Medicare eligibility is earned through the accumulation of retirement credits. You get these credits when you pay self-employment or FICA taxes, and in 2021, you receive one credit for every $1470 that you earn.
The maximum annual accrual is four credits, and you become eligible for Medicare and Social Security when you have at least 40 credits. At the present time, the Medicare eligibility age is 65, but the White House and some members of Congress are in favor of a reduction.
For Social Security eligibility, the age requirement is different. You can accept a reduced benefit when you are 62 years of age, and the eligibility age for a full benefit is 66 if you were born between 1943 and 1954.
After those years, it increases by two months a year, so someone that was born in 1955 would become eligible for a full benefit two months after they celebrate their 66th birthday. This arrangement continues year by year until 1960 when it tops out at 67 years of age.
Medicare does not pay for everything in full. It will only cover 80 percent of treatments that are provided by health care providers, and you have to pay a $148.50 monthly premium for this coverage, which is Part B. There is also a $203 deductible.
Part A is the hospitalization component, and there is no monthly premium, but there is a $1484 per benefit period deductible. If you are in the hospital for more than 60 days, you have to pay a $371 a day coinsurance payment for days 61 through 90.
You can use your lifetime reserve days to cover stays that exceed 90 days in duration. You get 60 of them during the course of your life, and the coinsurance for these extended stays is $742 this year.
The prescription drug portion is Part D, and the copayments, deductibles, and premiums vary depending on the particular plan that you purchase.
It is important to be aware of these out-of-pocket costs so you can budget for them in advance when you are planning for retirement. In addition to these expenses, there is a total gap in the coverage that has some serious implications.
Medicare does not pay for a stay in a nursing home, and will not cover in-home care that is provided by a professional home health aide.
Long-Term Care Costs
According to the United States Department of Health and Human Services, 52 percent of seniors will require some type of paid living assistance eventually. More than one third of them will reside in nursing homes, and these facilities are very expensive.
Genworth Financial conducts research to measure the ongoing state of long-term care costs around the country. In the Naperville, Illinois area, the median annual cost for a private room in a nursing home last year was $102,383.
The average length of stay is one year, and 13 percent of people that need paid living assistance receive the care for more than five years.
Medicaid is a jointly administered federal/state government health insurance program that will pay for long-term care. It is only available to people with a significant level of financial need, so there is a $2000 asset limit.
You could give gifts to your loved ones to create a financial profile that will lead to eligibility, but many people need the income that they receive from assets that are invested.
If you are in this position, you could convey resources into an irrevocable, income only trust. You would no longer have access to the principal, but you could accept distributions of the trust’s earnings while you are living independently.
Advance planning is key, because the trust must be funded at least five years before you submit your application for Medicaid. If you violate this rule, your eligibility is delayed.
The length of the period of ineligibility would be based on the amount of long-term care that you could have paid for with the money that you transferred out of your name.
Attend a Free Seminar!
We are happy to be able to offer in-person seminars once again, and you can learn a lot if you join us. There is no charge, and you can see the dates and obtain registration information if you head over to our Naperville, IL estate planning seminar page.