A big part of planning for retirement is in getting a handle on medical expenses. And a major part of that is knowing what Medicare can or cannot do for you -- physically and financially.
You'll be automatically enrolled in Medicare if you're already collecting Social Security or receiving benefits from the Railroad Retirement Board when you turn 65 -- or if you've been collecting disability for more than two years. If you're working and not collecting government pension benefits, you need to sign up three months before your 65th birthday.
First of all, understand clearly Medicare is not "free" health care. You'll have to pay deductibles and co-payments out-of-pocket, and certain services aren't covered at all.
What you'll ultimately pay will depend on the type of Medicare plan you choose; whether you'll have additional health insurance coverage from a former employer; whether you purchase so-called "supplemental coverage"; and how often you make use of the medical services offered by your doctor or hospital.
You have several options, and they're not cut-and-dried. Here's what you need to know to make intelligent decisions about your insurance coverage.
Covering here everything that Medicare covers and doesn't cover would take volumes. But following is a brief overview to provide a basic understanding. For more details, visit the Medicare Web site and download the "Medicare & You 2008" handbook.
The original plan: Parts A & B
The original plan helps pay for many medical services and supplies provided in hospitals, doctors' offices and other health care settings. Part A focuses on hospital insurance while Part B is the program's medical insurance component. All U.S. citizens and legal residents of the United States who have paid Medicare payroll taxes for 10 years or more are eligible for Part A and Part B coverage upon reaching age 65.
Part A helps with the cost of inpatient care in hospitals (including inpatient rehabilitation facilities), inpatient stays in a skilled nursing facility (but not custodial or long-term care), inpatient mental health care in a psychiatric hospital (limited to 190 days in a lifetime), as well as hospice care services and home health care services. Some of the costs associated with these services and procedures will be covered completely by Medicare Part A. Others will require out-of-pocket co-payments or the satisfaction of annual deductibles.
Part B helps pay for so-called "medically necessary" services such as doctors' services, outpatient care and for some preventive care services. For a list of covered expenses, see pages 18 through 25 of the Medicare handbook.
As with Part A, Part B has its own separate annual deductible -- $135 for 2008 -- as well as its own co-payment and co-insurance costs. Generally speaking, Medicare will pay about 80 percent of the expenses for Part B-covered services and supplies.
"Medicare is comprehensive, it's guaranteed. But it doesn't cover all of your costs," says Paul Precht, director for policy and communications at the Medicare Rights Center.
"You need to be aware of the fact that you will spend money out-of-pocket either for the cost-sharing under Medicare or for the cost of supplemental insurance if you don't have that through an employer or if your income isn't low enough to qualify for additional assistance through Medicaid. And it's important to remember that Medicare doesn't have any annual out-of-pocket limits."
You usually don't pay a monthly premium for Part A coverage if you (or your spouse) paid Medicare taxes while working at least 40 calendar quarters. But if you aren't eligible, you may be able to buy Part A coverage if you meet other conditions.
Those enrolled in Part B have to pay a monthly Part B premium and an annual Part B deductible. Most plan participants will pay the standard monthly premium amount, which is $96.40 in 2008. The monthly premium will be higher for people who earn above certain income thresholds ($82,000 for singles; $164,000 for married people filing jointly). Financial hardship cases can get this premium covered with governmental help. This premium is deducted from your monthly Social Security payment.