As a CPA, you’ve had a long and stressful career, and it has likely affected your physical and mental health. In retirement, you’ll finally get a breather from those long hours sitting behind a computer screen, helping your clients reduce their tax burden. In retirement, it’s time to take care of yourself, and one of the greatest tools to help you do so is Medicare. However, it’s not as cut and dried as turning 65 and suddenly gaining access to free medical treatment. In fact, there are four primary Medicare components you should be aware of to help ensure your retirement plan goes as smoothly as possible.
The History of Medicare
Medicare was established in 1965 under President Lyndon B. Johnson as part of the Social Security Act amendments, aiming to provide health insurance to Americans aged 65 and older, regardless of income or medical history. Initially, Medicare consisted of Part A (hospital insurance) and Part B (medical insurance), known today as “Original Medicare”. Over the years, it has evolved to include Medicare Advantage (Part C) in 1997, allowing beneficiaries to receive Medicare benefits through private health plans, and Medicare Part D in 2006, offering prescription drug coverage, a much-needed respite from rising prescription drug costs.
Since then, Medicare enrollment has ballooned to 67.1 million Americans as the Baby Boomer generation heads into retirement, and is expected to swell to over 80 million individuals by 2030. According to a MedPAC 2015 congressional report, the number of taxpaying workers per Medicare beneficiary has declined from 4.6 during the early years of the program to 3.1 in 2015, and by 2030, it is projected to be a mere 2.3 workers, potentially placing economic strain on Medicare enrollees. Even today, Medicare is already facing the pinch, with budget cuts affecting retirees’ ability to access quality medical care, and some feel it could eventually affect millions if budget cuts aren’t reversed.
The point is that you should optimize your Medicare plan and have alternative solutions if access to treatment is reduced. Before we can do that, though, we must understand each section of Medicare.
Medicare Part A: Hospital Insurance
Medicare Part A covers inpatient hospital stays, short-term care in a skilled nursing facility, hospice care, and some home health care. One important distinction: Part A does not cover long-term custodial care, otherwise known as nursing homes. Most people don’t pay a premium for Part A because they or their spouse paid Medicare taxes while working. However, it’s important to note that there are deductibles and co-payments that beneficiaries may be responsible for – in 2024, beneficiaries have a $1,632 inpatient hospital deductible per benefit period.
Medicare Part B: Medical Insurance
Medicare Part B covers certain doctors’ services, outpatient care, medical supplies, and other various types of services, such as ambulance transportation, mental health treatment, and preventive care. Unlike Part A, Part B requires a monthly premium; as of 2024, the standard premium is $174.70, with increases according to income alongside a non-income adjusted $240 deductible.
By non-income adjusted, we mean Income-Related Monthly Adjustment Amount (IRMAA). Basically, the more you earn after a certain threshold, the higher your premium will be. The amount you pay is based on your modified adjusted gross income (MAGI) from two years prior.
IRMAA Breakdown for Medicare Part B in 2024
| Beneficiaries who file individual tax returns with modified adjusted gross income: | Beneficiaries who file joint tax returns with modified adjusted gross income: | Income-Related Monthly Adjustment Amount | Total Monthly Premium Amount |
|---|---|---|---|
| Less than or equal to $103,000 | Less than or equal to $206,000 | $0.00 | $174.70 |
| Greater than $103,000 and less than or equal to $129,000 | Greater than $206,000 and less than or equal to $258,000 | $69.90 | $244.60 |
| Greater than $129,000 and less than or equal to $161,000 | Greater than $258,000 and less than or equal to $322,000 | $174.70 | $349.40 |
| Greater than $161,000 and less than or equal to $193,000 | Greater than $322,000 and less than or equal to $386,000 | $279.50 | $454.20 |
| Greater than $193,000 and less than $500,000 | Greater than $386,000 and less than $750,000 | $384.30 | $559.00 |
| Greater than or equal to $500,000 | Greater than or equal to $750,000 | $419.30 | $594.00 |
To avoid those increases, you should look ahead when managing your tax brackets to reduce unnecessary expenses.
Medicare Part C: Medicare Advantage
Medicare Part C, or Medicare Advantage, is an alternative to Original Medicare (Parts A and B) provided by private insurance companies approved by Medicare and combines Parts A, B, and D together into one comprehensive plan. Increasingly popular, Part C Plans often include prescription drug coverage, vision, hearing, and dental care on top of standard Medicare benefits. However, Part C plans typically have network restrictions, meaning beneficiaries must use a specific network of doctors and hospitals. These limitations may not be ideal for those who travel frequently, snowbirds, and those with chronic conditions who would benefit from the greater network provided by Original Medicare.
However, if none of those apply to you, and your geographic location has an excellent network that would adequately provide you with your medical needs, Medicare Advantage might be the superior choice. But what about costs? Medicare Advantage is not like a typical insurance policy; you have to be enrolled in Medicare Part B and pay its associated premiums. Then, you may have to pay an additional premium for Part C, though it likely won’t be much – in fact, many don’t have a premium at all, and in 2024, the average premium is expected to be only around $18.50 a month (final numbers will only be known next year.
So, what’s the catch with these seemingly low-cost plans? Insurance companies often make up for low premiums by implementing higher deductibles and copayments and limiting the network of healthcare providers you can use. This strategy can work well if you’re generally healthy and don’t require frequent medical care. However, these higher out-of-pocket costs could add up quickly if you have ongoing health issues or anticipate needing significant medical attention.
The ideal candidate for a Medicare Advantage plan is someone in good health, doesn’t require frequent doctor visits, and lives in an area with a robust network of healthcare providers. If you value the convenience of bundling all your coverage into one plan and are comfortable with a more managed care approach, Medicare Advantage could be an excellent choice. If you have doubts, reach out to a professional.
Medicare Part D: Prescription Drug Coverage
Americans spent over $700 BILLION on prescription drugs in 2023, and as technology advances and more drugs become available, we could expect that number only to increase. But with the rise of prescription drugs, we don’t want to pay more for them. Medicare Part D adds much-needed relief from skyrocketing prescription drug costs.
These plans are offered by private insurance companies approved by Medicare, not by the government itself. This means you have choices, each with its own list of covered drugs and cost structure. You’ll typically encounter monthly premiums, annual deductibles, copayments, or coinsurance for your prescriptions.
Choosing the right plan requires some homework. Review your current medications, consider future needs, and compare how different plans cover these drugs. Remember, your needs and available plans may change, so it’s wise to review your coverage annually during the Open Enrollment Period.
In Conclusion
As a CPA, your analytical skills and financial acumen have served you well throughout your career. Now, as you approach retirement, it’s time to apply that same sharp insight to your healthcare planning. Medicare offers a complex array of options, each with its own set of pros and cons. For many, the choice between Original Medicare and Medicare Advantage will hinge on factors like health status, travel habits, and tolerance for network restrictions.
Your best Medicare strategy will highly depend on your unique health needs, financial situation, and retirement goals. And just as you advised clients to review their tax strategies regularly, make it a habit to reassess your Medicare coverage annually.
If you need personalized advice on Medicare planning, consulting with a financial specialist can ensure that your chosen strategy aligns with long-term retirement goals. Contact CPA Retirement Solutions today to schedule an appointment and learn more about our tailored Medicare planning services.
