirement distributions, W2 wages, rental income, and other investment income, which typically results in MAGI being slightly higher than AGI or taxable income for wealthy households. The IRMAA adjustment looks at your MAGI using a two year lookback, so your 2024 tax year will effect your 2026 Medicare premiums. This can create a problem for people who are retiring right around the same time they are applying for Medicare benefits, as their employment wages may have been significantly higher than their expected income in retirement. If you fall into this category, not all is lost, you can apply for a new “Initial Determination” with Social Security by going online to SSA.gov or calling the social security hotline at 1-800-772-1213. Make no mistake, these increased Medicare premiums can be significant and it is likely well worth the effort to try and get them reduced if you can.
As of the date of this article, if you a a single filer and make over $103,000, or a joint filer and make over $206,000 you may be subject to increased Medicare premiums or need to file for a new “Initial Determination”. A breakdown of the current IRMAA income brackets can be found on the Social Security website.
In general, Medicare.gov is a great place to start all your research. There, you’ll find answers to your most common questions and more information on the different Medicare plans offered in your area.4
We specialize in retirement planning and investment management so If you have some additional questions or are in need of some help navigating this stuff just reach out and we will be more than happy to help.
2.https://www.medicare.gov/what-medicare-covers/what-part-a-covers
3.https://www.medicare.gov/what-medicare-covers/what-part-b-covers
4.https://www.medicare.gov/drug-coverage-part-d/what-medicare-part-d-drug-plans-cover
