The Basics of Medicare: How to Maximize Benefits to Fit Your Needs

Larry Leet
Larry Leet
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The Basics of Medicare: How to Maximize Benefits to Fit Your Needs

Medicare is the primary source of health insurance coverage for most retirees. Considering how essential health care is, especially as you age, understanding Medicare is vital for a successful retirement.

  • What basic information should you know about Medicare?
  • What do the different “parts” mean?
  • When should you enroll or make changes to your elections?

It’s time to find out!

Medicare Overview and Benefits

Medicare is a health insurance program administered at the federal level, much like Social Security. Also similar to Social Security, you pay a portion of your income during your working years to fund part of the benefits you receive through Medicare.

The primary function of Medicare is to provide health insurance coverage to people who are at least 65 years old, regardless of their income.

Why is that important?

Having health insurance, especially in your later stages of life, can protect you from the potential financial harm of having medical bills that drain your savings or that you simply can’t cover. If your Medicare election is done right, it can help you save more money for your other goals too.

The first thing you need to be aware of is that you have to be proactive about applying for Medicare. Enrolling isn’t automatic, and you’ll have to pay a penalty via an increased premium if you don’t sign up when you first become eligible (some exceptions apply). The kicker—that penalty never goes away!

One exception to this rule is if you’re covered by a commercial insurance policy. In this case, you could deny or postpone your coverage. If you plan to take this route, you need to notify the Social Security Administration and complete the appropriate paperwork.

Below, we'll dive into the basics of Medicare so you can confidently navigate this critical piece of your health and financial plan.

Key Medicare Terms You Need to Know

It’s vital to know that there are several parts to Medicare and what each piece covers and doesn’t cover. This understanding is crucial so you can pick your Medicare coverage carefully and get the coverage you need.

Medicare Part A – Hospital Coverage

Part A is automatic, and for the vast majority of people, does not have a monthly cost. Part A provides coverage for expenses associated with treatment in a medical facility. While you likely won’t pay a premium for it, there is a deductible. For 2021, the deductible is $1,484.

Medicare Part B – Medical Coverage

Part B covers medically necessary services, such as doctor's visits, medical equipment, outpatient care, outpatient procedures, blood purchase, mammograms, cardiac rehabilitation, and cancer treatment. You pay a monthly premium for part B. For 2021, the standard premium is $148.50. Most people pay the standard premium, but higher earners may have a surcharge added called an Income Related Monthly Adjustment Amount (IRMAA). IRMAA presents an excellent planning opportunity if it applies to you.

Part B covers 80% of your bill, and you are responsible for the other 20%. You can either pay that in cash or purchase a separate plan that will cover it, called a Medigap plan.

If you don’t sign up for Part B when you are first eligible, you are penalized in the form of a 10% premium increase for each year you are late. That increase is permanent once it applies, so it’s essential to pay attention to your initial enrollment period.

Important Note: Neither Parts A nor B cover long-term care.

Medicare Part C – Medicare Advantage

Part C, called Medicare Advantage, is a private-sector alternative to traditional Medicare. You will pay a monthly premium, but generally, Advantage plans include everything covered under traditional Medicare parts A, B, and D. Advantage Plans often also come with other benefits like vision and dental coverage.

Medicare Part D – Prescription Coverage

Part D covers prescription drug benefits. You aren’t required to have Part D, but it’s a good idea. Even if you don’t take regular medication now, there’s a good chance you will at some point. An average monthly premium is about $33.

Medigap, or Supplemental Plans

These plans are neither part of original Medicare nor are they replacements for Medicare the way that Part C is. These plans are ways to fill in the gaps left by Medicare coverage, such as the cost you incur for copays or deductibles.

How to Enroll and Maximize Your Benefits

Now that you know what each component of Medicare is, the next step is either enrolling before your 65th birthday or changing your plans to best fit your needs through Open Enrollment.

Enrolling at 65

Everyone must enroll for Medicare when they turn 65 or incur the 10% per year penalty. To avoid the penalty, your initial enrollment period is a 7-month window that begins 3 months before the month you turn 65 and ends 3 months after the month you turn 65.

Open Enrollment

If you're already enrolled but want to make changes, you may do so during the annual open enrollment period from October 15 to December 7. This is your opportunity to review what you're using and what you need and see if it makes sense to change anything or select another plan, so you can maximize the benefits you receive without paying higher premiums than necessary.

The keys to a successful enrollment are:

Be educated as much as possible about the process. Know when and how to enroll before the time comes.

More importantly, spend time with a Social Security employee to walk you through the options. You can call 800.772.1213 for information about the representatives in your area.

Work With A Trusted Finance Team

Our trust officers at First Dakota Wealth and Trust seek to provide comprehensive financial planning, and that includes helping you create a plan for your health.

Medicare is an important system that can offer health coverage for retirees. But it does come with several rules and nuances that are vital to understanding.

We would love to help you prepare for your health in retirement today. Give us a call today.


First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity, and after death. We help clients develop a financial roadmap to help simplify their financial future.

Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department or its employees provides tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.