Moving to Medicare? Four Facts to Consider
Transitioning from employer-sponsored health coverage (or other private insurance) to Medicare could involve some surprises unless you research the differences in advance. Here are four key facts to get you started.
Medicare does not have an annual out-of-pocket maximum. Most employer health plans cap out-of-pocket expenses during a calendar year. Medicare Part A pays 100% of hospital costs for up to 60 days, after the deductible is met, but there is no limit to copays beyond 60 days. Likewise, there is no limit to the Medicare Part B 20% copay for physician services and outpatient expenses.
Medigap plans, which supplement Parts A and B, may pay for most out-of-pocket costs; Part C Medicare Advantage plans, which replace Parts A and B (and may also include prescription drug coverage), are required by current law to have an annual out-of-pocket maximum. There is no maximum for Medicare Part D prescription drug coverage, but copays are minimal after reaching an annual out-of-pocket limit.
Medicare does not include spousal coverage. Spouses can often be covered under a worker’s employer-sponsored health plan, but each spouse must have his or her own Medicare policy. If a younger spouse is covered under a worker’s employer plan, it may make sense to wait until the younger spouse is eligible for Medicare before the older spouse drops employer coverage.
You cannot contribute to a health savings account (HSA) if you are enrolled in Medicare. Even if you remain covered under a high-deductible health plan at work, you can no longer contribute to an HSA after you enroll in Medicare. Regardless of Medicare enrollment, you can withdraw HSA funds free of federal income tax and penalties to pay qualified health-care expenses, including Medicare premiums. HSA contributions and earnings may or may not be subject to state taxes.
Medicare has late-enrollment penalties. If you have employer-sponsored health coverage and do not enroll in Medicare Parts A and B when first eligible, you can generally avoid penalties if you enroll within the eight-month period that starts the month after the last day of employment or your employer-sponsored health coverage ends (whichever occurs first). A late-enrollment penalty for Part D prescription drug coverage may apply if you go 63 or more consecutive days without having creditable prescription drug coverage. (Most employer plans are considered creditable.)
For additional information, visit Medicare.gov.