Medicare and Social Security are often confusing, but they don’t have to be. By having a strong foundation of the basics, you can set yourself and your clients up for success.
In a recent webinar hosted by Sentinel Group, Ara Diloyan and Nicole Miner broke down the basics of Medicare and Social Security. This article summarizes their insights for those who are either new to the world of Medicare and Social Security or just due for a refresher.
Everyone who is contributing to Social Security qualifies for the benefit as long as they have been contributing for a minimum of 10 years and accumulated 40 credits in their account (one year equals four credits).
The amount of Social Security you receive per month is based on your primary insurance amount as well as what time you begin collecting. Collecting before your full retirement age will drastically reduce the amount of benefit you receive, and alternatively, delaying retirement (up to the age of 70) will increase your benefit.
Benefits for Qualified Family Members
For anyone age 62 or older, if you have a spouse collecting Social Security and their benefit is at least 50% more than yours, you are eligible to collect either half of your spouse’s benefit or your own – whichever is larger. The spouse earning a larger amount of benefits must be collecting them for the spousal benefits to apply.
If you are divorced but had been married for at least 10 years, did not remarry and have been divorced for at least two years, you can begin collecting based off your ex spouse’s primary benefit amount.
Taxation of Social Security Benefits
The Social Security you receive is taxable based on your provisional income. The IRS takes your adjusted gross income, adds back any nontaxable interest and adds back half of your Social Security benefits to determine your combined total income.
If your income is between $25k and $34k, you may be taxed on up to 50% of your benefits. If you make more than $34k, up to 85% of your benefits may be taxable.
Medicare is health insurance offered by the federal government with the purpose of providing health insurance coverage to eligible people over age 65, as well as those of any age with a disability or certain illnesses. The main groups eligible are those who are over age 65 and also eligible for Social Security.
Enrolling in Medicare
There are three periods when people can newly enroll in Medicare.
The first is the Initial Enrollment Period (IEP) when one first becomes eligible for Medicare. The period is marked as the three months before, of and after your 65th birthday. If you are disabled, you are eligible in the 25th month of total disability.
The second is the Special Enrollment Period (SEP), which is most common for people who work past the age of 65 and continue to stay on their employer’s group coverage. This is a fairly common enrollment period, as many people are now working past the age of 65. There is no late enrollment penalty, however, special paperwork is required.
The third is the General Enrollment Period (GEP) for those who have either missed their IEP or do not qualify for an SEP. The GEP runs each year from January 1 to March 31 for a July 1 coverage effective date. A lifelong late enrollment penalty may apply.
Am I required to enroll in Medicare?
To avoid late enrollment penalties, those aged 65 and older must enroll in Medicare upon retirement if they work for an employer that has less than 20 employers and if the carrier requires it.
One is not required to enroll in Medicare if they remain active for their employer’s health insurance and if their employer has more than 20 employees. However, many people choose to sign up for Part A regardless because there is no premium.
The Parts of Medicare
There are four parts to Medicare. For full coverage, you must enroll in all four parts.
Part A is part of original Medicare offered by the federal government. This covers inpatient hospital or skilled nursing coverage, either at a facility or home. There is an upfront deductible, however, if you are enrolled in Part C, the deductible is usually covered.
Keep in mind that Medicare Part A and C together do not cover beneficiaries for 365 days of the year when they have inpatient care. They are only covered for 90 consecutive days in a general hospital and 100 days for skilled nursing care per benefit period. Medicare does not cover long-term care insurance.
Part B is also offered by the federal government, however unlike Part A, there is a monthly premium. Part B offers outpatient medical coverage.
There is an annual deductible that may be covered depending on the chosen Part C plan.
Part C is offered by a private carrier. Its purpose is to help with the costs not covered by Parts A and B. There is a monthly premium.
Part C plans come in two forms:
- Medicare Supplement: This helps to fill in coverage gaps. There is a higher monthly premium, but when you use the plan, your out-of-pocket costs are lower.
- Medicare Advantage: This is a separate plan that replaces Parts A and B together with a full plan from the carrier. There is a lower premium than the supplement plan, however out-of-pocket costs are consequently higher.
Part D is offered by a private carrier and helps with drug coverage. Advantage plans normally come with drug plans built in – those who need Part D are those with a supplement plan that does not have drug coverage. Picking the correct drug plan is crucial for keeping out-of-pocket costs down.
Drug plans range in cost from $5 to $130 per month.
You cannot contribute to an HSA while enrolled in Medicare. This rule does not apply to FSAs – just HSAs.
You also cannot delay your enrollment to continue making HSA contributions, as there is a six-month backdate of Part A. if you were contributing to an HSA any time in the six months before starting Medicare, you would be required to pay back the taxes on any HSA contributions you made in that time if you were to be audited by the IRS.
For more detailed insights, you can watch a recording of Sentinel’s webinar here or contact us with any questions.