How Social Security and Medicare Work

One of my brothers is fast approaching decision time about Social Security and Medicare. While visiting him during our just-concluded RV trip, he asked if I would give him an overview of what his choices are. Not only was I glad to do so, but his questions seemed like an excellent topic for this blog. The questions are paraphrases of his concerns:

Question 1: " I want to wait until I am 70 to start receiving monthly Social Security checks. Do I have to notify anyone when I reach my full retirement age?" 

Answer: You are allowed to sign up for Social Security three months before  you want to start your benefits. Your first check (actually a direct deposit to your bank account) will not arrive until the fourth month, but that is how the system works. This timing applies whether you want to start at the earliest age of 62, full retirement age (66 for most of us), or any time after that. The size of your monthly check depends not only on earning credits built up during your working years, but when you start receiving those checks. Do know that after 70 years old, the amount you receive will not increase, so there is no reason to wait past that point.

Question 2: "How do I start Medicare coverage at 65 without also taking Social Security?"

Answer: Go to ssa.gov. As you move through the application process you will be given the opportunity to sign up just for Medicare. Be aware that if you don't sign up for Medicare when you are eligible (in the period of 3 moths before and 3 months after your 65th birthday), there will be a delay in your coverage and the likelihood of higher premiums for the rest of your life. So, sign up during the 6 month enrollment period. You will pay a monthly premium until you start Social Security. At that time, the Medicare premium will be deducted directly from your monthly payment.

Question 3: "What is best, traditional Medicare, Medicare Advantage, or just buying my own health insurance?"

Answer: Unless you are still employed and covered by your employer's policy, you are not allowed to buy private health insurance after you turn 65. Any policy you do own will terminate on your 65th birthday. So, then you are faced with the choice between traditional Medicare or the insurance sold by private companies, in conjunction with the government, known as Medicare Advantage. The choice is really one of personal preference. 

Traditional Medicare covers what most people require, but pays only 80% of most charges. As of today, virtually all doctors and hospitals accept Medicare patients. Medical Advantage insurance  is usually cheaper than traditional Medicare because the government pays the insurance company some money to take care of you. Some Advantage policies have a very low monthly premium and often have additional coverages that regular Medicare does not, like dental or vision. Those coverages may be free or have an additional monthly fee.

Because The Advantage policy is sold by a private company, there are restrictions on what doctors and hospitals you may use. The premiums are likely to rise every year and the company may decide to stop offering the policy you own in succeeding years, though the Advantage marketplace has been stable over the last several years, with more companies entering the field. Traditional Medicare monthly premiums are relatively stable, but can increase particularly for more wealthy retirees.

Question 4: " Do I need to buy anything else? How do I get drug coverage? "

Answer: If you choose the traditional version, it is wise to consider adding a supplemental policy. It covers the 20% that Medicare does not, as well as any additional charges for most hospital and doctor visits. There are several levels of supplemental coverage (also known as Medigap), designated by letters of the alphabet. The higher the letter, the more coverage, and monthly cost. These policies are sold by private companies. 

Drug coverage is known as Part D in Medcare. Traditional Medicare covers very few prescription expenses. Most folks decide to buy a separate policy from a private company to cover drug expenses. The monthly premiums are usually low. However, there is a often a $360 yearly deductible before full coverage kicks in. In the meantime you do benefit from a lower price for any prescriptions, but you will pay more until the deductible is satisfied.

Those are the basics of Social Security and Medicare. The web site, ssa.gov, is quite easy to navigate and should answer any additional questions. Welcome to the wonderful world for affordable and quite complete medical coverage, as well as those very nice monthly deposits to your checking account!

Disclaimer: I am not an expert and make no claims as to the infallibility of this post in all areas of Social Security and Medicare. Please consult the government web page and/or those trained to understand the legal ins and outs of the system.