Sixty-five is a big birthday. That’s when most people become eligible for Medicare, the government health insurance program for seniors and those with disabilities.
After receiving health insurance through an employer for several decades, you might assume that the transition to Medicare will be seamless. After all, how different can it be from the health insurance you get through work?
While there are some similarities, the two types of coverage are vastly different in many ways, and those differences often catch people off guard as they’re preparing to transition into retirement.
To help you navigate the transition to Medicare, here are five of the most important differences between getting health care from your employer versus from Medicare.
1. Open Enrollment…With a Twist
For employees at private companies, open enrollment takes place at a specific time each year, chosen by the company, and typically lasts anywhere from a couple weeks to a month.
Once you become eligible for Medicare, you’ll have the same enrollment opportunities as other Medicare beneficiaries—all 59 million of them. You’ll also find that Medicare offers a few different types of enrollment periods. It’s important to understand who’s eligible for each.
The initial enrollment period to sign up for Medicare lasts seven months, starting three months before your 65th birthday and ending three months afterward. If you miss the deadline to sign up, you can do so during the next general enrollment period, which runs from Jan. 1 to March 31 every year. However, it pays to sign up on time, as you may have to pay penalties if you sign up late.
Medicare offers a host of what’s called Special Enrollment Periods (SEP) designed to accommodate a variety of different personal circumstances. For instance, if you decide to keep working beyond your 65th birthday and delay your initial enrollment in Medicare, you’ll be eligible for an SEP when you retire. Check out tip No. 3 below for another example of how SEPs work.
Just like when you were working, you’ll get an annual opportunity to switch to a new plan that might better meet your needs. You can change plans each year during Open Enrollment between Oct. 15 and Dec. 7.
And as you’re signing up for Medicare, remember: While many employer-sponsored plans allow employees to cover their spouses, partners and dependent children, Medicare is for individuals only.
2. Options Galore
When you’re working for a company, you usually get to choose from one of a few plans at open enrollment time. That’s because your employer has already considered a wide range of options and narrowed them down to a few plans it believes will work best for you and your co-workers.
But when it comes time to choose a Medicare plan, you’re the boss. And you might find yourself faced with more than a dozen options! In fact, the average person eligible for Medicare will have a choice of 19 Medicare Advantage plans (Part C) offered through private insurers, as well as Original Medicare (Parts A and B) through the federal government.
When you factor in all of the Medicare supplement, or “Medigap,” and Part D prescription drug plans available as well, your options can quickly multiply to two dozen or more, depending on where you live.
“When you go into Medicare, there are a whole bunch of plans with different carriers and different networks,” said Forrest Burke, CEO of UnitedHealthcare Retiree Solutions. “Within Medicare Advantage, you may have a choice of HMOs or PPOs. With traditional Medicare, you may opt for Medicare supplemental insurance, and there are different carriers for Medicare Part D insurance.” (Check out this glossary to understand the differences between HMOs—health maintenance organizations—and PPOs—preferred provider organizations.)
“You certainly have a lot more choice,” Burke continued. “While choice is generally a good thing, it may be overwhelming when you’ve had only a curated plan or two to choose from for most of your adult life.”
Feeling overwhelmed? Learn more about how to choose a Medicare plan that’s right for you.
3. Location, Location, Location
When you get your health insurance through your job, it stays with you no matter where you go. Get transferred from Indiana to Georgia? You’ll keep your insurance plan. The same holds true for Original Medicare.
But if you choose a Medicare Advantage plan—that is, a plan offered through a private insurer rather than the federal government—you may have to sign up for a new plan when you move. That’s because health insurers offer Medicare Advantage plans in defined regions. For example, a health insurer could offer a plan in five counties in a metropolitan area, and a different plan in three other counties in the same metropolitan area. So if you move from one side of the city to another, you might find that you’re no longer eligible for your current plan.
If you opt for Medicare Advantage and later decide to move to a new home, you’ll have to check whether or not your new address is in your plan’s service area. If not, you’ll simply have to tell your plan that you’re moving and choose a new plan that is available in your new location. You’ll qualify for an SEP to make that switch outside of Open Enrollment. The exact start and end dates of your SEP depend in part on when you notify your plan of your move, but typically it begins the month before you move and ends two months afterward. If you don’t sign up for a new plan within that time frame, you’ll automatically be enrolled in traditional Medicare.
The process works a little differently for Part D and Medicare supplement plans, so it’s best to call your plan before your move to understand the steps you’ll need to take to maintain your coverage at your new home.
Moving to a new home is just one life change that could qualify you for an SEP. You can find more details on SEP eligibility criteria here.
4. Access to Doctors
Most employer plans have what’s known as a network—a group of health facilities, doctors and suppliers with whom the insurance company has a contract to provide health care services. Under most plans, consumers will pay less when they see a doctor or visit a facility included in their plan’s network.
Many Medicare Advantage plans also have networks of doctors and care providers. Some plans may require you to choose a primary care physician and get referrals to see specialists.
But under traditional Medicare, there are no limits on which physicians you can see. Any doctor or hospital that accepts Medicare coverage is fair game. For some people, having that flexibility in provider access is their main priority and the primary reason they choose Original Medicare.
But networks have certain advantages. Chief among them: It’s in the best interest of health plans to include high-quality doctors in their networks. Why? Patients who receive high-quality care tend not to require as much follow-up care and are less likely to end up in the emergency room or hospital, which means lower costs for the health plan.
“High-quality doctors get it right the first time,” Burke explained.
Care coordination is another advantage. It’s the network structure of Medicare Advantage plans that enables plans to coordinate their members’ care, which can improve the odds that members will have a good outcome when they receive care and also make for a smoother, more seamless health care experience.
And you might find the network structure of a Medicare Advantage plan familiar territory after getting used to staying in network under your employer plan.
5. What You’ll Pay…and How Much You’ll Notice
Every employer-sponsored plan has different premiums, deductibles, copays and/or coinsurance. The same is true for Medicare plans offered by private insurance companies.
While you’re working, your employer automatically deducts the monthly cost of your health coverage (the premium) from your paycheck. Likewise when you’re on Medicare and also receive Social Security benefits, your monthly Part B premium will most likely be deducted from your Social Security check. Part B covers doctor’s visits, lab services, diagnostic tests such as X-rays, outpatient care and medical equipment you use at home. But your Part B premium might not be the only one you’re responsible for paying each month.
If you choose a Medicare Advantage plan, Part D prescription drug plan and/or Medicare supplement plan, you’ll usually have separate premiums for each plan, though many Medicare Advantage plans are available for a $0 monthly premium, and most include prescription drug coverage. You can pay your premiums by writing a check every month or arranging for automatic withdrawals from your bank account. With Medicare Advantage or a stand-alone Part D plan, you also have the option of paying your premium by Social Security deduction.
Monthly premiums aren’t the only part of the cost-sharing equation that’s a bit different between employer-sponsored insurance and Medicare. You’ll find that your other cost-sharing responsibilities, including deductibles, co-pays and co-insurance, also operate a little differently, and a lot will depend on whether you stick with traditional Medicare or opt for a private Medicare Advantage plan.
If you choose Original Medicare, you’ll have not one but two deductibles to meet before your Medicare coverage will kick in: one for Medicare Part A, and one for Part B. The deductible that applies will depend on the type of care you receive. If you’re hospitalized, you’ll need to meet your Part A deductible before your care is covered; if you visit a doctor or have an outpatient procedure, your Part B deductible will apply.
Perhaps the biggest cost-sharing difference between employer-sponsored insurance and traditional Medicare is the total cost of your care in a given year.
Most employer-sponsored plans have a cap on how much you’ll pay out of pocket each year toward your medical costs. Medicare Advantage plans have that same feature, but traditional Medicare does not, so you’ll have to pay 20 percent of the cost of most medical services received under Part B, with no limit. That 20 percent is your coinsurance—the percentage of the covered costs of a medical service that you’re responsible for paying.
“With traditional Medicare, you’ve got quite a bit of financial exposure,” Burke said. “That’s why the vast majority of people pick either a Medicare Advantage plan or a Medicare supplemental plan and a Part D pharmacy plan. You’ve got certainty about what your cost exposure is.”
The Bottom Line
Clearly you’ve got a lot to consider as you prepare to make the jump from employer-sponsored insurance to Medicare. The decisions you make during this transition are important and can have a long-term impact on your plan options and costs, so don’t hesitate to seek guidance. Your employer’s human resources department is a great place to start.
You’ll also find a host of online resources that can help you learn more about Medicare and how it works. Two solid options: Medicare.gov and MedicareMadeClear.com.
Plans are insured through UnitedHealthcare Insurance Company or one of its affiliated companies. For Medicare Advantage and Prescription Drug Plans: A Medicare Advantage organization with a Medicare contract and a Medicare-approved Part D sponsor. Enrollment in these plans depends on the plan’s contract renewal with Medicare.