3 Reasons You Can’t Rely on Medicare Alone

There is a surprising array of senior discounts out there these days. But Medicare may still be the ultimate senior discount.

Many folks count down the days until they are eligible to enroll in the federal health insurance program reserved primarily for people age 65 and older.

But just as you should not rely on Social Security benefits as your sole source of retirement income, you can’t rely on Medicare to meet all your health care needs after age 64.

If you have yet to become eligible for Medicare coverage, you may have time to prepare financially for costs related to Medicare. But if you’re already on Medicare, those costs are all the more reason to do your homework during open enrollment season.

In fact, for current Medicare recipients, investing time in researching your options during open enrollment may be the best way to avoid surprise medical expenses next year. And the 2020 open enrollment period for Medicare started Tuesday.

Why you can’t rely on Medicare

Medicare is a government-run program, but it’s not a government handout.

As with Social Security, you pay into the system via FICA taxes that come out of your paycheck during your working years. Additionally, Medicare is not all-inclusive.

Here are a few reasons why counting on Medicare to cover your health care needs in retirement can cost you:

1. It’s not free

Medicare is like any other type of health insurance in that the insured person is responsible for certain costs. Premiums, deductibles and copays generally still apply.

Take for example the premiums and deductibles for Original Medicare, which is one of the two main types of Medicare. It generally includes Medicare Part A, which primarily covers inpatient hospital stays, and Part B, which primarily covers doctor services and other outpatient services.

Most Medicare recipients don’t pay premiums for Part A due to how long they worked and thus paid FICA taxes. But there is a Part A deductible — currently, $1,364 per year.

The 2019 standard deductible for Part B is only $185 per year. But the Part B premium is $135.50 per month for most folks. That’s $1,626 per year.

And that’s to say nothing of drug costs or various other expenses associated with Original Medicare, which is offered directly by the federal government.

With the other main type of Medicare, called Medicare Advantage, costs vary by plan because these plans are offered by private insurers that are approved by the federal Medicare program.

2. It doesn’t cover everything

Like other types of health insurance, Medicare does not cover every last health-related service and product.

We break down some of the biggest expenses that Original Medicare does not cover — and how you can save money on them — in “5 Health Care Costs That Medicare Does Not Cover.”

3. Its future is uncertain

The Medicare program’s Hospital Insurance Trust Fund, which helps fund Medicare Part A, is projected to face being depleted by 2026, according to the latest annual report from the boards of trustees that oversee the Medicare trust funds.

Come 2026, the money going into that trust fund, such as from FICA taxes, is projected to be enough to cover only 89% of costs.

Of course, federal lawmakers could step in to prevent a financial shortfall in the trust fund from resulting in increased costs or decreased coverage for Medicare recipients. Or, lawmakers could change the Medicare program itself.

In short, no one knows what Medicare will look like — or how the program will be funded — in the future.

How to improve your Medicare coverage

If you’re well under the age of 65, you have time on your side.

Use it to take stock of your finances. Look for ways to increase your retirement savings rate. Open a health savings account if you’re eligible for one — there is no better way to prepare for future medical costs of any sort than with a tax-free account.

If you’re already on Medicare, don’t squander the open enrollment period or it could cost you.

Don’t assume that your 2020 coverage or costs will be exactly like your current coverage or costs. As Medicare put it in a recent blog post:

“Plans change and your needs change. Carefully review any materials and changes in costs or coverage that will happen in 2020, and decide if your current Medicare coverage will meet your needs for the year ahead.”

That way, if you find a reason to change your plan for 2020, you will be able to do so before open enrollment ends Dec. 7.

To get started with your open enrollment homework, gather these three things:

• The 2020 “Medicare & You” handbook: It contains general information about Medicare as well as information about Medicare plans available in your area.
• Evidence of Coverage (EOC): This document includes information about your current plan, such as what it covers and how much you pay. It is usually sent to Medicare recipients in the fall.
• Plan Annual Notice of Change (ANOC): This document includes any changes to your plan’s coverage, cost or service area that will take effect in 2020. It also is sent to Medicare recipients in the fall.

If you haven’t already received the handbook, you can download a copy from Medicare.gov, the federal government’s official website for the Medicare program. If you have yet to receive an EOC or ANOC, Medicare.gov suggests that you contact your plan.

Once you assess any changes to your current plan that would start in 2020, you can compare your plan with others. That will enable you to determine whether you could save money or improve your coverage in 2020 by changing your plan during open enrollment.

Again, check your “Medicare & You” handbook — or visit Medicare.gov — for details about 2020 plans available to folks in your area.