The Medicare Roundup

Medicare is a federal health insurance program that was established in the 1960s for individuals age 65 or older and for individuals under age 65 with kidney failure, ALS or certain other disabilities. It is funded by the taxes that workers pay to Social Security and Medicare, by the premiums that Medicare beneficiaries pay for their coverage, and by the federal budget.

Medicare has four parts: A, B, C and D. Part A and Part B are considered Original Medicare as they are provided directly through the federal government and Part C and Part D are not considered Original Medicare as they are not provided directly by the federal government.

Part A covers hospital insurance. This includes inpatient hospital care, skilled nursing, hospice care and home health services. This does not include long-term care. You don’t have to pay a premium for Part A coverage as long as you, your spouse, or your ex-spouse worked full time for at least 40 calendar quarters (10 years) and paid Social Security taxes, or if you, your spouse, or your ex-spouse are eligible for Railroad Retirement or Civil Service benefits. You do have to pay a premium if you worked and paid Social Security taxes for less time. If you qualify through your spouse or ex-spouse, you need to have been married for at least 10 years. Most Medicare beneficiaries qualify for this premium-free coverage.

Part B covers medical insurance. This includes outpatient medical care such as doctor visits, tests, preventative care, mental health care, medical equipment like wheelchairs and walkers, and some ambulance and home health services. You have to pay a premium for Part B coverage to the Social Security Administration. If you’re already receiving Social Security, the premiums are deducted from your Social Security benefit, otherwise Social Security bills you directly. The premium starts at a standard amount and increases for people with higher incomes. Each year the premium increases but current Medicare beneficiaries whose premiums are deducted from their Social Security benefit generally avoid the increase due to a hold harmless provision.

Part C is something of a misnomer as it doesn’t refer to a subsection of medical care like the other Parts. Instead, Part C refers to Medicare Advantage Plans, which are plans offered by private companies that have contracted with Medicare. Medicare Advantage Plans are required to provide all Part A and Part B benefits, but can do so with different rules, costs and restrictions. For example, with Medicare you can go to almost any hospital or doctor’s office whereas with Medicare Advantage Plans you can be limited to network providers. Many Medicare Advantage Plans replace Part A, Part B, Part D and Medigap coverages (more on Part D and Medigap below), as well as offering coverage for vision, dental and hearing services. You pay an additional premium for these plans on top of your Part B premium (and your Part A premium if you have one).

Part D covers prescription drugs and is offered by private companies. You can get Part D as a stand-alone private drug plan (known as a PDP) or as a part of a Medicare Advantage Plan with drug coverage (known as a MAPD). However, neither Medicare nor Medicare Advantage Plans cover prescription drug copayments or deductibles. As with Part B, the premium increases for people with higher incomes.

Medigap is supplemental insurance coverage offered by private companies that is designed to fill the gaps in expenses not covered by Medicare. Medigap covers Part A and Part B copayments, coinsurances and deductibles.

Depending on if you are employed or retired, there are different timelines for enrolling in Part A and Part B. However, once you are enrolled in Part A and Part B, there are several paths to getting enough coverage to address your long-term medical needs. If you just enroll in Part A and Part B, you would likely incur substantial out-of-pocket costs. To avoid this, you can enroll in Part A and Part B and supplement these benefits with Part D and/or Medigap coverages. Or if you have employer, retiree, or Veterans’ Administration (VA) medical benefits available to you, these programs can help defray costs. Or you can follow in the footsteps of 1/3 of Medicare beneficiaries and get your benefits through a Medicare Advantage Plan.

Unlikely Bedfellows: Social Security & Divorce

Through a little known Social Security benefit, our government recognizes the financial value of the work that stay-at-home moms do to support their families. We all know that the stay-at-home mom is on the job around the clock and it’s hard to put a dollar value on her estimable contributions.

But if marriage ends in divorce, the stay-at-home mom’s financial dependence can be calamitous. The opportunity cost of the mom staying home can be high, as it’s harder for her to reenter the work force the longer she is out of it. She also has to defer building a career and developing expertise, with commensurate pay, and she loses the chance to save for retirement and benefit from the magic of compounding interest. While alimony and child support can help protect a lifestyle for the mom and children post-divorce, Social Security offers a divorced spouse’s benefit to the mom to help with retirement.

Of course, these are gender-neutral benefits, and more dads now than ever are assuming the role of the supporting spouse. When I use the term mom, is it only because it is still more common that women are the ones who choose to take the off ramp, but there are certainly many dads to whom this applies.

The Rules
Divorced spouses are eligible for a benefit if:
1. They were married to their ex-spouse for 10 years.
2. They have been divorced for 2 years.
3. They are not remarried, and if they did remarry that marriage ended.
4. Their ex-spouse is eligible for benefits.

If these criteria are met, divorced spouses can claim ½ of their ex-spouse’s full retirement amount at their Full Retirement Age (FRA), which is between age 65-67 depending on their birth year, or a reduced benefit at age 62, similar to what they could claim if they were still married to their ex-spouses.

The Nitty Gritty
Must take higher benefit.
If the divorced spouse’s own benefit is higher than ½ of their ex-spouse’s benefit, the divorced spouse must take their own benefit.

Does not include delayed retirement credits.
The divorced spouse’s benefits do not include delayed retirement credits for which the ex-spouse is eligible. Delayed retirement credits accumulate when benefits are delayed past FRA, and increase by a percentage each year until they max out at age 70. For example, if the birth year is 1943 or later, benefits increase by 8% per year, which is a mighty fine rate of return.

Can optimize benefits by filing a restricted application.
If the divorced spouse was born before January 2, 1954, they can optimize their benefits and take both over time. Specifically, the divorced spouse can take the divorced spouse’s benefit, let their own benefit accumulate until it becomes higher than the divorced spouse’s benefit, then switch. This claiming strategy is considered a loophole and was closed for anyone born January 2, 1954 or later in the Bipartisan Budget Act of 2015.

Ex-spouse’s filing status is immaterial.
The ex-spouse does not need to have filed for benefits for the divorced spouse to file on the ex-spouse’s record.

Ex-spouse’s marital status is immaterial.
It doesn’t matter if the ex-spouse is remarried, as the divorced spouse’s claim to the benefit does not affect the ex-spouse’s record or the ability of any current spouse to claim benefits.

The Lowdown
There’s nothing simple about Social Security or divorce, but the welcome news is that a divorced spouse’s benefits could add up to a windfall of thousands of dollars per year. If a couple is considering divorce after 9 years and 11 months it could behoove them to wait a month. The vow “for richer or poorer” may not have endured, but Social Security has a palliative for that.