Q&A: Medicare is complicated. Here’s how it works

Dear Liz: My husband and I are in our 50s and have widowed moms in their 80s. We always understood that when you begin taking Medicare, you are required to choose a plan such as SCAN or Blue Shield and to follow that plan’s benefits and limits. However, my friend who works in a hospital told me that you can elect to have straight Medicare and have no plan limits. Can you explain this?

Answer: What you’re asking about is known as traditional or original Medicare, which consists of two parts. Part A is usually premium-free and covers hospitalization. Part B covers doctor visits and has a standard monthly premium of $148.50.

Traditional Medicare is administered by the federal government and is accepted by the vast majority of medical providers but doesn’t cover everything. For example, beneficiaries must pay deductibles, 20% of Part B services and a portion of hospital stays. For that reason, many people with traditional Medicare also buy supplemental or “Medigap” policies from private insurers to cover these costs. Most Medigap plans, like traditional Medicare itself, don’t have out-of-pocket limits.

By contract, Medicare Advantage plans, also known as Medicare Part C, do have out-of-pocket limits. Medicare Advantage plans are “all in one” coverage provided by a private insurer rather than the government. These plans provide everything covered by Parts A and B of traditional Medicare, and may cover other costs such as vision, hearing and dental that traditional Medicare doesn’t. The plans typically have networks of doctors and other medical providers. If you get care outside that network, you would pay more and sometimes all of the cost.

The final part of Medicare is Part D, prescription drug coverage. That’s purchased from private insurers and may be included in Medicare Advantage plans.

Obviously, Medicare can be complicated, but you can educate yourself at Medicare.gov and download or request the handbook “Medicare & You.”

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Q&A: Medicare and Social Security

Dear Liz: If my wife and I wait until we are 70 to collect Social Security but retired at our full retirement age of 66 and 2 months, would we still be able to get Medicare for those 3 years and 10 months before we reach 70?

Answer: You’re eligible for Medicare at age 65, which is typically when you should sign up. Delaying can incur penalties you’d have to pay for the rest of your life.

People receiving Social Security benefits at 65 are signed up automatically for Part A (hospital coverage) and Part B (which pays for doctor visits), with the Part B premiums deducted from their benefits. If you’re not already receiving Social Security, you’ll need to contact the Social Security office, which manages Medicare enrollment, to sign up and pay the Part B premiums.

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Q&A: Future home sale affects Medicare

Dear Liz: I am 65 and have a very low income but will be selling my home of 25 years soon to downsize. How will the one-time capital gains affect my Medicare payments, which are currently at the minimum? Can I share with the Social Security office that this is a one-time event and that the following years will all have a very low income stream? Will they adjust my payments up one year and back down the next?

Answer: You can exempt up to $250,000 per person of home sale profit from capital gains, so only profit above that amount would be added into your modified adjusted gross income to determine your Medicare premiums. There’s a two-year lag, so if you sell your home this year and report it on the tax return that’s due next year, your premiums will increase the following year (in your case, in 2023).

As noted in a previous column, you can appeal the increase if your income was affected by certain life-changing events including marriage, divorce, death of a spouse, work stoppage or reduction, loss of income-producing property (because of a disaster or other event beyond your control), loss of pension income or an employer settlement payment because of an employer bankruptcy or reorganization. If you don’t qualify to appeal, the increase would only be for one year and your premiums would return to normal afterward.

Another option is to structure the deal so you receive the payout over time, rather than all at once, but consult an accountant or financial planner before proceeding.

Q&A: Windfall creates Medicare headache

Dear Liz: A couple of years ago, I was forced to receive a windfall by the sale of a company in which I held stock. Besides taking a huge tax hit, I just got my Social Security estimate for 2021 in which my Medicare bill went up by 47%. This year my income will go back down to normal levels. Is there any way to convince Social Security that this was a one-time event and it shouldn’t adjust my Medicare premiums?

Answer: There’s typically a two-year lag between receiving a windfall and potentially having your Medicare premiums raised because of IRMAA (Medicare’s income-related monthly adjustment amount). You can appeal the increase if your income dropped in the meantime because of one of the following life-changing events:

Marriage
Divorce or annulment
Death of a spouse
Work stoppage
Work reduction
Loss of income-producing property (because of a disaster or other event beyond your control, not due to a sale or transfer of the property)
Loss of pension income
Employer settlement payment (due to employer’s bankruptcy or reorganization)
If any of those circumstances apply, you can call Social Security at (800) 772-1213 to arrange an interview. Alternatively, you can download form SSA-44 from the web and mail it in. You will need to provide proof of the event, such as a death certificate, divorce decree or documents from an employer.