Most pastors who have opted out of Social Security understand that they are on their own for their retirement savings. That part is fairly straightforward. But what about Medicare? How does opting out of Social Security affect eligibility? What are the options available?

There is a lot less clarity surrounding Medicare for pastors who have opted out of Social Security. Allow me to sort things out for you so that you understand how Medicare works and how it will be affected by opting out of Social Security.

Parts Of Medicare Explained

Let’s start at the beginning. What is Medicare? Medicare is the government’s health insurance program for people over age 65 and those with severe disabilities. It is often confused with Medicaid, which is the state and federal program that provides health coverage for low-income individuals. Thus, Medicare is based on age and Medicaid is based on income.

To understand how opting out of Social Security affects Medicare, you first need to understand the different parts of Medicare. It is broken down into four parts:

Medicare Part A: Hospital Coverage

Part A provides coverage for inpatient hospital care, inpatient stays in most skilled nursing facilities, and hospice and home health services.

Medicare Part B: Medical Coverage

Part B provides coverage for outpatient and preventive care, doctor and clinical lab services, physical and occupational therapy, home health care, and screenings, surgical fees, and supplies. Parts A and B are also referred to as Original Medicare.

Medicare Part C: Medicare Advantage (Combination Of A & B)

Called Medicare Advantage, Part C is an alternative way of getting the coverage from parts A and B. It can also be combined with part D to create a Medicare Advantage Prescription Drug Plan.

Medicare Part D: Prescription Drug Coverage

Part D helps cover the cost of prescription drugs. Medicare Part D can be a stand-alone plan or can be combined with Part C to create a Medicare Advantage Prescription Drug Plan.

What Medicare Costs

For most people who have paid into Social Security, the Part A premium is free, but there are deductibles and coinsurance. The Part B premium costs $134 a month for 2018, and there is also a deductible and coinsurance. Part C premium costs vary by plan, as do Part D costs.

Differences For Pastors Who Have Opted Out

While you may hear talk of “eligibility” for Medicare, opting out of Social Security only affects your costs, not your eligibility. Anyone over age 65 who is a US citizen or legal resident and has lived in the US continuously for at least 5 years is eligible for Medicare. You can double check with this Eligibility & Premium Calculator from medicare.gov.

Only the cost of Part A is affected by opting out of Social Security. Just as you must have paid into Social Security for 40 quarters to be eligible to receive retirement benefits, you must have done the same to be eligible to receive premium-free Part A. If you paid into the system for 30-39 quarters, the premium will cost you $232 a month. If you have less than 30 quarters your premium will cost $422. These are the costs for 2018 and may change.

Generally, if you worked 10 years before opting out of Social Security it shouldn’t affect you. If you worked 7 ½ to 10 years, you will pay the lower premium. Anything less than 7 ½ years will leave you paying the higher premium. If you are close to the cutoff for one of these ranges, it might be worthwhile to get a part-time job for a little while until you have enough quarter credit to move into the next cost bracket. In 2018, you only need to earn $1,320 of wages for one quarter credit towards eligibility.

Spousal Benefits

Just like with Social Security retirement benefits, you can receive discounted or free Medicare Part A premiums based on your spouse’s work history. First, you must have been married for at least one year. Second, you must be at least age 65. Third, your spouse with an eligible work history must be at least age 62. If your spouse is too young, you will have to pay the premiums only until he or she reaches age 62.

As you can see, opting out of Social Security doesn’t have as big of an effect on Medicare as it does on your retirement benefits. However, the effects are still too big to be ignored. If you are only a few quarters away from eligibility for reduced or free premiums, you should weigh the benefits of doing some secular work on the side.

If you anticipate paying full premiums, consider saving towards them in an HSA for the tax benefits. No matter your situation, the fact that you are learning about this and preparing for your future puts you way ahead of most people. Good job, I’m proud of you!