It's never too early to start thinking about Medicare: Here's what you should know

Those turning 65 this year likely have retirement and savings on their minds. But do those savings already account for healthcare costs?

By the age of 65, the average retired couple — whether they're enrolled in Medicare or not — needs to have $300,000 saved for healthcare expenses alone, according to the Fidelity Retiree Health Care Cost Estimate. In fact, Fidelity estimates that 15% of a retiree’s annual expenses will go to Medicare premiums and out-of-pocket costs.

Still, Medicare can provide widespread coverage and lower costs than employer-sponsored health plans, says Corey Metzman, co-founder and chief operating officer at Medicare advisory company Chapter. It’s just a matter of knowing what Medicare plans work for the individual.

Read more: Ask an Adviser: How do we handle late deposits on 401(k) deferrals?

“We recommend people start thinking about Medicare long before they retire,” says Metzman. “And once Americans turn 65, even if they are still working, they can get Medicare, have phenomenal coverage and save money before retiring.”

According to the Kaiser Family Foundation, 93% of primary care physicians accept Medicare, and 72% of Medicare providers are accepting new Medicare patients. However, depending on an employee’s employer-sponsored health plan, savings potential can vary.

Medicare does not come as a one-and-done, complete plan; instead, it’s broken down into parts. Medicare Part A is hospital insurance and covers inpatient care, nursing home care, hospice care and at-home care. If the enrollee has worked for about 10 years and paid their Medicare taxes, Part A will have a zero-dollar premium. On the other hand, Medicare Part B covers mental healthcare, ambulance services, medical supplies necessary in diagnosis and treatment and clinical research, and on average, has a $170 premium per month — this goes up if you made more than $91,000 in the last two years. Combined, Part A and B are called original Medicare. Most people get original Medicare in the initial enrollment period, which starts three months before a person turns 65 and ends three months after their 65th birthday. But for full coverage, costs won’t end there.

Read more: 3 ways to support sandwich-generation caregivers

“There are some gaps in coverage people need to consider when enrolling in Medicare,” says Metzman. “Original Medicare does not cover prescription drugs, dental, vision or hearing, so people typically will choose to purchase additional coverage to fill those gaps.”

There are a few ways to address gaps in original Medicare. Medicare Part C, or Medicare Advantage Plans, are plans provided by private companies approved by Medicare and can include vision, hearing, and dental coverage, as well as health and wellness programs. Most of these plans also add Medicare Part D, which is prescription drug coverage.

“It’s a bundled benefit, and the premiums are usually low if not free, since the government is reimbursing these insurance companies,” says Metzman. “People who worry a little bit more about what their monthly premiums will be would choose this option.”

However, these plans can come with disadvantages. For example, the network of healthcare providers tends to be limited, and while deductibles are typically low, advantage plans usually charge a copayment with every doctor visit, test and service received.

Read more: How to boost financial security and savings among low-income workers

If a person wants more flexibility and little to no out-of-pocket cost, they can pair original Medicare with Medicare Supplement Insurance. Also known as Medigap, these plans cover costs that Original Medicare does not, like copayments, deductibles and healthcare expenses if you travel outside the United States. On the downside, this means a person would typically have to pay for prescription drugs and other additional services without insurance or add on more policies, like Medicare Part D. Additionally, premiums are higher and vary based on location and gender— the popular Medigap plan, Medicare Plan F, costs $306 per month for all genders in New York but costs around $139 for men and $121 for women in Austin, Texas.

“We see more affluent people opt for Medicare supplements because they like the peace of mind and flexibility,” Metzman says. “It’s another philosophy of coverage, where you can and are willing to pay out-of-pocket or buy for standalone policies for dental, vision and hearing.”

Beyond coverage, Metzman notes that people should be aware of late-enrollment penalties. If a person missed the initial enrollment period, a lifetime penalty is added in form of a higher Part B premium. By signing up in that initial period, enrollees can also avoid underwriting, which is when health insurers review a person’s medical history to determine whether they will offer coverage and what premiums to charge. Still, if one does miss the initial enrollment period, there is a general enrollment period between Jan. 1 and March 31, and coverage would start July 1.

Medicare can provide cost-effective, inclusive coverage, but enrollees have to puzzle together the plans that will work for their lifestyles, health and budgets. Metzman advises employers to offer resources and advisors with Medicare expertise to their workforce, and encourages people to start asking questions about it sooner rather than later.

“There are more than 20,000 permutations of Medicare plans across the country,” he says. “We have to help people decide how, when and where to sign up for Medicare.”