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Making Sense of Medicare Thumbnail

Making Sense of Medicare

Making Sense of Medicare

Medicare is the federal health insurance program in the United States. It has four parts—A, B, C, and D—that qualified individuals can choose to enroll in based on their needs. The program primarily serves individuals aged sixty-five and older, but it also provides coverage for younger people with certain disabilities and kidney failure. Individuals tend to need more health care as they age, which can become costly when they are not adequately insured. As you approach retirement, it is essential to gain an understanding of how Medicare may affect your health care expenses and what each part of a Medicare plan covers so you can identify the most cost-effective insurance strategy for you and set realistic saving and spending goals before and during retirement. 

Medicare Part A: Hospital Insurance

Medicare Part A covers inpatient hospital stays, short-term skilled nursing facility care, home health care, and hospice care. Many individuals who qualify for Part A are automatically enrolled and not required to pay a premium because they or their spouse paid Social Security taxes for at least forty calendar quarters (i.e., ten years). However, if you are not eligible for premium-free Part A but still qualify for the plan based on your age or disability, you can manually enroll to purchase the coverage. Whether you pay a monthly premium for this portion of Medicare coverage or not, you will still need to budget for deductibles, copayments, and coinsurance for specific services. Understanding these out-of-pocket costs is crucial for financial planning, especially when comparing different plans and facing the possibility of a lengthy hospital stay or the need for extended care. 

Medicare Part B: Medical Insurance

Medicare Part B covers outpatient care, including preventative services and doctor visits, as well as home health care and durable medical equipment such as wheelchairs or walkers. People who enroll in Part B must pay an income-adjusted monthly premium, with those having an individual income greater than $500,000 or married couples with a joint income greater than $750,000 paying the highest premium of $594 monthly as of 2024.

Medicare Part C: Medicare Advantage

Medicare Part C, also known as Medicare Advantage, is an alternative to traditional Medicare coverage and allows private insurance companies to provide your health insurance coverage instead. These plans often consolidate aspects of parts A and B by including both inpatient and outpatient coverage and may include additional coverage such as dental or vision insurance. In some cases, prescription drug coverage (e.g., Part D) is also included. This combination of coverage can be attractive for those who crave simplicity and convenience, but working with a private insurance company typically requires seeking care within that company’s network for your coverage to kick in. Network restrictions often enable coordinated and cost-effective care, but they can also limit your ability to shop around and receive care in your preferred facility or with your preferred medical team. Beneficiaries should carefully compare the costs and coverage options of Medicare Advantage plans with those of traditional Medicare coverage and choose the plan that best meets their expected medical and financial needs. 

Medicare Part D: Prescription Drug Insurance

Medicare Part D provides prescription drug coverage through approved private insurance plans. One key financial aspect of Medicare Part D is the coverage gap, colloquially referred to as “the donut hole,” which is a temporary limit on costs the plan will cover after a certain amount of coverage has been used. The donut hole and resulting coverage gap have gradually been phased out since the Affordable Health Care Act was passed in 2010, with 2024 being the final year of that process. As of 2024, once a beneficiary and their Part D plan have spent $5,030 on prescription drugs in a given year, the coverage gap will require the beneficiary to pay up to 25 percent of drug costs out of pocket until catastrophic coverage kicks in once your costs have exceeded $8,000. In 2025, a $2,000 out-of-pocket cap is set to take effect for Medicare Part D.


Medicare and most other health insurance plans do not provide coverage for long-term nursing home care or  income substitution if you become disabled due to a medical emergency that prevents you from working. Therefore, it is always a good idea to look into long-term care insurance and disability insurance when planning for health care costs over the course of your life. Understanding the financial and coverage nuances of each component of Medicare and the other types of insurance needed to supplement health insurance empowers individuals to make informed decisions that align with their ever-evolving health care needs and financial situation. Regular policy reassessment allows individuals to modify their coverage as needed, ensuring they are properly insured at every stage of life and protected against financial catastrophes.

Insurance planning is an essential aspect of comprehensive financial planning. Obtaining suitable insurance policies in the appropriate amounts can protect your overall financial well-being and legacy by financially shielding you from circumstances outside your control, such as large, unexpected medical bills. The financial advisors at Business & Financial Strategies can help you create a comprehensive and fully integrated financial plan that encompasses strategic insurance planning, tax planning, investment management, retirement planning, estate planning, and much more. They would love to meet you for a free initial consultation to ascertain how they can best help you achieve your financial goals. Business & Financial Strategies has offices in the Iowa City/Coralville area, Fairfeild, and Kalona, Iowa and serves clients throughout the United States. To learn more, call 319-358-7700, or go to www.BFSFinancialPlanning.com to schedule a complimentary twenty-to thirty-minute initial in person or virtual conversation. 

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