One of the best benefits we receive as military retirees is medical insurance. During your first retirement you have access to insurance similar to what our families had during our time on Active Duty. That will change when you become eligible for Medicare. Once eligible for Medicare, you'll switch to Tricare for Life (TFL). Let's take a look at what that means.
What is TFL?
TFL is a combination of Medicare and Tricare. When eligible for Medicare, you must enroll in Medicare Part A and B. You're essentially automatically enrolled in Part A as your lifetime Medicare taxes (or the Medicare taxes your spouse paid) pre-paid for your Part A coverage. Part B has a monthly premium. There is also Medicare Part D which provides prescription coverage, but it is not required in order to obtain TFL and generally isn't worth it for military retirees.
Under TFL Medicare is the primary insurance and Tricare acts as a supplement. If a medical expense is covered by both Medicare and Tricare, you don't pay anything for it.
When am I Eligible for Medicare?
In most cases, you and your spouse will become eligible for Medicare when you turn 65. It used to be that Social Security Full Retirement Age was 65 so you became eligible for both at the same time. That is no longer the case so make sure you pay attention to that. But that isn't the only time you can become eligible for Medicare.
You or your spouse also become eligible for Medicare if you have been receiving Social Security Disability Insurance (SSDI) for 24 months. You are also eligible for Medicare if you have Lou Gehrig's disease or permanent kidney failure requiring regular dialysis or a kidney transplant.
If you continue to work after age 65, there is a booby trap waiting for you. If you have qualified health insurance coverage through your employer, you can delay Medicare enrollment without penalty. Your HR department may advise you of this option. What they probably won't tell you is that if you don't sign up for Medicare, you'll lose your Tricare coverage. You may want to take that into consideration before you delay starting Medicare.
What Will You Pay for Medicare/TFL?
As mentioned, Medicare Part A is prepaid. Medicare Part B has a premium. As of 2022 the premium (per individual) is $170.10 per month. Surprisingly, it actually goes down in 2023 to $164.90 per month. There isn't a premium for your Tricare coverage. But the premiums don't stop there.
Medicare premiums increase as your income increases...as measured by Adjusted Gross Income (AGI). For 2022 the premium increases are as follows (remember this is per person):
Your premium is normally determined by your income from 2 years prior. For example, 2023 premiums are based on 2021 AGI.
You Might Pay More
As I mentioned above, if your medical expense is covered by both Medicare and Tricare, you don't pay anything. That isn't always the case. One notable exception is prescription medications (It is also worth noting Medicare doesn't cover you for medical expenses overseas). Only Tricare covers prescriptions (Medicare Part D does cover it, but I don't recommend it for military retirees, for now). In the case of an expense covered by Tricare only, you'll pay a co-pay. The co-pay for medications depends on the Schedule and for other expenses it is normally 20%. There is an annual catastrophic cap of $3,000, which is the maximum amount you will pay out of pocket. In the case of expenses covered by Medicare only, you generally pay a 20% co-pay with no cap. There are very few things Medicare covers that Tricare doesn't (chiropractors are one).
Things to Keep an Eye On
As mentioned, your premium is based on your income from 2 years prior. If you've had a life change such as retiring, you can file for a waiver for the premium increase. You do this on a Form SSA-44.
If you go $1 over the premium threshold, you pay the full premium increase. This means you'll want to carefully manage your income after you reach age 65 (maybe even age 63). If you have a great deal of money in pre-tax accounts this can be a challenge when Required Minimum Distributions (RMD) kick in at age 72. If you retire prior to age 65, you may want to bite the bullet and take distributions now (maybe as Roth Conversions) so that you don't pay huge premiums after age 72. At age 65, you'll still want to take enough distributions to fill up the lowest bracket ($182,000 for couples and $91,000 for single) and continue to do that until RMDs kick in. You may want to continue to do that after age 72 as well (RMDs may be more) if married, as an RMD that keeps a couple below the limit may not keep a widow(er) below the premium increase threshold.
Military Finances are Different
We're pretty sure most financial advisors aren't that familiar with TFL. If you don't want to have to explain your military and veterans benefits to him or her, you might want to work with a Financial Advisor or Planner that works with people like you every day. If you'd like to find out more about how we do that, use the button below to schedule a free initial consultation.
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