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Health care in retirement: Medicare basics

Aging into Medicare is all about planning and doing so with the best information possible. Check out how to prepare for this change.

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Updated: Published:

Matt Lyon Reviewed by: Editorial contributors

Health care costs can be one of the largest expenses for retirees. When you're aging into Medicare, it can be a big change. You're moving to a new plan with different coverage, different benefits and different language.

You'll have to make some decisions and review your options. It's important to consider your budget, your current and future health care needs and how you want to get your medical care. Your personal financial situation could be impacted by the plan you choose.

It's helpful to think about the future impact of costs. If your needs for care change dramatically, how will your insurance decisions protect you financially?

You can expect to have cost-sharing expenses such as premiums, deductibles, copays and coinsurance. These are paid out of pocket and each will have a specific amount that's determined by the plan type you choose. Some plan choices have lower premiums but higher cost-sharing factors and vice versa. It's important to know the key terms and pros and cons so you can make the best decision for your needs.

Basics of Medicare

Medicare is the government health insurance plan available to people 65 or older, younger people with disabilities, and people with end-stage renal disease. Medicare coverage is made up of two parts, Part A and Part B, which are provided by the government. Other components are provided by private insurance companies that work with Medicare to round out your coverage.

  • Part A is hospital insurance provided by the U.S. government that helps pay for the cost of inpatient care in a hospital or skilled nursing facility, as well as home health care and hospice care.

    You're automatically enrolled in Part A if you're already receiving Social Security benefits. If you haven't started Social Security, you need to enroll in Medicare Part A on your own at medicare.gov Opens in a New Window.‍ ‍ See note 1
  • Part B is medical insurance provided by the U.S. government that helps pay for doctor visits, outpatient care like rehab therapy, and some preventative services. It also covers doctors' services in a hospital and most medicines administered in a doctor's office.

    You're eligible for Part B automatically once you become eligible for Part A, but Part B is voluntary. Many people with Part A also enroll in Part B to make sure their basic health needs are covered.

    Parts A and B have a monthly premium, but most people will qualify for a premium-free Part A. The standard monthly premium is dependent on income limits and can change each year. If your income (based on filing status) is above the limits, you’ll pay more for your Part B premium regardless of the covered services you use. Learn more at medicare.gov Opens in a New Window.‍ ‍ See note 1
  • Part C: Medicare Advantage plans combine coverage for Parts A and B into a single plan, with some exclusions. Most plans will include coverage for prescription drugs. These plans are offered by private insurance companies. They can vary in plan type, coverage amounts and premiums, among other things.
  • Part D: Prescription drug plans are offered by private insurance companies in order to provide coverage and reduce your out-of-pocket costs for medication. The Center for Medicare and Medicaid Services (CMS) projects that the average basic monthly premium for Part D coverage will be approximately $55.50 in 2024 Opens in a New Window.‍ ‍ See note 1

Medicare Supplement, or Medigap, plans

Medicare Supplement plans, also known as Medigap plans, can be used to "wrap around" Medicare and make medical costs more predictable. Medicare Supplements are offered by private insurance companies. They require a monthly premium and are designed to provide additional coverages and benefits to plan holders.

Plans follow a letter naming system, like Plan F or Plan G. Each plan is standardized by law. So, when you're comparing Plan G between different insurance companies, cost will usually be the only difference.

Medicare supplements work with Medicare Parts A and B to help control your out-of-pocket costs. For example, all plans cover your Medicare Part A coinsurance for hospital costs, while Plans K and L will only cover a portion of your Part B coinsurance. It's important to know which Medicare Supplement plan will provide the coverage you need.

A list of plans and plan benefits can be found at Medicare.gov Opens in a New Window.‍ ‍ See note 1

TRICARE for Life

Retired military members are eligible for a supplemental coverage plan to wrap around Medicare Part A and Part B called TRICARE for Life, or TFL Opens in a New Window.‍ ‍ See note 1 Enrollment is automatic and you'll be responsible for your Part B premiums. Like with Medicare Parts A and B or with some Medicare Supplemental plans, some cost-sharing expenses may occur. TFL will coordinate with Medicare, and when you receive services that are covered by both, you will pay nothing out of pocket.

Medicare Advantage

Medicare Advantage plans are an all-in-one approach to Medicare. Plans are issued by private insurance companies. Plans work in place of Medicare Parts A and B and typically include prescription drug plan benefits.

Many Medicare Advantage options have a zero premium payment plan, although you may still need to pay for your Medicare Part B premium. Each plan is going to have varying costs or limits for things like deductibles, copays, coinsurance and out-of-pocket limits.

Medicare Advantage plans are similar to health insurance options that many Americans are familiar with. They're structured similarly to most employer-provided health insurance plans. Medicare Advantage plans can provide choices in how you get your care by offering different plan types:

  • Health maintenance organization, or HMO, plans require you to select a primary care physician who will help manage and coordinate your care. They'll also help with referrals to specialists.
  • Preferred provider organization, or PPO, plans typically allow you to see any provider you want for care but likely have a determined network of providers. You'll pay less for in-network providers versus providers who are out of network.
  • Private fee for service plans, or PFFS, allow you to see any Medicare-approved doctor or hospital that accepts Medicare. Similar to PPO plans, there will be a cost difference between fees you pay for in-network care versus out-of-network care.

Because plans can vary in benefits and costs, there's a bit more shopping and research when choosing a plan.

Medicare Advantage versus Medicare Supplement plans

Medicare Advantage offers a lower monthly premium and tailored benefits, but there's a potential for higher out-of-pocket costs when you need care.

Medicare Supplement plans can reduce your out-of-pocket expenses for deductibles, copays and coinsurance, but you'll pay a higher monthly premium than Medicare Advantage plans.

Say you break your arm. You'll need immediate hospital attention, potentially surgery, rehabilitative care and likely some medication. With both plans, you'll have coverage for those needs.

If you're on a Medicare Advantage plan, you'll pay deductibles and coinsurance costs that are determined by your plan.

With Medicare Supplement plans, your out-of-pocket costs for hospital care could be fully covered. The supplement plan you choose will determine which other costs are covered. Plan G will cover your doctor visits and skilled nursing facility coinsurance costs. Plan L will cover those same coinsurance costs but only up to 75%.

So, if the total medical costs for your broken arm were $12,000, with a Medicare Advantage plan you'll be responsible for your portion of cost-sharing up to your yearly out-of-pocket limit. If you're on a Medicare Supplement plan, you may have less cost-sharing, but you may pay more on a monthly basis for your plan.

It comes down to deciding when you want to pay.

You can pay monthly premiums “just in case” you end up needing expensive care.

Or you could try to save on the monthly premiums but likely pay more out of pocket if you need expensive medical care.

Figuring out the care you want

Your Medicare decision can be challenging given the complex nature of health insurance. Figuring out the best direction for your personal situation should be based on which plan or plan types meet your needs.

Start by asking yourself a few questions:

Doctors

  • How do you like to receive medical care?
  • Do you prefer flexibility in picking providers, or are you comfortable with using a primary care provider?
  • Are there any doctors you're currently seeing that you'll need to keep going to?

Medications

  • Are you currently on medications?
  • Make sure that the plans you're considering cover your medications.
  • What are the differences in medication costs between plan types?

Out-of-pocket costs

  • Do you prefer lower monthly premiums in exchange for potentially higher out-of-pocket limits?
  • Do you prefer lower overall medical costs in exchange for paying more monthly?
  • How does the plan you're researching fit within your budget?

Annual Enrollment Period

Medicare can be a big decision for retirees. Take time to research your options, evaluate the different plan types and form a game plan. By preparing for the Medicare Annual Enrollment Period, which runs from mid-October through early December, you'll be better prepared to make smart choices for your future coverage needs.

Preparing for Medicare Annual Enrollment?

Start your Medicare journey here

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Related footnotes:

  1. This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

Related footnotes:

  1. You are leaving USAA and being directed to a third party site that is not maintained, owned or operated by USAA. USAA does not control and is not responsible for the site content or the privacy or security practices of third parties. You should read the third party's privacy and security policies and site terms, as their practices may differ from those of USAA.

Related footnotes:

  1. For services payable by both Medicare and TRICARE For Life, Medicare pays first and the remaining liability may be paid by TRICARE For Life.

  2. "TRICARE" is a registered trademark of the TRICARE Management Activity. All rights reserved.

  3. Health Insurance Solutions provided through USAA Life General Agency (LGA) known in CA and NY as USAA Health and Life Insurance Agency, working with select insurance companies to provide products to our members. LGA receives compensation from these companies, based on the total quantity and quality of insurance coverage purchased. Plans are not available in all states. Coverage is underwritten by the respective insurance company. Each company has sole financial responsibility for its products.

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