Understanding what Medicare does and doesn’t cover affects retirement insurance planning

An essential part of planning for retirement is often overlooked. Even though health care is typically one of the largest expenses for retirees, most planners don’t prepare for it because they assume Medicare will cover all their expenses. Unfortunately, Medicare doesn’t cover everything.

To make sure you’re not caught unprepared for insurance coverage in retirement, read this quick guide to understand what Medicare is and what it covers.

What is Medicare?

Medicare is a federal health insurance program. It’s managed by the Center for Medicare and Medicaid Services (CMS) under the Department of Health and Human Services (HHS). All U.S. citizens become eligible for Medicare when they reach age 65; however, individuals with disabilities or end-stage renal disease who are under age 65 also have Medicare eligibility.

Parts of Medicare

Medicare has four parts — Part A, Part B, Part C, and Part D — and each covers different expenses.

Part A: Original Medicare hospital insurance

Medicare Part A is part of the federal, original Medicare through CMS. It provides coverage for inpatient hospital stays, care in a skilled nursing facility, nursing home care, hospice care, and home health care. Some of these services may have exceptions and may not be fully covered. Supplemental insurance, such as Hospital Indemnity and Medicare Supplement insurance, can help fill Part A gaps.

Most people don’t need to pay for Medicare Part A if they paid Medicare taxes for a certain amount of time while working. But if you don't qualify for premium-free Part A, you can buy it and pay a monthly premium. If you choose not to buy Part A, you can still buy Part B. But in most cases, if you choose to buy Part A, you must also buy Medicare Part B. Contact Social Security for more information about the Part A premium.

Part B: Original Medicare medical insurance

Medicare Part B is also part of the federal, original Medicare through CMS. It’s used to cover medically necessary services and preventive health care. It has a monthly premium that is determined by your income. After its deductible is met, coinsurance is 20% of the Medicare-approved amount for most services. Purchasing Medicare Supplement or Dental insurance can help fill Part B gaps.

Part C: Medicare Advantage

Medicare Part C — also known as Medicare Advantage — provides both Part A and Part B coverage and is sold by Medicare-approved private insurance companies that must follow rules set by Medicare. Medicare Advantage costs and benefits vary. Some plans may include additional benefits for dental, hearing, vision, and/or health and wellness programs. Most Part C plans also include Medicare Part D, but not all do. If you purchase a Medicare Advantage plan, then you can’t purchase a Medicare Supplement plan, but you can buy other supplemental health insurance, such as Hospital Indemnity insurance, which has riders that pair well with Medicare Advantage.

Part D: Prescription drug coverage

Medicare Part D covers prescription drug costs. You may pay a premium, annual deductible, copayments, or coinsurance, depending on which plan you choose. Your actual drug coverage costs will vary depending on your prescriptions, pharmacy, and any extra payment assistance you receive.

Signing up for Medicare

You have different ways to sign up, depending on which Medicare parts and plans you want to enroll in. You can enroll in Medicare Parts A and B through Social Security. But if you aren’t already receiving Social Security, then you’ll need to enroll in Medicare yourself. Parts C and D (along with any other supplemental insurance plans) are offered through private insurance companies that follow Medicare guidelines, so you would purchase plans directly through them.

You have a seven-month window in which you can sign up for original Medicare, starting three months before you turn 65 and ending three months after you turn 65. These seven months are called the Initial Enrollment Period, and you can sign up for Medicare Advantage or Part D then too. You can also sign up for Medicare Advantage during the General Enrollment Period or the Annual Enrollment Period. The General Enrollment Period is for individuals who have Part A coverage and sign up for Part B coverage for the first time, thus making them eligible for Medicare Advantage or Part D. The Annual Enrollment Period happens each year from Oct. 15 to Dec. 7, and during that time you can join, switch, or drop a Medicare Advantage or Part D plan.

During the Open Enrollment Period, Jan. 1 to March 31, you can disenroll from a Medicare Advantage plan and enroll in another Medicare Advantage plan, or you can switch back to Original Medicare, with or without Part D prescription drug coverage, if you’re a Medicare Advantage-eligible beneficiary.

Get answers to your Medicare questions

Are you unsure whether original Medicare or Medicare Advantage is right for your retirement plans? Would you like to learn how supplemental health insurance can help round out your insurance coverage in retirement? An American Republic Insurance Services^® agent is your best retirement insurance resource. Call 800-954-3301 for immediate answers or select the button below to find an agent near you.

Retirement financial planning the smart way

Retirement financial planning is about more than electing to put part of your paycheck into a 401(k) account. Effective retirement planning for seniors requires a multi-pronged approach that is as focused on what you should do as what you shouldn’t. To be successful in your retirement planning, you should avoid these 10 mistakes:

1. Waiting to plan for retirement

Just because you aren’t making a salary that aligns with your ultimate earning goal, that doesn’t mean you should put off retirement planning. When it comes to investing for your retirement, it makes sense to start earlier rather than later.

2. Saving too much too soon

Planning for the future is never a bad idea, but don’t forget to plan for today. Unexpected big expenses, like home repairs and medical bills, will come up between now and the time you retire. You need to keep enough fluid funds to build up a savings account while also covering regular expenses, like your mortgage and car payments. Also, don’t make the mistake of focusing so much on pinching pennies for when you stop working that you regret not enjoying the journey along the way.

3. Forgetting 401(k)s and IRAs are tax-deferred, not tax-free

It can be a big wake-up call if you don’t plan for taxes in retirement. Just because you’re not paying taxes on your accounts now, doesn’t mean you never will. To fully understand the tax implications of your retirement savings accounts, consult a tax professional.

4. Not buying the right insurance at the right time

Some seniors may not know that Medicare doesn’t cover everything. For instance, dental care and long-term care are not covered. According to a Fidelity retiree health care cost estimate, a 65-year-old couple who retires in 2022 needs $315,000 (after tax) to cover health care costs in retirement.

Having a dental insurance plan and Medicare Supplement insurance can help you cover costs, like copayments, deductibles, and home health care, so you don’t deplete your retirement savings. When you explore all insurance plans available to you to find a policy tailored to your specific needs, you’ll have the peace of mind knowing that no matter what health hurdles come your way, you’ll be prepared.

5. Not planning for the unexpected

Besides unforeseen health issues, big life events can drastically affect your retirement funds. Adult children may return home, an elderly parent could require care, or you and your spouse may decide to separate. It’s hard to plan when you don’t know what you don’t know, but that’s where an American Republic Insurance Services agent comes in handy. They’re used to planning for the unexpected and can help you prepare for life’s twists and turns.

6. Over-relying on Social Security

A Social Security income will help you in your retirement years, but don’t expect to live on it alone. According to the Social Security Administration, the average benefit for a retired worker in 2022 is $1,669. Ask yourself: Would that cover all your expenses — housing, food, health care, leisure activities, and unexpected costs? Probably not. Senior financial and retirement planning should be more robust than simply believing, “I will have my Social Security.”

Learn more about annuities

7. Forgetting about inflation and life expectancy

Even though 2022 was an outlier and had the largest annual inflation rate increase since the early 1980s, it still illustrates how vital it is to factor inflation into your retirement plan. Its relevance increases significantly when you also consider life expectancy is on the rise for both men and women. An American Republic Insurance Services agent knows how to calculate these two variables and suggest ways to properly plan for them.

8. Not paying down debt

With the average credit card interest rate at 15.13% APR, your nest egg will diminish rapidly if you’re still paying down debt when you retire. Even if your mortgage interest rate is low and you receive a considerable tax deduction, it doesn’t replace a healthy cash flow throughout the year. Retiring debt-free should be your goal to stretch your retirement account as far as possible.

9. Procrastinating on end-of-life planning

Even if you haven’t accumulated a great deal of wealth, you still need to have a plan for what you’ll leave behind. A life insurance plan ensures your loved ones aren’t left with a financial burden after you’re gone. An American Republic Insurance Services agent can help you determine which type of life insurance policy best fits your wishes. And an estate planning professional can help you gather necessary documents, such as a financial power of attorney, trust contracts, and tax documents, and craft a will that ensures your family will be taken care of when you pass away. Remember to discuss your plans with your spouse and children, so they know what your plans are, and update your plans about every five years.

Learn more about types of life insurance

10. Forgetting to make a retirement “life” plan

Senior retirement planning is more than matching dollars and cents with interest rates and statistics. You want to make sure you have enough money to enjoy your retirement to the fullest. Ask yourself how you plan to fill your days after you stop working. Will you travel? Try a new hobby? Volunteer? Big expenses like traveling are easy to plan your savings around, but what about the little costs that add up? A new hobby could require a lot of equipment purchases, or a rewarding volunteer opportunity may be located a few towns away, which could rack up gas costs. Don’t forget to list granular details and prepare how to cover them. An American Republic Insurance Services agent can help you decide whether an annuity could help fund the retirement of your dreams.

Cover even more gaps with Medicare Supplement and Hospital Indemnity in your insurance portfolio

Medicare Supplement insurance is a cost-share plan that may help you pay for expenses that Medicare does not cover. Also called Medigap — because it fills in the gaps of Medicare coverage — this type of insurance helps you cover potentially expensive medical out-of-pocket costs, like coinsurance, copayments, and deductibles. But when you pair it with Hospital Indemnity insurance, you can cover even more gaps.
 
It’s easy to overlook the additional costs you can incur while you’re hospitalized. A Hospital Indemnity insurance plan can provide you with supplemental cash benefits to use as needed, even for indirect non-medical costs.

What does Hospital Indemnity cover?

Hospital Indemnity differs from regular health insurance because it has no deductible, no coinsurance, and no network, and the benefit is paid out directly to you tax-free.
 
“Each person’s needs are going to be different. If a catastrophic event occurs, you might not be able to cover all the costs with your current income or savings,” explains Erin Bueltel, product specialist for supplemental health insurance. “If you’re on Medicare and are interested in additional insurance but don’t want to pay a high premium, a simple add-on of Hospital Indemnity at a lower premium might help provide relief.”

Hospital Indemnity policies generally have similar base benefits, such as:

• Hospital confinement: It pays a specified benefit amount for each day you’re in the hospital. You can choose the number of days per period of confinement and the amount per day in increments.
• Observation/Short duration: It pays a specified benefit amount per day for a limited number of days per calendar year.                                                                  
• Emergency room: It pays a specified benefit amount per day for services in a hospital emergency room for a covered loss due to an accident or injury.
• Transportation and lodging: It pays a specified benefit amount per day for a limited number of days per calendar year to cover expenses incurred for travel or lodging while receiving treatment in a hospital or medical facility located several miles from your residence.
• Inpatient mental health: It pays a specified benefit amount per day of confinement in a hospital due to a covered mental or nervous disorder for a limited number of days per calendar year.

Depending on the carrier and which state you live in, you may also have access to riders that you can add to your policy to cover even more gaps. They usually cover services, such as:

• Ambulance services
• Outpatient therapy and chiropractic services
• Skilled nursing facilities
• Outpatient surgery
• Urgent care
• Lump sums for hospital confinement or cancer treatment 

The benefits of pairing Hospital Indemnity and Medicare Supplement

Hospital Indemnity insurance can offer protection in a variety of ways for Medicare Supplement policyholders:

• Hospital Indemnity covers the deductible if you’re in a high-deductible plan.
• A lump-sum cancer benefit rider can help cover indirect costs, such as experimental treatments, medicine, or job loss, even if you’ve had a cancer diagnosis within the past 10 years.
• A skilled nursing facility benefit rider can help cover direct or indirect costs due to your hospital stay.
• An outpatient therapy/chiropractic services benefit rider can help cover indirect outpatient therapy costs after a hospitalization.
• A transportation and lodging benefit can help pay for incurred costs for you and one legal adult accompanying you while you’re receiving care in a hospital or as an outpatient.