At age 65, everyone can start receiving Medicare. But there are decisions to make and options to weigh.

That’s where many clients can become confused and seek guidance. The problem is, many advisors may be perplexed, too.

“This is a standard conversation for most of my clients in and approaching retirement,” said Kimberly Foss at Mercer Advisors in Roseville, Calif. “One of the biggest hurdles is just getting past all the alphabet soup [of] Part A, Part B, etc.”

Here are some of the basics that everyone should know.

Medicare enrollment is automatic when you start taking Social Security. If Social Security benefits are delayed past age 65, you can sign up later. But there are several advantages to enrolling within the seven-month window around your 65th birthday.

Basic Medicare comes in two parts. Part A, which is premium free for anyone who has paid FICA taxes for at least 10 years, includes inpatient hospital visits, some care in a skilled nursing facility (though not long-term care), hospice care, and some other related needs. Part A has an average annual deductible of $1,600. After 61 days in the hospital, clients also have a daily copay of about $400, which doubles after 91 days in the hospital.

Part B, which is for doctor visits and medical supplies, charges a monthly premium; the amount is adjusted annually and automatically deducted from Social Security benefits.The longer you put off enrolling in Part B, the higher the premium.

For 2024, the monthly premium for Part B is $174.70 for most people, but those with higher income also pay an extra charge known as the Income Related Monthly Adjustment Amount (IRMAA). For 2024, only those with modified adjusted gross income of $103,000 or more in 2022—IRMAA is always based on tax returns from two years prior—and couples with at least $206,000 in 2022 have to pay the surcharge. The amount of the surcharge varies with income levels.

Part B also has an annual deductible of $226, after which co-payments are 20%

Because neither part pays 100% of costs, there are several much-advertised options to choose from.

First are Medicare supplements, also called Medigap plans, which pay for expenses that original Medicare doesn’t. Medigap plans have been around since the early 1990s. They are sold by private insurance companies and come in several different types, designated by letter names. Each one pays a portion of deductibles, co-pays and other costs that are unmet by original Medicare. For instance, a Medigap Plan L may pay 50% of the coinsurance fee for a doctor visit, whereas a Plan K will pay 100% of that fee.

Available Medigap plans vary by area.

The costs of Medigap policies vary by insurer, the age of the insured person, and location--just like almost any other health insurance, except premium rates aren’t determined by the client’s health. Each lettered plan has the same benefits, regardless of the insurance carrier, but the premium amounts will vary. They are lowest during the open-enrollment period when a client first becomes eligible. In general, monthly premiums may run from $64 for high deductible plans to roughly $364, but those are just ballpark estimates.

Plans with the most coverage have the highest premiums. Only Plans K and L have an annual out-of-pocket limit, which for 2024 are $7,060 and $3,530, respectively.

You don’t have to buy a Medigap policy, but if you decide to enroll in one later you might be rejected because of a pre-existing condition (except where that’s prohibited by law, such as in Connecticut, Maine, Massachusetts, and New York). You cannot be rejected if you sign up within six months of the first day of the month in which you turn 65 and are enrolled in original Medicare Part B.

New Medigap policies don’t cover prescription drugs, though. For that, you must purchase a separate policy from a private insurance carrier that’s contracted with Medicare, called Medicare Part D. You don’t need a Medigap policy to buy a Part D plan, but if you don’t purchase a Part D plan when you enroll in original Medicare, you might have to pay a penalty for choosing to add one later.

The average monthly premium for Part D plans in 2024 is $55.50, as measured by government estimates. But if not purchased right when you become eligible for Medicare, there is a penalty charge billed every month thereafter.

In addition to premiums, Part D policies have what’s called a “doughnut hole,” which works like a deductible. Coverage only kicks in after you and the insurer combined have spent a certain amount on prescriptions. For 2024, that amount is $5,030, after which the plan covers a portion of drug costs. For most Part D plans, there is an out-of-pocket maximum. When reached, prescriptions are free. For 2024, that maximum is $8,000.

Medicare Advantage
The second possibility is Medicare Advantage, also called Part C. These plans, provided by private health insurance companies, were launched in the early 2000s, ostensibly to give beneficiaries a non-fee-for-service option modeled on the efficiencies and cost savings of managed care systems.

Medicare Advantage plans are “a bundled, all-in-one alternative to original Medicare,” said Scott Ward, a certified financial planner and director of relationship management at Johnson Sterling in Birmingham, Ala.

These plans have low to zero premiums (the national average is about $18.50 a month, according to federal estimates), and many of them come with extra benefits, such as coverage for prescriptions, dental, hearing, vision, and other sorts of care. But availability and terms can change every year.

The actual amount you pay also depends on how often you receive services, and what kind of services. Copays can be high. Part C HMO plans tend to have lower costs than Part C PPO plans, but less extensive networks of providers. Because they are based on the manage-care model, all Medicare Advantage plans have a limited network of providers and often require prior authorizations for specialist care, unlike original Medicare.

“Some Medicare Advantage options charge consumers more for visits to physicians or facilities that are not covered in their provider networks,” said Ward. Clients, he added, should consider which plan option “will provide them with the most efficient access to the physicians they trust.”

Being able to access trusted physicians can be a decisive issue for clients, said Mercer’s Foss. “One of the biggest client concerns [is] about using the physicians they’re comfortable dealing with,” she said. “Because the vast majority of physicians accept original Medicare, going that route is simplest for many, since they don’t typically have to think about finding a new doctor or worry about whether a physician is in- or out-of-network, especially if they have pre-existing conditions and have already been seeing a particular physician or specialist.”

On the other hand, she said, clients who place a high importance on the extras, such as dental and vision coverage, tend to judge Medicare Advantage a better value.

Steve Parrish, professor of practice and scholar in residence at the American College of Financial Services, expressed a similar view. Original Medicare with a Medigap plan is better for those who want more freedom of choice and flexibility in managing their health care, he said, whereas Medicare Advantage tends to be best for clients with limited budgets, since the premiums are low, and who are generally healthy and don’t do a lot of traveling.

“The stories are legendary about the disappointments some people have experienced with Medicare Advantage,” he added.

Though the upfront costs are low, he said, “the co-pays and deductibles can be crippling, and the coverage issues [such as the need to stay in-network and get referrals to specialists] can actually be life threatening.”

In addition, he said, it can be difficult to switch back to original Medicare once you’re enrolled in Medicare Advantage. The reverse, however, is not true. As long as the switch is made during an open enrollment period, which is generally the first quarter of the calendar year.

Getting Past The Alphabet Soup
Advisors say the Medicare system can be confusing to clients.

“There is a ton of complexity for a consumer to try to understand,” said Seth Teich, CEO of Healthpilot, a zero-commission consultant firm in Nashville, Tenn., that uses artificial intelligence to help clients winnow down their options. “Even the brokers have limited bandwidth to correctly navigate the complexity and broad number of choices.”

Adding to the problem, he said, is that people’s situations change, as do some plan details.

Medicare choices should be reevaluated periodically, he said. But beware sales agents who might have ulterior motives, he cautioned. “[Client] choices may be influenced by someone’s commissions, limited supply, or misaligned incentives that don’t put the client’s needs at the forefront of the decision,” said Teich.

The inundation of ads doesn’t help, said Griffin Geisler, a wealth strategist at RBC Wealth Management in Minneapolis. To him, Medicare Advantage ads are “generally predatory,” trying to lure in customers without fully disclosing long-term implications. Clients, he said, “should really be focusing on whether Medicare Advantage even makes sense as a pathway to Medicare coverage versus the standard original Medicare with a supplement plan.”

Parrish at The American College concurred. “Consumers have excellent choices to make for health-care coverage at retirement, and unfortunately the TV ads are doing everything possible to keep consumers from hearing about these options,” he said.

To be sure, clients nearing retirement age are “bombarded with information that can be difficult to parse through,” said Brett Panziera, associate director of financial planning at EP Wealth Advisors in Los Angeles. “Cutting through the noise and understanding the most important factors in selecting the right plan or combination of plans for an individual is what we strive to do.”

What works for one person, he stressed, might not be the best option for another.