3 Medicare Misconceptions That Could Mess With Your Retirement Finances

Once you turn 65, you may have a whole new option for getting health coverage. Medicare typically becomes available at 65, and it could play an important role in your retirement finances.

But not knowing how Medicare works could upend your budget and cause you a world of stress. With that in mind, here are three big Medicare misconceptions it’s important to get to the bottom of.

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1. Medicare is free

One of the biggest Medicare misunderstandings boils down the program’s premiums, which are not free by any means. While most enrollees are able to get free hospital coverage through Part A, Part B, which covers diagnostics and outpatient services, charges a monthly premium.

Enrollees in both Medicare and Social Security have their Part B premiums deducted from their monthly benefits. But that doesn’t make them free — it just means they’re paid automatically, resulting in smaller Social Security checks.

Additionally, Parts A and B of Medicare do not include prescription drug coverage. To get that, you’ll need a Part D drug plan or an all-in-one Medicare Advantage plan. Some of those plans don’t charge a monthly premium, but many do.

And don’t forget that premiums aside, there are other costs associated with Medicare, like deductibles and coinsurance. You might also have big copays for your prescriptions, depending on your medication list and your plan of choice.

In other words, don’t assume you won’t be shelling out money for Medicare once you’re enrolled. Instead, factor those costs into your monthly budget, and consider buying a Medigap plan early on if you’re not enrolling in Medicare Advantage.

Medigap is supplemental insurance. It can pick up the cost of deductibles, coinsurance, and other out-of-pocket costs you might normally face.

Of course, there are premiums to be paid for Medigap, too. So while Medigap might ultimately save you money, it’s something crucial to budget for as well.

2. It doesn’t matter when you enroll

If you’re still working when you turn 65, you may not need Medicare just yet. And if you’re covered by a qualifying group health plan, which usually means a plan with 20 or more enrollees, then you’ll generally get a special enrollment period for Medicare that begins once your group coverage ends.

But if you’re not working at 65, or you’re working but you don’t have creditable coverage and aren’t entitled to a special enrollment period, you could face serious penalties for failing to sign up for Medicare on time.

Your initial Medicare enrollment window begins three months before the month of your 65th birthday and ends three months after that month. If you don’t enroll during that seven-month period, you risk surcharges for a late enrollment — namely, a 10% increase per year-long period you could’ve had Medicare coverage but delayed.

That added cost could wreak havoc on your budget over time, so make sure you understand when you’re supposed to sign up for Medicare. Keep in mind that if you recently separated from your employer and are paying for COBRA to retain your old health plan for a period of time, that typically does not count as creditable coverage for Medicare.

3. Medicare will pay for everything you need

If you’re counting on Medicare to pick up the tab for every single health service you might need, you may be in for a big blow. There are a number of key services Medicare won’t pay for, like dental cleanings, eye exams, and hearing aids.

If you want coverage for these services, you may have better luck enrolling in a Medicare Advantage plan. Medicare Advantage plans commonly offer supplemental benefits beyond what original Medicare pays for, and dental care, eye exams, and hearing aids are commonly included.

However, Medicare and Medicare Advantage typically won’t pay for long-term care, such as if you need a home health aide or nursing home stay because you require assistance with everyday living tasks. To pay for that, it’s best to buy long-term care insurance or “self-insure” by having enough savings to cover the cost of that care yourself.

The more you know about Medicare ahead of retirement, the fewer financial surprises you might encounter. Be sure to read up on what Medicare costs, when to enroll, and what it will and won’t cover so you know to budget accordingly.

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