Medicare Planning

Medicare is the federal health insurance program for individuals age 65 and older, as well as certain younger individuals with disabilities. Understanding the four parts of Medicare, enrollment periods, and coordination with other coverage is essential for retirement planning.

The Four Parts of Medicare

Part A: Hospital Insurance

Medicare Part A covers inpatient hospital care, skilled nursing facility care, hospice care, and some home health services.

2025 Part A Costs:

Key Terms:

• Benefit period - Begins when admitted to hospital/SNF; ends after 60 consecutive days without inpatient care
• Lifetime reserve days - 60 additional hospital days available over your lifetime (non-renewable)

Part B: Medical Insurance

Medicare Part B covers outpatient services including doctor visits, preventive care, durable medical equipment, and outpatient procedures.

2025 Part B Costs:

What Part B Covers:

• Physician services
• Outpatient hospital care
• Preventive services (many at no cost)
• Ambulance services
• Durable medical equipment
• Mental health services
• Lab tests and diagnostic imaging

Part C: Medicare Advantage

Medicare Advantage (Part C) plans are offered by private insurers approved by Medicare. They provide all Part A and Part B benefits, and most include Part D prescription drug coverage.

2025 Part C Characteristics:

Part C vs. Original Medicare:

Part D: Prescription Drug Coverage

Medicare Part D provides prescription drug coverage through private plans. It is optional but highly recommended.

2025 Part D Features:

Part D Coverage Phases (2025 - Post-Inflation Reduction Act):

1. Deductible Phase - Pay full cost up to $590
2. Initial Coverage Phase - Pay copays/coinsurance until reaching out-of-pocket maximum
3. Catastrophic Coverage - Pay $0 after reaching $2,000 out-of-pocket maximum

Important: The Inflation Reduction Act eliminated the "donut hole" coverage gap starting in 2025 and capped annual out-of-pocket costs at $2,000 (indexed annually; $2,100 for 2026).

IRMAA: Income-Related Monthly Adjustment Amount

High-income Medicare beneficiaries pay additional premiums called IRMAA for Part B and Part D coverage. IRMAA is based on modified adjusted gross income (MAGI) from two years prior.

2025 IRMAA Brackets (Based on 2023 Income)

IRMAA Planning Strategies:

• Roth conversions before Medicare enrollment to manage future MAGI
• Life-changing events (retirement, death of spouse, divorce) may qualify for IRMAA appeal
• Careful timing of capital gains and IRA distributions

Medigap (Medicare Supplement) Policies

Medigap policies are sold by private insurers to cover cost-sharing gaps in Original Medicare (Parts A and B). They are NOT available with Medicare Advantage.

Popular Medigap Plans

*Plan F is only available to those eligible for Medicare before January 1, 2020.

Plan G is the most comprehensive plan available to new enrollees (those eligible after 1/1/2020) and covers:

• Part A deductible ($1,676 in 2025)
• Part A hospital coinsurance
• Part B coinsurance (20%)
• Part B excess charges
• First 3 pints of blood
• Skilled nursing facility coinsurance
• Foreign travel emergency care (up to $50,000)

Plan G does NOT cover:

• Part B deductible ($257 in 2025)
• Prescription drugs (need separate Part D plan)

High-Deductible Medigap

High-deductible versions of Plan F (legacy) and Plan G have lower premiums but require paying a $2,870 deductible (2025) before coverage begins.

Enrollment Periods and Penalties

Initial Enrollment Period (IEP)

A 7-month window surrounding your 65th birthday:

• 3 months before your birthday month
• Your birthday month
• 3 months after your birthday month

Coverage Start Dates:

Late Enrollment Penalties

Missing your initial enrollment period results in lifetime penalties:

Part B Late Enrollment Penalty:

• 10% increase in premium for each 12-month period you could have had Part B but did not
• Penalty is permanent and applies for as long as you have Part B

Part D Late Enrollment Penalty:

• 1% of national base beneficiary premium ($36.78 in 2025) for each month without creditable coverage after initial eligibility
• Penalty is permanent

Example: If you delay Part D enrollment by 2 years (24 months):

• Penalty = 24 x 1% x $36.78 = $8.83/month added to your Part D premium for life

Special Enrollment Period (SEP)

If you have employer coverage (through your or spouse's current employment), you can delay Medicare enrollment without penalty. After coverage ends, you have an 8-month SEP to enroll in Part B and Part D.

General Enrollment Period

If you miss your IEP and do not qualify for an SEP:

• Enroll January 1 - March 31
• Coverage begins July 1
• Late enrollment penalties apply

Coordination with Employer Coverage

With employer coverage from a large employer (20+):

• May delay Part B enrollment without penalty
• Should enroll in premium-free Part A
• Use SEP to enroll in Part B when coverage ends

CFP Exam Considerations

For the CFP exam, focus on:

• Memorizing Part A deductible ($1,676) and Part B premium ($185)/deductible ($257) for 2025
• Understanding IRMAA brackets and the 2-year lookback period
• Knowing Medigap Plan G is most comprehensive for new enrollees
• Calculating late enrollment penalties
• Understanding coordination between Medicare and employer coverage