The U.S. healthcare system is vast and complex. The introduction of Medicare in 1965 significantly accelerated the growth of the healthcare sector. By 2023, it had grown to $4.8 trillion, representing 16.8% of GDP—the highest percentage in the world. The interactions among various stakeholders, including physicians, hospitals, drug manufacturers, medical device makers, and insurance providers, have resulted in a system that continuously drives up healthcare costs and remains elusive to most.
To the relief of seniors, Medicare, with adequate preparation and timely enrollment, can make healthcare simple and affordable, but the system itself is complex and challenging to navigate. Mistakes in the enrollment process can be costly and, at times, life-threatening.
This article will present a Medicare plan option that offers broad coverage, potentially suitable for those who have prepared well for retirement. It will also discuss three key points for setting up such a plan, along with the consequences of failing to meet them.
Before we begin, it is important to note that gaining a detailed understanding of each Medicare component and Medigap, which is a supplement to Medicare, requires consulting additional resources. Danielle Kunkle Roberts’ book, 10 Costly Medicare Mistakes, discusses common Medicare mistakes in detail and serves as a valuable source of information. It is also essential to stay up-to-date with annual changes. Additionally, different states have different rules, making it challenging to provide uniform figures for Medicare plans. The tables below provide a brief overview for 2025:
| Compontent | Part A | Part B |
| Usage | Covers inpatient care | Covers outpatient care |
| Premium | None (Payroll taxes cover it) | $185 |
| Deductible | $1,684 per benefit period | $240 |
| Maximum out-of-pocket cost | Unlimited | Unlimited |
| Component | Part C | Part D |
| Usage | Medicare Advantage: Bundles Part A, B, plus perks (dental, gym membership, etc.) | Covers drug costs |
| Premium | $0-$17 | $46.5 |
| Deductible | Part A & B amounts apply | $590 |
| Maximum out-of-pocket cost | $4,882 for in-network $8,707 for out-of-network | $2,000 |
| Component | Medigap Plan G | Medigap Plan N |
| Usage | Used to supplement Medicare Part A & B | Used to supplement Medicare Part A & B |
| Premium | Varies by plan: $100 – $200 | Varies by plan: $88 – $256 |
| Deductible | Part B ($240) | Part B ($240) |
| Maximum out-of-pocket cost | Covers 100% | Unlimited |
Retirement Health Insurance Options with Wide Coverage
At the inception of Medicare in 1965, it consisted of two parts: Part A and Part B, often called Original Medicare. Part A covers inpatient costs and is premium-free since they are paid for through payroll taxes during your working years. Part B covers outpatient costs. If you have been receiving Social Security benefits before turning 65, you are automatically enrolled in Parts A and B. Otherwise, you need to enroll in them yourself.
In addition to Original Medicare, there are Part C and Part D. Part C is the Medicare Advantage plan, which bundles Parts A and B, and additional perks, including dental and vision care. While you still need to pay the Part B premium, there is often no further premium charges, and is offered by private insurers. Part D, added to Medicare in 2006, covers the cost of prescription drugs, and it comes with its own premium.
Besides Parts A through D, Medigap plays a significant role. Like Medicare Advantage, Medigap is a private insurance plan, but it works as a supplement, but not as a bundle for Original Meicare (Parts A and B), and covers the costs beyond what it pays. Medigap typically has $100-$200 monthly premium. Individuals compare Medicare Advantage and Medigap, and enroll in one.
The popularity of Medicare Advantage and Medigap is due to the fact that healthcare providers can charge patients significant amounts for inpatient and outpatient care, and enrolling only in Parts A and B leaves them inadequately covered. For example, when Part A coverage is exhausted after 60 days of a hospital stay and a patient still requires inpatient care, it could cost them over $800 per night. For outpatient costs, while Part B covers 80%, patients are responsible for the remaining 20%. These out-of-pocket expenses can become substantial if you require multiple doctor visits or treatments. For example, chemotherapy can cost as much as $12,000 per session, and patients are responsible for paying $2,400—20% of the total cost.
Medicare Advantage and Medigap can significantly reduce the risk of facing high financial burdens. However, you can only enroll in one of these plans. Having to choose between the two, Medigap would be a better option than Medicare Advantage for those who have prepared well for retirement, despite its higher premiums.
The main reason Medigap works better than Medicare Advantage is that any healthcare provider who accepts Medicare will also accept Medigap, covering costs that are not paid by Original Medicare. In contrast, Medicare Advantage plans are not as widely accepted as Medigap and come with many restrictions and bureaucratic hurdles.
One of such obstacles is that most Medicare Advantage plans require prior authorization, meaning that the insurance company must approve each treatment requested by patients. While this process is intended to reduce unnecessary medical treatments, in reality, millions of patients are denied the treatments they need every year. Therefore, Medigap offers much better security and peace of mind than Medicare Advantage.
Among the various Medigap plans available today, Plan G and Plan N provide excellent coverage and are the most popular options. Both plans offer broad protection, including 100% of inpatient costs. The key difference is that while Plan G covers 100% of outpatient expenses, Plan N does not and requires small co-pays. Additionally, Plan G covers excess outpatient charges, while Plan N does not. These excess charges arise when a healthcare provider does not accept the Medicare-approved rate. Although it is rare, occurring among only about 1% of providers, Plan G participants do not need to worry about this issue. Therefore, while both Plans G and N are excellent options, the former may be better suited for those who prefer simple, comprehensive coverage.
In addition to selecting the right Medigap plan, it is crucial to consider its yearly premium increases, which can compound substantially over time. The rate of these increases can vary significantly depending on the size of carrier. Larger carriers can more effectively spread risk among participants compared to smaller carriers, resulting in relatively smaller and more predictable increases.
Finally, although dental, vision, and ENT care are important aspects of our well-being, Original Medicare does not cover them. Therefore, for those who have enrolled in Medigap, it would be necessary to obtain supplemental coverage for these services from a private insurer.
In summary, for someone who has prepared well for retirement, enrolling in the following options might be suitable:
- Medicare Part A
- Medicare Part B
- Medicare Part D
- Medigap plan G
- Supplemental coverage for dental, vision, & ENT
The following section discusses three important points to consider when setting up your Medicare plan and the negative consequences of failing to address them.
Point 1: Enroll in Medicare Part B During the Initial Enrollment Period (IEP)
One of the most important aspects of setting up a Medicare plan is enrolling in Part B during the Initial Enrollment Period (IEP). This period lasts seven months: three months before your 65th birthday, the birthday month, and three months after. For example, if your birthday is in August, your IEP runs from May 1 to November 30. Failing to enroll during this period results in a cumulative penalty of 10% for each 12-month delay. For instance, if you delay enrolling in Part B for three years, your monthly premium will increase by 30%. If the premium is $185 at age 65, the penalty would be $56, making the total premium $241 after the penalty. Furthermore, a delay in Part B enrollement leaves you without outpatient coverage, potentially exposing you to exorbitant medical fees.
Point 2: Enroll in Medigap during the Open Enrollment Period (OEP)
The Open Enrollement Operiod (OEP) is even more significant for enrolling in Medigap than it is for Medicare Part B Initial Enrollement Period (IEP). While you can make a late enrollment in Medicare Part B, such an opportunity may not be available for Medigap. This is because during the Medigap OEP, which is a six-month period after your Medicare Part B start date, you can enroll in Medigap without having to answer medical questions. However, this opportunity occurs only once in your lifetime. Enrolling in Medigap after this one-time opportunity will require insurance underwriting, which includes answering health questions. Failing some key questions can significantly raise the Medigap premium and, in the worst case, makes you ineligible for enrollment.
Point 3: Enroll in Medicare Part D
Medigap is used as a supplement to the Original Medicare and does not include Part D. Therefore, one must sign up for it separately. Not enrolling in Part D during its IEP (same as Part B IEP) leads to cumulative penalties of 1% for every month delayed (12% annually). For example, if you delay enrolling in Part D for five years, your monthly premium could increase by 60% permanently. Given the rising cost of medications, some drugs can cost hundreds of thousands of dollars. Starting in 2025, Part D will cap one’s drug expenses at its premium plus $2,000 in out-of-pocket expenses.
Additionally, it is crucial to ensure that the drugs you need are included in the insurance provider’s formulary, which is a list of drugs they cover. You can review your Part D details and change your carrier if necessary during the Annual Election Period (AEP), which takes place from October 15 to December 7 each year.
Enrolling After Working Past Age 65
Nearly 20% of seniors have been working past the age of 65 today, but when they should enroll in Medicare depends on the size of their employer. For those employed by an organization with 20 or more employees, they can enroll in Medicare Parts A, B, and D without incurring a penalty during the Special Enrollment Period (SEP) after they retire. The SEP is an 8-month period that begins after their employer-sponsored insurance ends. Additionally, after leaving their job, they need to submit a certificate of creditable coverage from their previous insurance to the Centers for Medicare & Medicaid Services to avoid penalties. This document proves to the government that the Medicare beneficiary had coverage through their workplace insurance that is considered sufficient for transitioning to Medicare.
It is also important to note that enrolling in Medicare while still working for a large organization can be a mistake, as you would be paying unnecessary premiums for Parts B and D, when the employer-sponsored insurance provides adequate coverage. Additionally, by enrolling in Part A, you would lose your eligibility to make contributions to a Health Savings Account (HSA), which is a tax-free savings vehicle you can use to cover medical costs.
For individuals working for a company with 19 or fewer employees, they must enroll in Medicare Parts A, B, and D when they turn 65, as Medicare serves as their primary coverage and employer-sponsored insurance as secondary. Failing to enroll in Medicare after turning 65 would be a mistake, as they would be responsible for the majority of medical costs, which could be financially devastating. Employer-sponsored insurance only covers the portions that Medicare does not pay.
Start Planning in Advance and Seek Professional Guidance
Medicare will play a major role in senior citizens’ lives, and due to the potentially catastrophic consequences of making mistakes during enrollment, it is important to plan well in advance of one’s 65th birthday. The plan presented above may be a good option to consider or serve as a baseline. However, Medicare is a highly complex system, which makes it difficult for many seniors to navigate on their own. Therefore, it is advisable to consult with professionals in the field who have a proven track record of successfully guiding seniors in enrolling in the appropriate Medicare plans, and keeping them up-to-date, before and after making a decision.
Schedule a call with me here.
The information provided in this blog post is for educational purposes only and does not constitute financial advice. It is not intended as a recommendation to buy, sell, or hold any financial product, and I do not promote any organizations.
The Well Tempered Investor 