Medicare is one of the most complex aspects of retirement planning, and as an accountant, understanding its nuances is crucial when advising clients. With over 60% of individuals aged 65 and older enrolling in Medicare, as reported by the National Council on Aging, accountants play an important role in ensuring that clients make informed decisions regarding their healthcare coverage. Here’s a breakdown of the essential Medicare basics every accountant should be familiar with, and the key considerations to guide your clients in making the best choices.

1. Understanding Medicare: A Four-Part System

Medicare is divided into four parts: A, B, C, and D, each serving a different function:

• Part A: Covers hospital care, skilled nursing, hospice, and some home health services. Most individuals qualify for Part A premium-free, assuming they or their spouse paid Medicare taxes for at least 10 years.
• Part B: Covers outpatient care, such as doctor visits, lab tests, and preventive services. Part B has a monthly premium, which is income-based.
• Part C (Medicare Advantage): A private health plan that combines the coverage of Part A, Part B, and often Part D. Many Medicare Advantage plans also include additional benefits such as dental, vision, and hearing coverage.
• Part D: Provides prescription drug coverage, which is vital as prescription needs typically increase with age. Part D is optional and comes with a separate premium.

2. Eligibility and Enrollment Deadlines

Understanding when your clients are eligible for Medicare and the deadlines associated with enrollment is essential to avoid unnecessary penalties.

• Initial Enrollment Period (IEP): This occurs three months before the individual turns 65, the month of their 65th birthday, and three months after. Failing to enroll during this period can result in late enrollment penalties.
• General Enrollment Period (GEP): If your client misses the IEP, they can enroll during the GEP, which runs from January 1 to March 31 each year, with coverage starting on July 1.
• Special Enrollment Period (SEP): For clients who continue working past 65 and have employer-sponsored health insurance, they can delay Medicare enrollment without penalty until they retire or lose coverage.

3. Income-Related Monthly Adjustment Amount (IRMAA)

For clients with higher incomes, Medicare Part B and Part D premiums can be adjusted based on their modified adjusted gross income (MAGI). This is called the Income-Related Monthly Adjustment Amount (IRMAA). It’s crucial to help your clients understand the impact of IRMAA, especially if their income fluctuates year-to-year, as the IRMAA surcharge is based on the most recent tax return. For 2024, individuals making more than $97,000 or couples earning more than $194,000 will face higher premiums, which can be a significant expense for high-income retirees.

4. Medigap vs. Medicare Advantage: What’s the Right Fit?

Medicare doesn’t cover all healthcare expenses, which is why many clients will need supplemental insurance. Accountants should be well-versed in the differences between Medigap and Medicare Advantage to help clients choose the right option.

• Medigap: These are supplemental insurance plans that cover additional out-of-pocket expenses such as deductibles and co-pays that Original Medicare (Part A and B) does not cover. Medigap plans are standardized but sold by private insurance companies. Medigap policies do not cover prescription drugs, so clients will need to enroll in a separate Part D plan for medications.

• Medicare Advantage: Medicare Advantage plans often offer lower premiums but come with additional restrictions and co-pays. These plans sometimes provide extra benefits like vision, dental, and wellness programs, which Medigap does not. However, clients need to ensure their preferred doctors are within the plan’s network, and some plans may have high out-of-pocket maximums.

5. Tax Considerations and Impact on Retirement Planning

Medicare premiums and related healthcare costs can be a significant part of retirement expenses. As an accountant, helping clients plan for these expenses is vital to creating a sustainable retirement plan. Here are some key considerations:

• Medicare premiums as part of retirement expenses: Medicare premiums are an unavoidable cost for most retirees, and these costs are often deducted directly from Social Security benefits. In 2024, the standard Part B premium is $174.70 per month, but that amount can increase for higher-income individuals.
• Medicare and tax deductions: Medical expenses, including Medicare premiums, may be deductible if they exceed a certain percentage of adjusted gross income (AGI). Clients should track all their healthcare costs, as those may reduce their taxable income.

6. Helping Clients Choose the Right Prescription Drug Plan

The complexity of Medicare Part D, which covers prescription drugs, often leaves clients confused. There are many plans to choose from, and the right choice depends on the medications your client takes. As an accountant, guiding your client through the Medicare Part D plan selection process can ensure that they don’t overpay for coverage they don’t need or underinsure their prescription needs.

7. Avoiding Common Mistakes

Many clients unknowingly make costly mistakes related to Medicare, which is where your expertise as an accountant comes in. Common errors include:

• Missing enrollment deadlines: Failure to enroll on time can lead to penalties that last for the entirety of the client’s Medicare coverage.
• Not understanding the full scope of coverage: Clients may opt for a cheaper Medicare Advantage plan or avoid Medigap coverage, unaware of the hidden costs or limitations that could result in substantial out-of-pocket expenses.
• Ignoring income changes: If your client experiences a drop in income after being assessed for IRMAA, it’s important to help them file an appeal to reduce their premiums.

Conclusion

Medicare is more than just a government health program—it’s a complex system that requires careful planning, especially for retirees who are relying on it for their healthcare needs. As an accountant, staying informed about the ins and outs of Medicare can provide tremendous value to your clients, saving them money and helping them avoid common pitfalls. Given that nearly 60% of people report feeling confused by the many options and rules associated with Medicare, your role in demystifying the process could make a world of difference for those looking to maximize their benefits while minimizing their costs.