Almost all Americans who work pay into the Medicare system, but not everyone knows about the benefits they will become eligible for when they turn 65. Here's a look at the valuable health insurance you will get in retirement:
Tax rate. Most workers pay 1.45 percent of their earnings into the Medicare trust fund, and companies pay a matching 1.45 percent per employee. Self-employed workers pay 2.9 percent of their earned income into the trust fund. Beginning in 2013, the Affordable Care Act enacted an additional Medicare tax equal to 0.9 percent of earnings over $200,000 for individuals and $250,000 for couples.
When to sign up. You can sign up for Medicare beginning three months before you turn 65, and coverage can start as soon as the first day of your birthday month. The initial enrollment period lasts until three months after your 65th birthday. If you fail to sign up during the seven-month window around your 65th birthday, you can sign up between January 1 and March 31 each year (and get coverage that begins on July 1), but you may be required to pay permanently higher premiums for late enrollment. Monthly Part B premiums increase by 10 percent for each 12-month period you were eligible for Medicare but didn't sign up for it. If you or your spouse is employed and covered by a group health plan at work, you must sign up within eight months of leaving the job or the coverage ending to avoid the higher premiums. "It's really important to plan in advance and to sign up during that time," says Nicole Duritz, vice president for health and family at AARP. "If you choose to sign up later, it will end up costing you more."
Premium costs. Most retirees don't pay a premium for Medicare Part A hospital insurance. The standard premium amount for Medicare Part B medical insurance is $104.90 per month in 2013, but retirees who earn more than $85,000 ($170,000 for couples) pay higher premiums.
Other out-of-pocket expenses. Just as with private health insurance, Medicare has deductibles, copays and coinsurance. The Part B deductible is $147 in 2013, after which Medicare typically pays 80 percent of the Medicare-approved amount of the service. There's no annual limit on what you might need to pay out-of-pocket.
Supplemental coverage. It's difficult to predict how much your out-of-pocket costs will be with traditional Medicare, so many retirees supplement their Medicare coverage with a Medicare Advantage or Medigap plan. These plans charge an additional premium, but fill in many of Medicare's cost-sharing requirements and sometimes cover additional services that traditional Medicare doesn't cover. "For many people, purchasing a Medigap policy will give people some peace of mind that those expenses will be covered if they have very high medical expenses," says Juliette Cubanski, a Medicare policy analyst at the Kaiser Family Foundation. There is a one-time Medigap open-enrollment period that starts the month you turn 65 and enroll in Part B and lasts six months. During this period, you have a guaranteed right to buy any Medigap policy sold in your state regardless of your health condition. After this period, you could be denied coverage or pay higher premiums. "No one can say no to you, no matter what your health status is during that six-month period," says Duritz. "After that six months, there is no guarantee that a plan will accept you and offer you a supplemental plan."
Free physicals. You can get a free "welcome to Medicare" preventative care doctor's visit during the first 12 months that you have Medicare Part B, which generally includes a review of your medical history and recommendations about preventative care. Once you've had Medicare for a year, you become eligible for annual wellness visits to a doctor to make a personalized plan to prevent disease. "The new 'welcome to Medicare' physical exam gives people an opportunity to get a check-up and get a run-down of all the prevention benefits that they might be entitled to," says Cubanski. "It's a nice opportunity for people when they come on to Medicare to get into the system and perhaps into a plan of prevention and health promotion that they might not have had an opportunity to take advantage of prior to signing up for Medicare."