Medicare. The name is as recognizable as Kleenex®, KFC®, and Coca Cola®. But if asked what Medicare is, most people can only tell you it’s government health insurance for older people. If you’re going to do serious retirement planning you need to know more than that. If you don’t, you could miss sign up deadlines and that will cost you.
National health insurance has been talked about since 1912 when Teddy Roosevelt included it in his platform. The idea didn’t go anywhere until 1945 when Harry Truman asked Congress to create a national health insurance fund open to all Americans. As hard as he tried, Truman couldn’t make it happen. Neither could John F. Kennedy. Finally, on July 30, 1965, Lyndon Johnson signed legislation creating Medicare for Americans 65 and older. Today more than 56 million Americans are enrolled in the Medicare program.
Initially, Medicare had just two parts. Part A hospital insurance and Part B medical insurance. Although Medicare has expanded since then, Parts A and B still exist and are referred to as Original Medicare. Today, there are two additional components – Part C Medicare Advantage Plans, sometimes called MA Plans, and Part D drug coverage.
Part C or Medicare Advantage Plans are offered by private companies approved by Medicare. If you join a Medicare Advantage Plan you still have Medicare, but Part A and B coverage come from the Medicare Advantage Plan, not from Original Medicare.
Part D prescription drug coverage is usually included in Medicare Advantage Plans. But for plans that don’t offer drug coverage, you can join a Medicare Prescription Drug Plan. Don’t try to double dip in prescription plans though. If you’re in a Medicare Advantage Plan that includes drug coverage and you join a Medicare Prescription Drug Plan you will be un-enrolled from your MA Plan and returned to Original Medicare.
To be eligible for Medicare you must be at least 65 years old or have special conditions or disabilities. The initial enrollment period (IEP) is 7 months—3 months before your 65th birthday, the month you turn 65, and 3 months after the month you turn 65.
If you meet the requirements, there is no cost to you for Medicare Part A. There is, however, a monthly premium for Part B. Once you sign up for Part B you must pay the premium every month for as long as you have Part B even if you don’t use it. In most cases, if you don’t sign up for Part B when you’re first eligible, you’ll have to pay a late enrollment penalty when you do enroll. Your monthly premium for Part B may go up 10% for each 12-month period that you could have had Part B. Look at this example from Medicare: Your initial Enrollment Period (IEP) ended September 30, 2009. You waited to sign up for Part B until the General Enrollment Period in March 2012. Your Part B premium penalty is 20%. (While you waited a total of 30 months to sign up, this included only 2 full 12-month periods.)
You’ll have to pay the late enrollment penalty for as long as you have Part B. Also, you may have to wait until the General Enrollment Period, January 1-March 31, to enroll in Part B coverage that begins July 1 of that year.
If you drop Part B, you won’t be able to enroll again until the next General Enrollment Period, January 1-March 31st. At re-enrollment, you will most likely get hit with the late enrollment penalty, which, again, you will have to pay for as long as you have Part B coverage.
There are three ways to enroll in Medicare:
- Online at socialsecurity.gov/medicare/apply.html
- Visit your local Social Security Office
- Call Social Security at 1-800-772-1213
If you have medical coverage through a current or former employer, it’s important to understand how your current coverage works with Medicare before making any decisions. Doing your homework will eliminate surprises that could cost time, money, and a lot of red tape.
Let’s look at the pieces of Medicare in more detail.
Medicare Part A
Medicare Part A is one of the original components of Medicare. It’s the element that provides hospital insurance. In broad categories Part A covers:
- Hospital Care
- Skilled nursing facility care
- Nursing home care (as long as custodial care is not the only care you need)
- Home health services.
Part A covers services such as lab tests, surgeries, and doctor visits as well as supplies like wheelchairs and walkers if they’re considered medically necessary to treat a disease or condition.
If you’re in a Medicare Advantage Plan or other Medicare plan, there may be different rules, but your plan is required to provide at least the same coverage as Original Medicare. Some of the things Medicare Part A does not cover include:
- Long-term care
- Most dental care
- Eye exams related to prescribing glasses
- Cosmetic surgery
- Hearing aids and exams for fitting them
- Routine foot care
It’s always a good idea to talk to your doctor or health care provider to make sure that what you need is covered by Medicare.
Generally, you don’t pay a monthly premium for Medicare Part A if you or your spouse worked for 10 years and paid Medicare taxes. You may hear it called premium-free Part A. However, it doesn’t mean that you incur no costs. There is an inpatient deductible as well as coinsurance. If you have a hospital stay in 2017:
- There is a deductible of $1,316 for each benefit period
- According to Medicare, a benefit period begins the day you’re admitted as an inpatient in a hospital or skilled nursing facility (SNF). The benefit period ends when you haven’t gotten any inpatient hospital care for 60 days in a row. If you go into a hospital or SNF after one benefit period has ended, a new benefit period begins. You must pay the inpatient hospital deductible for each benefit period. There is no limit to the number of benefit periods.
- You pay $0 coinsurance days 1-60 for each benefit period
- You pay $329/day coinsurance days 61-90 for each benefit period
- You pay $658/day coinsurance days 91 and beyond for each “lifetime reserve day” after day 90 for each benefit period.
- Medicare defines lifetime reserve days as additional days Medicare will pay for when you’re in a hospital more than 90 days. You have 60 reserve days that can be used during your lifetime. For those days, Medicare pays all covered costs except for daily coinsurance.
- You pay all costs when you exhaust your lifetime reserve days.
- To be eligible for Medicare Part A you must be at least 65 years old or have special conditions or disabilities. The Medicare calculator will confirm your eligibility. If you’re not eligible it will provide the initial enrollment period (IEP) when you can sign up. The IEP window is 7 months—3 months before your 65th birthday, the month you turn 65, and 3 months after the month you turn 65.
Medicare Part B
Medicare Part B is the second part of Original Medicare. It’s the element that provides medical insurance. Part B covers services or supplies necessary to diagnose or treat a medical condition that meets accepted standards of medical practice as well as preventive services. There is no cost to you for most preventive services if you receive them from a health care provider who accepts assignment, meaning the provider agrees to be paid directly by Medicare, accepts the amount Medicare pays, and agrees not to bill you for more than the Medicare deductible and coinsurance. Part B covers things like:
- Clinical research
- Ambulance services
- Durable medical equipment (DME)
- Mental health
- Partial hospitalization
- Getting a second opinion before surgery
- Limited outpatient prescription drugs
Unlike premium-free Part A, there is a monthly premium for Part B. In 2017 the standard premium amount is $134. If you receive Social Security the premium is automatically deducted from your benefit payment. There are other factors that can affect the Part B premium. These can be found at www.medicare.gov.
In addition to the monthly premium, you pay $183 each year for the Part B deductible. After that you typically pay 20% of the Medicare approved amount for:
- Most doctor services (including most doctor services while you’re a hospital inpatient)
- Outpatient therapy
- Durable medical equipment (such as wheel chairs, walkers, or hospital beds ordered by your doctor for in-home use)
Some of the costs not covered by Part B may be paid by Medicare Advantage Plans or supplemental insurance which will be discussed later.
Just like Part A, you’re eligible to sign up for Part B Medicare when you turn 65. The seven month initial enrollment period (IEP) runs from three months before your 65th birthday, the month you turn 65, and the three months after the month you turn 65.
Once you sign up for Part B you must pay the premium every month for as long as you have Part B even if you don’t use it.
If you don’t sign up for Part B when you’re first eligible, in most cases, you’ll have to pay a late enrollment penalty when you do enroll. Your monthly premium for Part B may go up 10% for each 12-month period that you could have had Part B. You’ll have to pay the late enrollment penalty for as long as you have Part B. Also, you may have to wait until the next General Enrollment Period, January 1-March 31, to enroll in Part B coverage that begins July 1 of that year.
If you have Part B, decide to drop it, and then want it back, you won’t be able to enroll again until the next General Enrollment Period, January 1-March 31st,. At re-enrollment you will most likely get hit with the late enrollment penalty, which, again, you will have to pay for as long as you have Part B coverage.
If you continue working after your 65th birthday and have employer health coverage, or you have coverage through a former employer or a union, it may be to your advantage to delay enrolling in Part B. In some instances you can sign up for Part B without penalty when your current insurance coverage ends. It’s important to understand how your current coverage works with Medicare before making any decisions.
Medicare Part C
Part C Medicare is often referred to as Medicare Advantage or MA plans. They include Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), Private Fee-for-Service Plans (PFFS), Special Needs Plans, and Medicare Medical Savings Accounts (MSA). These plans are offered by private companies approved by Medicare. If you’re enrolled in an MA plan most Medicare services are covered through the plan and are not paid for by Original Medicare. If you join a Medicare Advantage Plan, you still have Medicare, but your Part A hospital insurance and Part B medical insurance coverage come from the Medicare Advantage Plan, not from Original Medicare.
With few exceptions, most Part C Medicare plans require you to get your care and services from doctors, other health care providers, or hospitals in the plan’s network.
While the plans cover all services offered by Original Medicare, they always cover you for emergency and urgently needed care, and may cover you for vision, hearing, dental, and/or health and wellness programs. Most plans include Medicare prescription drug coverage (Part D).
Medicare pays a fixed amount for your care each month to the companies offering Medicare Advantage plans and the plans have to follow rules set by Medicare. However, each MA plan can charge different out-of-pocket costs and they can have different rules for getting various services.
What you pay for Medicare Advantage Plans varies. Your out-of-pocket costs depend on:
- Whether the plan charges a monthly premium
- Whether the plan pays any of your monthly Medicare Part B premium
- Whether the plan has a yearly deductible or additional deductibles
- The copayment or coinsurance amount you pay for each visit or service
- The type of health care services you need and how often you get them
- Whether you go to a doctor or supplier who accepts assignment
- Whether you follow the MA’s rules, like using network providers
- Whether you need extra benefits and if the plan charges for them
- The plan’s yearly limit on your out-of-pocket costs for all medical services
- Whether you have Medicaid or get help from your state
Once a year Medicare Advantage Plans set the amounts they charge for premiums, deductibles, and services. It is the plan, not Medicare that decides how much you pay. Changes can only occur once a year and they take effect each January 1st.
If you’re in a Medicare plan, review the Evidence of Coverage (EOC) and Annual Notice of Change (ANOC). The plan sends these reports each fall. The EOC gives you details about what the plan covers and how much you’ll pay. The ANOC includes any changes in coverage, costs, or service area that will take effect the following January.
Generally, Medicare Advantage plans don’t pay for services that are not medically necessary. You can ask the plan for a written advance coverage decision to make sure a service is medically necessary and will be covered. If the plan won’t pay for a service you think you need, you have to pay all the costs if you didn’t ask for an advance coverage decision.
If you’re already in a Medicare Advantage Plan and want to switch to another, join the new plan during one of its enrollment periods. You will automatically be dis-enrolled from the old plan when you’re new coverage begins.
If you want to leave your current plan and return to Original Medicare, contact your current plan or call 1-800-MEDICARE.
Unless you have drug coverage, you should carefully consider Medicare Prescription Drug Coverage (Part D) as part of a MA plan. You may also want to consider a Medicare Supplement Insurance (Medigap) policy.
Finally, if you have existing health coverage through your employer, union, or other benefits administrator, talk to them about their rules before you join a Medicare Advantage Plan. In some cases, joining an MA Plan might cause you to lose employer or union coverage for yourself, your spouse and/or dependents. In other cases, if you join a MA Plan, you may still be able to use your employer or union coverage along with the plan you join. If you drop employer or union coverage, you may not be able to get it back.
Medicare Part D
An important part of any health insurance plan for mature Americans is prescription drug coverage. That’s where Medicare Part D comes in—the drug plan. Prescription drug coverage is available to everyone who has Medicare, but the type of drug coverage you have depends on how you receive Medicare.
Medicare prescription drug plans, sometimes called PDPs, can be a component added to Original Medicare. Or drug coverage may be part of a Medicare Advantage plan, which provides Part A, Part B, and Part D.
Each Medicare drug plan has its own list of covered drugs, called a formulary. Many plans place drugs into different tiers on their formularies and drugs in each tier have a different cost. For example, a drug in a lower tier will generally cost you less than a drug in a higher tier. If your prescriber thinks you need a drug that’s on a higher tier, you or your prescriber can ask your plan for an exception to get a lower copayment.
A Medicare drug plan can make changes to its formulary during the year. If a change affects a drug you are taking, the plan must provide you written notice at least 60 days before the change takes effect. Or, at the time you request a refill, you must be given written notice of the change and a 60-day supply of the drug under the same rules as before the change. Certain rules may apply to Medicare drug plan coverage.
- You and/or your prescriber must contact the drug plan before certain prescriptions can be filled. Your prescriber may need to show that the drug is medically necessary before the plan will cover it.
- There may be limits to how much medication you can get each time a prescription is filled.
- Step therapy: You must try one or more similar, lower cost drugs before the plan will cover the prescribed drug.
Except for vaccines covered under Medicare Part B, Medicare drug plans must cover all commercially available vaccines (like the shingles vaccine) when medically necessary to prevent illness.
In most cases, the prescription drugs you get in a hospital outpatient setting, like an emergency department or during observation services, aren’t covered by Part B. These are sometimes called self-administered drugs that you would normally take on your own. Your Medicare drug plan may cover these drugs under certain circumstances. You’ll probably have to pay out-of-pocket for these self-administered drugs and submit a claim to your drug plan for reimbursement.
There are also rules governing automatic refill mail-order service for prescription drugs. The bottom line: always check with your Medicare drug plan to find the specific drug coverage rules for you.
And then, there’s the infamous donut hole. Most Medicare drug plans have a coverage gap. In 2017, after you and your drug plan have spent $3700 on covered drugs, you enter the coverage gap. In the gap, you’ll pay up to 40% of the plan’s cost for covered brand-name prescription drugs and 51% for generics. Some of the cost counts toward your out-of-pocket expenses and when you hit the out-of-pocket maximum, which is $4950 in 2017, you come out of the donut hole and automatically get catastrophic coverage, which assures you only pay a small coinsurance amount or copayment for covered drugs for the rest of the year.
Warning! Joining a Medicare drug plan may affect your Medicare Advantage Plan. Your MA plan will dis-enroll you and send you back to Original Medicare if your MA plan includes prescription drug coverage and you join a Part D plan. You cannot double-dip.
Most Medicare Prescription Drug Plans charge a monthly fee that varies by plan. You pay this in addition to the Medicare Part B premium. If you join an MA Plan or Medicare Cost Plan that includes Medicare prescription drug coverage, the plan’s monthly premium may include an amount for drug coverage. Be sure to check.
Medicare Supplement Insurance
If you’ve looked at all the pieces of Medicare you may be pulling out your hair (which is not a covered Medicare expense). So, let’s throw one more piece into the mix—Medicare Supplement Insurance, or what the government calls Medigap.
Medicare Supplements are different than a Medicare Advantage Plan. In fact, you cannot have a Medicare Supplement policy AND a Medicare Advantage Plan. The purpose of MA Plans is to get Medicare benefits. Medicare Supplement policies help pay some of the health care costs Original Medicare doesn’t cover, such as copayments, coinsurance, and deductibles. If you have Original Medicare and buy a Medicare Supplement policy, Medicare pays its share of the Medicare-approved amount for covered health care costs. Then your supplement policy pays its share.
Doctor selection is different with Medicare Supplement policies. You can see any doctor, whether the doctor accepts Medicare assignment or not. Medicare Advantage plans, with few exceptions, require you to see doctors who accept assignment and are on their network.
When considering Medicare Supplement policies:
- You must have Medicare Part A and Part B.
- If you have a Medicare Advantage Plan, you can apply for a Medicare Supplement policy, but make sure you can leave the MA Plan before your supplement policy begins.
- You pay the private insurance company a monthly premium for your Medicare Supplement policy in addition to the monthly Part B premium you pay Medicare.
- A Medicare Supplement policy covers only one person. If both you and your spouse want Medicare Supplement coverage, you have to buy separate policies.
- You can buy a Medicare Supplement policy from any insurance company licensed in your state to sell it.
- Any standardized Medicare Supplement policy is guaranteed renewable even if you have health problems. The insurance company cannot cancel your policy as long as you pay the premium.
- Some Medicare Supplements sold in the past covered prescription drugs. However, Medicare Supplement policies sold after January 1, 2006 are not allowed to include prescription drug coverage. If you want/need prescription drug coverage, you can join a Medicare Prescription Drug Plan (Part D).
- It is illegal for anyone to sell you a Medicare Supplement policy if you have a Medicare Medical Savings Account (MSA) Plan.
- Medicare Supplement policies generally don’t cover long-term care, vision, dental, hearing aids, eyeglasses, or private-duty nursing.
All Medicare Supplement premiums are not the same. In fact, insurance companies may charge different premiums for the exact same policy. So, as you shop, be sure you’re comparing apples to apples, for example, comparing Plan A from one company with Plan A from another company.
The best time to buy a supplement policy is during your six-month Medicare Supplement open enrollment period. During that time you can buy any Medicare Supplement policy sold in your state, even if you have health problems. This period automatically starts the month you turn 65 and are enrolled in Medicare Part B. After this enrollment period, you may not be able to buy a Medicare Supplement policy. If you are able to buy one, it may cost more.
And it may sound simple, but when considering any Medicare Supplement policy, make sure you fully understand the application, when your policy will begin, and the company’s methods of payment. It’s always best to consult a Medicare Supplement specialist before making your final decision.
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