I Thought Medicare Was Free

By Rob McCreary

One of the most anticipated dates in your golden years is the time just before you turn 65 when you are thinking about the government starting to take care of you.  You probably have already applied for your AARP card and also are getting senior discounts at the movies. Like me, you were probably disappointed to find that the AARP group is a combination of a slick marketing organization and a political party. They want to program what you buy and how you think.  The senior discount at the movies really is not that great because you start attending matinées like you did when your parents dropped you off on Saturdays. Our last movie savings, for example, was 25 cents below the matinée price.

Finally A Free Lunch

But your expectation for Medicare was different because you have been paying premiums for 40 years.  I was simply quivering with anticipation because it was advertised as being free. Well not really – Only Part A is free and Part A only covers hospitalization. The day-to-day interaction with the rest of the health industry and prescription drugs are covered by Part B and Part D and they are not free. Part A also doesn’t cover the medigap which is about as wide as the Grand Canyon.

I’ll Stay On My Old Plan

                 When I found out that Medicare was not free and I was not retiring any time soon I asked the logical question. Am I better off waiting to enroll in Medicare and staying on my group plan as supplemented by a company sponsored HSA account? At first I was hopeful because I found advice that suggested you can defer enrollment if you are still employed and participating in the group plan. However, that advice was like the free Medicare. You are not permitted to remain on a group plan if you are a small group employer, which means less than 20 employees. This made no sense to me because there are thousands of small businesses with the financial ability to support healthcare plans as supplemented by Heath Savings Accounts. Aside from the premiums being reasonable, the high deductible plans we have always used made all kinds of sense to me as incenting careful first dollar expenditures and, ultimately, catastrophe insurance. I guess this is exactly the reason the insurance industry convinced the government to design Medicare to force small groups to jettison sick and sicker oldsters from their “Cadillac” plans. I had no choice but to enroll in Medicare within 90 days before or after my 65th birthday or else I would be forever barred.

 Your First IRMAA

                By now you can understand why I was starting to suspect retirement healthcare was rigged, but I was still in the early hours of my education. The next thing I got from Social Security was my IRMAA adjustment. Medicare did not advertise this adjustment when I was signing up, so I had no idea that in 2007, as a stop-gap funding plan, Congress elected to slam high earners even if they are in perfectly good health by having them pay up to 3 times what a lower wage earner pays for Part B. Maybe this is why the government accepted the sick and sicker oldsters? So now Medicare is morphing from free to not so free, and I am being asked to pay my fair IRMAA share after having contributed at the payroll max for more than 40 years. At this point I was surprised but resigned. What else could I do? Surely, the surprises had ended.

Unbeknownst to me, there was more to come because in my first few transitional months on Medicare I was still covered for the gap in Medicare insurance by my employer group plan. In essence Anthem served as the medigap insurer for the 20% that Parts A and B won’t cover. In fact, they did so happily at full premium!!!! What a deal for them- 20% exposure for 100% of the old premium.

A Hole in the Donut

               Fast forward seven months and now my wife and I are both 65 and we both are enrolled in Medicare and we are off the group plan, but we have a serious gap in our coverage. Welcome to the world of medigap- those insurers who charge premiums to insure virtually everything that Parts A and B won’t cover. This is Plan F coverage, and you can get Plan F insurance without any medical underwriting during the open enrollment period. This is a big deal. If you have a preexisting condition and you miss the enrollment period, you may have to get a medical exam. Also, if you elect Plan F coverage from so-called “Medicare Advantage “ providers and later on you change insurers, you will have to pass medical underwriting. These network plans are cheaper in the beginning, but if you don’t like their group restrictions, you may never get medigap insurance if you try to switch.

A Hole in the Donut Hole

                After A, B and F there is still a hole in the coverage. You have to think about prescriptions. Parts A and B and Plan F don’t cover meds. It is an altogether separate plan design also with open enrollment but with four phases of coverage that start with the patient deductible ($400), then the patient pays 25% up to $3750, then the patient pays 75% up to $5000, then the government pays 95% above $5000. Also, because our prescriptions are different I get my meds from Walmart/Humana and my wife gets hers from Aetna/CVS.

You’ll Need A Sherpa For This Journey

                I got the final bills from the wonderful consultant, Kelly Walter, who led me through this mine field of inscrutable legislation. I ended up paying almost 2.5x what my share of the group plan would have been with my employer. I also learned that the wonderful Health Savings Account that I so carefully built, cannot be tapped to pay most of the Part B, Part F or Medigap premiums.

I thought Medicare was free and now learn that all I can buy with my HSA is band aids and hearing aids.



Rob McCrearyI Thought Medicare Was Free


  1. Chris Parke


    Loved this summary. I haven’t tackled this yet since I’m still working and continue to build up my HSA account, but have investigated this to know that as long as I’m working I’m staying away from this mess!!!

  2. Jack Wilson

    Rob, to quote the Emperor Claudius “Words fail me.” I am not anti-government, but any program that involves finances they make a mess of. Like you, my Medicare premiums are as high as if I had paid zero during my working career. Considering what they collected and the concurrent time value of money (no distributions until 65, or after) and in any other context it would be criminal.

  3. Heath Mason

    Rob…SO depressing, but not at all surprising! Our federal government at work generally means, “It’s complicated!”

  4. chip mccreary

    Rob, excellent article. I’m two years behind you and when my times comes to enroll, I’m calling Kelly Walter. All these moving parts and plans will force me off the golf course and I cannot afford to do that!!

  5. steve osborn

    good post. i just turned 65 and after looking at all this i decided i was better off working until i couldn’t any more. luckily we have a large group plan and i don’t have to deal with this but it was unbelievable how complicated it is.i am also glad to know that there are people out there that can walk you through it all when the time comes.

  6. Paul Nachtwey

    Rob, thanks for another provocative article. The Medicare “bargain” is certainly not what many would expect. But I have some points perhaps worth considering. For Medicare beneficiaries with supplemental coverages, the out-of-pocket costs when accessing care are minimal compared to the vast majority of group plans. Although complex as you so eloquently outlined, we’ve found that Medicare is almost always a “better deal” than a group plan. From the perspective of a larger employer where the group plan is primary, as you might imagine due to their relative advanced ages we find that Medicare eligible employees who remain on the group plan represent an employer’s highest risk sub-population . And with extended working lives, this phenomenon has grown and is now driving costs for many employers.

    1. Jack Wilson

      No disrespect intended, but doesn’t your analysis ignore all the premiums you paid in over your working career?

  7. Tim Pistell

    When I turned 65, after 1 1/2 years into retirement, my employer’s retirement plan became secondary to Medicare as primary. Fortunately, I am grandfathered into a good secondary plan where there is rarely a residual that we have to pay. However, my wife and I receive $43k gross/year from Social Security, but net of only $31k after our Medicare Part B & D. And of course, for income tax purposes, they tax the gross amount.

    Regarding Social Security payments, we began them asap. We could have waited longer for a higher monthly benefit, but the cash payback period for those higher monthly payments, versus the foregone monthly payments, calculated out to 13 1/2 years, even without a return applied to the earlier payments. Social Security may or may not be broke in 13 years, but I am fairly confident that they will tax most of it away from me by then.

    BTW, the last time I saw this calculation, my lifetime contributions to Social Security, having max’ed out each year, would have been worth $1.6mil at my retirement with only an assumed 5% ROR. Assuming an annual draw of 4%, this would give me $64k/year, more than double my SS payments, without eroding the corpus to flow to my estate. Thank goodness for 401k’s and IRA’s.

  8. Michael Redman

    Hi Rob,
    I have recently been going through the same process, and you are right on the button. It is a disgraceful system that seems to be complicated on purpose. I get about 6 mailings every week by some part of the medicare group of companies and the billings, mistakes they make, the uneducated people on the other side of the phone when I call are overwhelming ! Thank you for boiling some of it down, now we just need an advocate group to help us continue to walk the straight and narrow, so the system doesn’t drop us altogether – lol

  9. Greg Rufus

    I will one up you. Im 61 and retired. I’m forced to use Obamacare. Trump is right in saying its a disaster. My choices for coverage were relegated to 2 insurance carriers since I live in Lorain county. If I want to follow in network vs not, I cannot keep my same doctors. worse off, University hospitals insurance subcontracted there coverage to a hospital in Lorain, so theoretically If I chose UH, I couldn’t even use the Cuyahoga network of UH. So this limited me to Oscar/Cleveland Clinic. so if I dont use CC doctors, say a dermatologist etc, Im not covered because its out of network. Being on high deductible now shows me the true cost of prescriptions. Its absolutely out of control. One example is eye drops. Over $1400 per quarter. Totally out of control. Our politicians were smart enough to exempt themselves from this morass. Drain the swamp has new meaning.

  10. john sinnenberg

    Thanks, Rob: My brother went through this with a similar experience. Thankfully he has documented his trip so that I can fathom my way through it when it is my turn. The 3X multiple was a big surprise. Sounds like Bernie’s view of ‘fair share’.

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