What You Need to Know About Medicare
By Angela Dorsey
Medicare is a vital component of healthcare for many retirees across the United States. Since its inception in 1965, the program has generated over $1 trillion in revenue as of 2023, providing benefits to more than 66 million individuals. In fact, nearly 96% of those aged 65 and older depend on Medicare for their healthcare needs.
However, many people lack a thorough understanding of the wide array of options Medicare offers. This lack of clarity regarding how the system operates and the specifics of your benefits can lead to significant consequences in your financial plan. If you’ve ever tried to navigate the complexities of Medicare alone and felt overwhelmed, a Medicare assessment could be exactly what you need.
What Is Medicare?
Medicare is a health insurance program provided by the federal government for people over the age of 65 as well as disabled individuals. As mentioned, it plays a key role in covering healthcare costs in retirement, but it is not meant to cover everything. Understanding its coverage and its limitations is a crucial part of being prepared for retirement.
Medicare is divided into four parts: Part A, Part B, Part C, and Part D. There are also supplemental coverages to consider to fill in any gaps not covered in the four main parts. Here is an overview of the different options to review as you approach retirement:
- Part A covers hospital services. If you or your spouse paid Medicare payroll taxes during your working years for at least 10 years, Part A is free for you. If you didn’t, you can still get coverage by paying a monthly premium.
- Part B covers doctor visits and other outpatient services. Even if you or your spouse paid Medicare payroll taxes, Part B comes with a monthly premium.
- Part D is an optional add-on that includes drug coverage that also comes with a monthly premium. Starting in 2025, those with Part D plans will not have to pay more than $2,000 per year in co-pays, deductibles, and coinsurance. The cap could rise, though, and will be indexed to the growth of the per capita Part D costs each year. This also applies to those enrolled in Medicare Advantage plans. Enrollees in Part D who are in the catastrophic category and take only brand-name drugs will see their cap drop from about $3,300/year to $2,000 as well.
- Original Medicare is a package that includes Part A and Part B, with the optional add-on of Part D. A new change that was implemented in 2024 is the Guiding an Improved Dementia Experience (GUIDE) program which provides 24/7 support, medical and community-services assistance, and caregiver training to help dementia patients and their caregivers, along with $2,500 in financial assistance for at-home, overnight, or adult day care expenses. This program’s coverage will expand four-fold in 2025 to help more patients (only those enrolled in Traditional Medicare) across the country.
- To help with Medicare costs such as copayments, coinsurance, and deductibles, many retirees will purchase Medigap insurance from private insurance companies to supplement their Original Medicare plan. Some Medigap plans also cover additional services not covered by Part A or Part B, but typically exclude services such as dental, vision, and hearing visits.
- Medicare Advantage, also known as Part C, is an alternative to Original Medicare that is offered through Medicare-approved private companies. This plan bundles Part A and Part B and often includes Part D as well. Medicare Advantage plans may cover additional services, including vision, hearing, and dental visits, but it is dependent on the terms of each plan and you will have to read the coverage details carefully. Medigap policies cannot be combined with Medicare Advantage. What’s more, if you switch from Medicare Advantage to Original Medicare, you may not automatically qualify for a Medigap policy and could face additional underwriting.
Regardless of whether you have Original Medicare or Medicare Advantage, you may pay an extra charge added to your Part B premium called an Income Related Monthly Adjustment Amount (IRMAA). In short, if your modified adjusted gross income as reported on your IRS tax return from two years ago is above a certain amount, you’ll pay the standard premium amount plus an IRMAA charge. For 2025, the projected IRMAA surcharge amounts are:
(You can find 2024 premium costs here.) Keep in mind, no form of Medicare covers long-term care. If these expenses are not properly planned for, it can be costly and detrimental to your overall retirement plan.
What to Expect?
What to expect depends on which stage of the Medicare process you’re in.
If you’re a pre-retiree thinking about enrollment, you should expect to sign up in the six months surrounding your 65th birthday (three months before and three months after). If you’re receiving Social Security benefits at that time, you will be automatically enrolled in Medicare Part A and Part B. Additional coverages like Part D, Medigap, and Medicare Advantage will have to be enrolled separately. If you’re not receiving Social Security when you turn 65, you will have to apply for Medicare through the Social Security Administration website.
If you’re retired and already enrolled in Medicare, you should expect to review your benefit options every year. This year, Medicare open enrollment began on October 15th and remains open through December 7th. The decisions you make during this period will affect your 2025 Medicare coverage. It’s a daunting task, but Medicare costs and coverage levels change annually so it’s important that you stay up to date.
If you are already enrolled in Medicare, here is what you can do with your Medicare coverage during the enrollment period:
- If you have Medicare Parts A & B, you can switch to Part C.
- If you have Medicare Part C, you can switch back to Original Medicare (parts A and B) or change to a different Medicare Advantage Plan. Beware! Once you are past your one-time Medigap open enrollment period and you want to switch back to Original Medicare, you may not be able to qualify for an affordably priced Medigap plan.
- If you have Part D, you can switch to a different Part D plan or drop your prescription drug plan.
Don’t get this confused with the Medicare Advantage open enrollment period that occurs from January 1st to March 31st, where those with Part C can change to a different Part C plan or switch to Parts A and B. Any other changes need to happen in the October-December enrollment period.
Get Your Medicare Questions Answered With Our Support
If you’re feeling overwhelmed, you’re in good company! Many of our clients experience confusion when it comes to Medicare, and that’s precisely why we’re here. At Dorsey Wealth Management, we empower both our current clients and prospective clients with Medicare plan concerns to make confident decisions. Whether you’re wondering about your current Medicare coverage or need assistance with the enrollment process, don’t hesitate to reach out to us.
Schedule a free introductory 30-minute phone call. Or you can reach us at (310) 370-7776 or angela@dorseywealth.com.
About Angela
Angela Dorsey is the founder and financial advisor at Dorsey Wealth Management, a fee-only financial planning firm based in Torrance, California, helping women prepare for retirement. Angela earned a BS in computer science from Loyola Marymount University, an MBA from UCLA Anderson School of Management, and spent 20 years as a Senior Compensation Specialist in large corporations before becoming a CERTIFIED FINANCIAL PLANNER® professional and a Registered Investment Advisor (RIA). That background gave her the tools to couple with her passion for empowering women to make the best financial decisions possible. Angela lives in Torrance, California, with her husband. She enjoys spending time at the beach or surrounded by nature. To learn more about Angela, connect with her on LinkedIn.