Medicare and Social Security are the social safety net programs we all pay into during the years we work. Designed to assist seniors and disabled individuals, together the programs fill the basic healthcare and financial needs of their beneficiaries.
Medicare offers health insurance that covers medically necessary doctor visits, medical treatments, and hospitalization. Social Security offers financial support that many retirees count on for all or part of their retirement income. Although the two safety net programs are separate, they are tightly linked in several ways. In this MedicareWire article, we’ll explain:
- Who is eligible for Medicare and Social Security;
- When to enroll in Medicare and Social Security; and
- 17 ways you can maximize both programs in retirement.
Medicare and Social Security Eligibility
For decades, Americans received their Medicare and Social Security benefits at the same time. This is no longer true, as the full retirement age has changed from 65 to 67.
The two programs are managed by completely different departments within the federal government. Medicare is run by the Centers for Medicare and Medicaid Services, a component of the Department of Health and Human Services, whereas Social Security is run by the Social Security Administration (SSA).
Although the programs are separate, it is the Social Security Administration that determines who is eligible for both programs. Additionally, the Social Security Administration manages key administrative functions for Medicare, including the collection of healthcare premiums and Extra Help for people who can’t afford their medications.
For most of us, eligibility for Medicare comes on our 65th birthday. This has not changed since 1965 when the Medicare program was signed into law. Medicare benefits are also available to Americans with certain disabilities, regardless of their age.
To be eligible for Social Security, you or your spouse must earn enough credits by working and paying taxes. Forty credits, one for each quarter of a year worked, is the minimum needed to qualify. The minimum income required in a quarter, for the quarter to qualify, changes each year. For 2019 the amount is $1,360.
The Social Security Administration looks at how much you earned in a calendar year and divides that figure by the minimum amount required to earn credit for a single quarter. So, if you earned $5,280 in January of 2019, but didn’t work the remainder of the year, you’ll still get credit for four quarters of work ($5,280/$1,320 = 4).
For Social Security purposes, retirement is whenever you decide to start receiving benefits after you reach age 62. This is the age at which you can begin receiving benefits, provided you have accumulated the minimum required quarters. However, at age 62 you will receive reduced benefits. You must wait until age 65 to 67 (depending on your year of birth) to receive full benefits. It is also possible to delay retirement, up to age 70, and receive additional benefits.
Unlike Social Security, Medicare does not offer sliding scale benefits. You either qualify for Medicare and enroll, or you don’t. However, unlike Social Security, it is possible to get Medicare benefits even if you didn’t work the requisite 40 quarters necessary to earn it at no cost.
When to Enroll in Medicare and Social Security
Workers that qualify can begin receiving their Social Security benefits between the ages of 62 and 70. However, the longer you wait the more you will receive. In most cases, the difference in monthly benefits is significant.
Social Security uses your primary insurance amount, or PIA, to calculate your benefits. This amount is calculated by taking your 35 highest-earning years, indexed for inflation, to establish your monthly average earnings. This is what determines your Social Security benefits at full retirement age. However, if you claim Social Security before full retirement age, your benefits are reduced by the following percentages:
- 6-2/3% per year for the first three years, or 5/9% per month, up to 36 months early
- 5% per year beyond three years, or 5/12% per month beyond 36 months early, as early as age 62.
For most people, it simply doesn’t pay to claim retirement benefits early. Even so, according to the Social Security Administration, age 62 is the most popular age people begin drawing their benefits. A full 54% of Americans begin taking Social Security before age 65.
Social Security benefits are not automatic. You must apply to receive your benefits. You can do this online, by calling SSA, or by visiting your local SSA office.
Due to the financial ramifications, you should consider your choices carefully. It’s important to consider the extent to which you expect to rely on Social Security in retirement. If are a good saver and invested your money well, you might consider taking your benefits early so you can enjoy life while still young. Conversely, if you didn’t save and invest, you’ll probably want to maximize your benefits by claiming them later. If you expect to live a long life, you should consider filing as late as possible.
In contrast, your Medicare benefits may start automatically when you reach age 65. For most of us, Social Security will notify Medicare that we are eligible and our benefits will automatically begin. If you are still working, and you have creditable health coverage through your employer and want to keep it, you will need to call Social Security or update your benefits through your online account. You might also want to check out the SSA’s Checklist For Online Medicare Application to see what information you’ll need to provide to complete your application.
Even though your Medicare coverage may start automatically, it’s best to take a proactive role. When you enroll will determine when your coverage kicks in. If you’re an early bird and sign up before the month you turn 65, your coverage will start on the first day of your birth month.
If you delay enrollment until your birth month, your coverage won’t start until the first day of the next month. If you wait even longer, for example, the month after your birth month, your coverage will take effect two months after enrollment. You can reference When Will My Coverage Start? at Medicare.gov for more information about coverage time frames.
To learn more about the exact enrollment procedure, refer to the Medicare Benefits section of the Social Security Administration website. You can also check out How to Apply Online for Medicare Only if you are delaying your Social Security.
Social Security Collects Your Medicare Premiums
Even though you paid into Medicare during the years you worked, it isn’t free in retirement. People enrolled in Medicare pay for their coverage. The exact amount you pay depends on your retirement income, whether or not you worked enough to qualify for premium-free coverage, and the additional health plans you choose.
The traditional Medicare program consists of two parts. Part A provides your hospital coverage, whereas Part B covers your medicare (i.e., doctor visits and other outpatient health services). Although these two parts of Medicare health insurance have remained virtually the same since their inception, two more parts were added to modernize Medicare. These new options, Part C (private health insurance) and Part D (prescription drug plans), give retirees more options for coverage on the things Medicare does not cover, including prescriptions, vision, dental, hearing, telemedicine, gym memberships, and much more.
If you worked the required 40 quarters to qualify for Social Security benefits, you will qualify for premium-free Medicare Part A. If not, Medicare publishes an updated schedule of Part A costs each year. If you have to buy Part A coverage, it will cost you up to $458 per month in 2020.
We all pay a monthly premium for our Medicare Part B. How much you pay depends on your income. Most people will pay $144.60 in 2020. However, this amount can be as high as $491.60 if you and your spouse earn $750,000 or more per year. Medicare published updated Part B schedules here.
For most of us, Medicare Part B premiums are taken from our Social Security benefits. If you are not yet receiving your Social Security benefits, Medicare will bill you for your Medicare Part B premiums quarterly. If you’d prefer to pay monthly, you contact the SSA using the number provided on the back of your invoice to sign up for monthly payments.
If you choose to enroll in Medicare Part C and/or Part D you may choose to have your monthly premiums deducted from your social security check or to have the plan bill you directly.
7 Ways to Get More From Medicare
Medicare can be a very unforgiving program. There are a number of pitfalls that can hurt you if you’re not careful. In many ways, not getting your Medicare right is far worse than not getting your Social Security right. With that in mind, there are 7 easy ways to get the most out of your Medicare benefits, including:
- Enrolling on time.
- Taking advantage of your “Welcome to Medicare” visit and annual screenings.
- Carefully assessing your prescription drug needs.
- Enrolling in the right plan for your needs.
- Shopping plans every year, even if you like the plan you have.
- Taking advantage of new Telehealth technologies.
- Choosing the right healthcare providers.
Get Enrolled in Medicare On-time
One of the biggest mistakes people make is not enrolling in Medicare on time. This often happens because they are still working and have coverage through an employer and don’t feel they need Medicare yet. However, not enrolling on time, or not checking with Medicare to make sure the coverage they have is credible, can be very costly.
There’s a Part A late enrollment penalty, but it only applies to people who don’t qualify for premium-free Part A coverage. If you have to buy Part A, and you don’t buy it when you’re first eligible, Medicare can raise your monthly premium by 10%. You’ll be required to pay the penalty for twice the number of years you could have had Part A, but didn’t enroll.
There’s also a Part B late enrollment penalty. This penalty applies to everyone eligible for Medicare who does not signup when they first qualify. For this late enrollment, Medicare can hike your premium up to 10% of the standard premium for each full 12-month period that you could have had Part B but didn’t sign up for it.
There’s a Part D late enrollment, too. Even though Medicare’s prescription drug plans are optional, you’ll pay a penalty if you don’t get enrolled on time. You may owe a late enrollment penalty if, for any continuous period of 63 days or more after your Initial Enrollment Period is over, you don’t have a Medicare Part D plan or have creditable coverage through an employer, the VA, or a Part C (Medicare Advantage) plan.
Take Advantage of Annual Screenings and Vaccinations
Over the past decade, Medicare has added a bunch of benefits that help keep beneficiaries well. Among these are annual screenings, starting with a “Welcome to Medicare” visit, and free vaccinations. The best news is that all of these wellness benefits are free.
Let’s face it, the healthier you stay, the less it will cost you in out of pocket costs. There’s absolutely no reason not to take full advantage of wellness visits.
Carefully Assess Your Prescription Drug Needs
For many Medicare beneficiaries, prescription medications are their number one healthcare costs. And the prescription drug plan you choose plays a dramatic role in determining your overall costs. Choose the wrong plan and your costs can skyrocket.
Medicare Part D is the most difficult part of Medicare for most people to wrap their heads around. The simple reason has to do with the four phases of Part D coverage:
- Initial Deductible: In this phase, you pay 100% of all costs until retail spending reaches the annual standard deductible set by your plan.
- Initial Coverage Limit (ICL): In this phase, you and your plan share the cost at the pharmacy until retail spending reaches the coverage limit for the year.
- Coverage Gap (Donut Hole): In this phase, you pay 25% of the retail costs of all generic and brand name medications.
- Catastrophic Coverage: In this phase, you pay up to $3.60 for all generic/preferred multi-source medications and up to $8.95 for all others.
To make it even more confusing, all of these costs adjust each year. As if all of the phases of coverage were not bad enough, each plan covers medications differently. As a result, if you don’t choose a plan that covers your most expensive medications in a low-cost tier, your costs will go way up.
When using your Medicare Part D plan, you’ll pay less if you use your plan’s list of preferred pharmacies. Before joining a plan, you’ll need to review its formulary. This is an approved drug list, divided into five cost-sharing tiers, that define what you’ll pay at the pharmacy. The lower the cost tier the better. Be sure to ask your doctor to help you find medications for your condition at the lowest tier possible.
Some people who take multiple medications, particularly expensive ones, find they can lower their costs by paying cash for some of their meds. The reason is that many big-box stores offer cost-saving coupons on both generics and name-brand medications. You can find discounts at GoodRx.
Enroll in the Right Plan for You
Medicare has a lot of moving parts, and no single solution works best for everyone. Most experts agree that traditional Medicare (Part A and Part B), offers the most coverage flexibility, while Medicare Part C works best for people who are healthy and expect to stay in good health.
Choosing the right plan is difficult because none of us really know when our situation (health or finances) might change. It’s an important decision that merits considerable thought. Beneficiaries can use the MedicareWire plan finder tool to compare Medicare Advantage plans.
An easy way to determine which route is best for you is to understand how traditional Medicare and private Medicare insurance, most commonly called Medicare Advantage, work. Most people with traditional Medicare also buy a Medigap plan for additional coverage, whereas a Medicare Advantage plan replaces your traditional Medicare coverage and provides additional coverage benefits. The most significant difference between the two is how you pay your share.
With traditional Medicare and a Medigap plan, the majority of your costs are paid upfront. You pay your Medicare premiums and your Medigap premium, and that covers most of your costs. If you get a premium Medigap policy, such as a Plan G or a Plan N, most of your costs are fully covered. In the case of a Plan G, all you’ll pay for your major medical costs is the annual Part B deductible. You’re even covered when you travel.
With a Medicare Advantage plan, most of your costs come after you use healthcare services. For example, your plan may charge you a $45 co-pay to see your primary care doctor, and $75 to see a specialist. However, as many people find out the hard way, one issue can bring with it co-pays and coinsurance from everyone you see, often adding up to hundreds of dollars. And that’s just for outpatient care. This is why Medicare Advantage works well for super healthy people, but not so well for people with one or more chronic illnesses. The saving grace is that all Medicare Advantage plans have an annual out of pocket limit ($6,700 is the maximum in 2020).
Your Medigap plan premium would need to be over $550 per month to have the same costs in traditional Medicare with supplemental coverage, and that simply isn’t the case for most people if they buy a supplement as soon as they are eligible. Beneficiaries can compare Medicare Supplement plans using the MedicareWire plan finder tool.
There one more important factor to consider. Medicare allows you to switch between traditional Medicare and Medicare Advantage. The annual election period (AEP) for Medicare Advantage starts on 15 October and ends on 7 December. However, if you have traditional Medicare and a Medicare supplement, then switch to Medicare Advantage, there’s no guarantee you can get another Medicare supplement plan. Supplements, unlike Medicare Advantage, can require you to go through medical underwriting to qualify. The only time this isn’t true is when you first qualify, then you have guaranteed issue rights and can’t be turned down.
Shop Plans Every Year, Even if You Like the Plan You Have
This tip primarily applies to people enrolled in Medicare Advantage (Part C) and Medicare prescription drug plans (Part D). Every year new plans come and old plans go. That’s the competitive nature of private health insurance, and that’s a good thing.
By forcing yourself to compare plans every year you will discover new savings and new benefits that you wouldn’t otherwise know are available. New plans are also new opportunities to find healthcare providers who can give better care and help you lower your costs even further.
Take Advantage of New Telehealth Technologies
Medicare has just recently approved telehealth visits (i.e., seeing your healthcare provider using your smartphone, tablet or computer). As of 2020, many Medicare Advantage plans offer reduced costs when you use telehealth to see your primary care provider or when you need urgent care.
Telehealth is fantastic when you need urgent care, but you don’t feel like sitting in your doctor’s office because you’re running a fever or have a cough. You simply connect, have your appointment, and your doctor can send your prescription to the pharmacy for drive-through pickup. It’s cheaper, easier, and faster.
Choose the Right Healthcare Providers
If you decide to keep original Medicare when you turn 65, you may discover that your current doctor doesn’t accept Medicare patients. It’s not mandatory that they do. When this happens, you’ll need to search for a new primary care doctor.
One of the most important things to know when looking for a new doctor is whether they accept the Medicare-approved amount as full payment. This is commonly known as Medicare assignment, which means they bill you for more than your Medicare deductible and co-insurance.
Most doctors treating Medicare patients do accept Medicare-assignment. Those who don’t are typically nonparticipating providers or opt-out providers.
Nonparticipating providers are allowed to charge up to 15% more than a Medicare-assignment provider for Medicare-covered services. You are responsible for the extra charges. Many Medigap plans, including Plans G and N, cover excess charges, giving you a lot of flexibility when it comes to choosing a doctor.
Opt-out providers can charge whatever they want based on their established rates, rules and conditions. Medicare is not required to reimburse you when you see an opt-out physician.
You can search for doctors in your area who accept Medicare-assignment using the Medicare.gov Physician Compare tool. The search tool clearly shows which doctors accept Medicare’s defined payment amounts.
10 Ways to Get More From Social Security
There are 10 great ways to make sure you get the most from your Social Security benefits. These include:
- Work for a minimum of 35 years.
- Know the best time to claim your benefits.
- Claim your spousal benefits.
- Work until your full retirement age.
- Don’t earn too much money before your full retirement age.
- Earn as much as you can until as long as you can.
- Make sure all of your work years count.
- Reduce your Social Security taxes.
- Get your full survivor’s benefits.
- Claim qualifying family members.
Work for a Minimum of 35 Years
Although you only need to work 40 quarters (10 years) to qualify for Social Security benefits, the best way to maximize those benefits is to work longer. Social Security calculates your benefits based on your 35 top earning years. If you work for more than 35 years, but your current earnings are less than your best 35 years, the amount of your Social Security benefit will not continue to increase.
Know the Best Time to Claim Your Social Security Benefits
Knowing the best time to start claiming Social Security will have a huge impact on your benefits for the remainder of your life. Most of us have heard that the longer we wait to claim Social Security, the more we will get. This is not true in all cases. It really depends on your situation.
For worker retirement benefits, delaying retirement until after your full retirement age will increase the amount of your monthly Social Security check. This brings many people to the conclusion that, if they can afford it, they shouldn’t take their Social Security benefits until age 70. This may be true for the worker, but it might not be true for a spouse.
Claim Your Spousal Benefits ASAP!
When it comes to Social Security spousal benefits, there’s no additional benefit in waiting until age 70 to file for Social Security. As a non-working spouse, when you reach your full retirement age your Social Security benefit will not increase by delaying retirement. So, if you don’t claim your benefits, you’ll lose them, and there’s no way to go back and claim them later.
As a spouse, if you fail to claim your benefits as soon as you’re eligible, even though your spouse is still working, the amount you’ll lose is based on what your spousal benefit would have been. For example, if your spouse earned enough to be eligible to receive the 2019 maximum Social Security retirement benefit of $2,861 per month, the spousal benefit would be half of the spouse’s benefit, or $1,430.50 per month, which amounts to $17,166 per year. That’s a lot of money to lose if you delay claiming your benefit because your spouse is still working.
This same benefit is available to divorcees, too. If you were married to a working spouse for 10 or more years, and your former spouse receives Social Security’s maximum benefit, you could be eligible to receive the maximum spousal benefit.
Work Until Your Full Retirement Age
That covers the spouse, but what about the worker? The best way to understand the right time to claim your benefits is to ask a simple question. Do you earn more now than you did in your lowest-earning years, adjusted for inflation? For most of us, the answer is yes, and we can maximize our benefits by continuing to work. There’s no additional benefit in continuing to work and delaying benefits past age 70.
If the answer for you is no, you’re not earning more now than you’re lowest earning years, then there’s no additional benefit to working longer. This is because your Social Security payments will not increase by working longer.
Don’t Earn Too Much If Your Retire Early
If you’re thinking of taking your Social Security benefits at age 62, and continue working, you need to be aware that the SSA will penalize you for earning too much. The most you can earn before you reach your FRA, without a penalty, is $17,640 in 2019. This amount adjusts each year.
If you earn more than this amount, and you’re taking your Social Security benefits early, your Social Security benefit will be reduced. There are two earnings limit rules that may apply. The rule that applies to you depends on whether you earn the income before or during the year you reach full retirement age (FRA). Before the year you reach your FRA Social Security will take back $1 of Social Security for every $2 you’re over the limit. During the year you reach FRA Social Security will deduct $1 for every $3 you earn that is over the annual earnings limit.
As you can see, there are some serious ramifications for taking Social Security early if you’re planning to continue working. If you don’t plan to continue working past age 62, and you’ve been a high-income earner for 35 years and a good saver, there’s no reason not to take your Social Security early. You can use it to reduce the amount you take from retirement savings, which is taxable. If you have not been a high-income earner, or you don’t have enough money saved to retire, the better strategy is to work longer at the highest paying job you can find.
Earn as Much as You Can as Long as You Can
Increasing your annual income has a direct and significant impact on the amount you receive from Social Security in your retirement years. Each year the cap on Social Security income goes up. So, the more years you can reach or near this amount, the more income you will get from the SSA. In 2019, the cap on earnings for Social Security purposes is $132,900.
Make Sure All of Your Work Years are Counted
The Social Security Administration isn’t perfect. Like all large federal department, they make mistakes. One of the biggest mistakes is a less than accurate accounting of your income, which they get from the IRS.
The best way to make sure all of your working years are being counted is to create an online account with the SSA and keep an eye on what they know about your work history. You can do this by downloading your Social Security statement every year and comparing it with what you’ve filed with the IRS.
Minimize Your Social Security Taxes
If you thought your days of paying taxes stop with Social Security, guess again. Your Social Security benefits are taxable when your adjusted gross income, plus your nontaxable interest, plus your Social Security benefits exceed $25,000 as an individual or $32,000 as a married couple. When this happens, you’ll owe income tax on half of your Social Security income (SSI). However, you’ll never be required to pay tax on more than 85% of your SSI, no matter how much you earn. For high-income earners, this is one incentive to take SSI benefits as early as possible, because the lower SSI payment means less tax.
Get Your Full Survivor Benefits
As with spousal benefits when a worker is still alive, if your spouse dies you can receive their benefit payment if it is more than your own SSI payment. You can claim your benefits as early as age 60 if your deceased spouse was not disabled. This age drops to 50 if your spouse was disabled.
The amount you will receive in survivor’s benefits is based on age. If you’re at full retirement age, the benefit is 100% of your spouse’s benefit. That amount is reduced by approximately 0.4 percent for each month prior to your full retirement age. So, at age 60, you would receive no more than 71.5% of your benefit amount.
Claim Qualifying Family Members
In addition to spouses, children may be eligible for Social Security benefits based on your work record. Each qualifying child is potentially able to receive 50% of your monthly benefit amount.
The requirements for children are strict. To qualify, your child must be unmarried and either under age 18 or no more than 19 years old and a full-time high-school student. There are exceptions for disabled, so long as their qualifying disability began before age 22.
Minor children are also eligible to receive benefits under the same rules for survivors. Surviving children under age 18, or up to age 19 for full-time high-school students, are eligible to receive a 75% benefit.
Be aware that Social Security does have a family maximum based on a deceased person’s work history. As a result, the SSA can reduce benefits survivors receive on an annual basis if those benefits exceed the family maximum for the year.
Medicare and Social Security are complicated programs. However, by following the 17 simple guidelines above, you can get all of the government retirement benefits you’ve earned. Remember, you paid into Medicare and Social Security for all of the years you worked. Be sure you get all of the benefits you deserve without paying more than you should.