Medicare on My Mind
Medicare open enrollment is about to kick off and it runs through December 7th. If you are one of the more than 70 million Americans who receive insurance through the program, this is your annual window to make sure your coverage makes sense.
For newbies, let's start with the basics. Medicare provides health insurance for Americans 65 and older, and for those who receive federal disability benefits. It is funded by payroll taxes, premiums paid by beneficiaries, and the federal government. As with workplace insurance, there are also deductibles and copayments.
I recently interviewed Marcia Mantell, an expert in all things Medicare, to help me decipher the alphabet soup that is our current system. As she notes, Medicare is not “a single insurance plan for retirement.” For workers who have mostly been covered through employer plans, exploring Medicare is “like a total shock to the system.”
Here are the components and their current-year costs (2027 hasn’t been released yet). I have gone out of alphabetical order for reasons that will be obvious as you read on:
Part A covers hospital stays, skilled nursing care, some home health care, and hospice. Most people pay no premium because they paid Medicare taxes while they worked. But there is a deductible (the amount you pay before coverage kicks in) of $1,736 for each benefit period.
Part B covers doctor visits, outpatient care, and preventive services. The standard monthly premium is $202.90, with an annual deductible of $283.
Part D covers prescription drugs and is sold through private insurance companies. Premiums vary by plan, but the average monthly premium for a stand-alone drug plan is $35.09.
Part C, better known as “Medicare Advantage,” is an alternative to the A/B/D combo. These plans are offered by private insurers and usually require you to use doctors in their network and get approval for certain drugs or services. Most plans offer extra benefits that Original Medicare doesn’t cover, like vision, hearing, dental and more. The monthly cost is just over $14.
Medigap is extra insurance you can buy from a private health insurance company to help pay your share of out-of-pocket costs for Parts A and B, like copayments, coinsurance, and deductibles. Some of these supplemental policies also cover services that Original Medicare doesn’t cover, like emergency medical care when you travel outside the U.S.
WHO IS IRMAA?
If you make too much money, you could face extra charges for Parts B and D. The Income-Related Monthly Adjustment Amount, or IRMAA, adds a surcharge for roughly 8 percent of Medicare Part B recipients. But for anyone with a pension, rental income, or big distributions from traditional retirement accounts, you could get hit. The surcharges for Parts B and D start at $95.70 per month for modified adjusted gross income (MAGI) above $109,000 for individuals ($218,000 for married couples filing jointly). The maximum surcharge is $578 per month when MAGI tops $500,000 for individuals or $750,000 for married couples filing jointly.
Notably, IRMAA is a cliff, not a ramp. If you breach a threshold by even one dollar, you have to pay the higher premium for the entire year. The government looks back two years, so your 2025 tax return will determine your 2027 premiums. If your income drops because of a life-changing event, such as retirement or a one-off property sale, you can ask Social Security to reconsider by filing Form SSA-44.
For those still employed by an organization with 20 or more employees, you can generally keep using your workplace health insurance, regardless of your age. Check with your benefits department before you turn 65, and know that when you leave that job, you have eight months to sign up for Part B without a penalty.