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Basics of Medicare
Medicare is the government-run health insurance program that is available to people 65 and older and, in some specific cases, younger people as well. Coverage is split into several parts and includes routine medical care, treatment in a doctor’s office or hospital, and prescription drugs. Medicare plans may also include coverage for dental, hearing, and vision, depending on the plan.
Those that are eligible for Medicare can choose to use the original Medicare plan or to sign up for a Medicare Advantage plan with a private health insurance company. All Medicare recipients must pay a monthly premium for Part B of original Medicare, and there may be additional costs when you choose Medicare Advantage or add on a supplemental plan.
Who is eligible for Medicare?
To enroll in Medicare, you need to meet certain criteria. There are two main categories of people eligible for Medicare.
People 65 or older are eligible if they:
- Are a U.S. citizen or permanent resident (who has resided in the U.S. for at least five years)
- Have worked long enough to be eligible for Social Security (or railroad retirement benefits) or are already receiving them
- Have paid Medicare taxes while working if they are a government employee (or are married to one) who has not paid into Social Security
- Enroll and pay a premium for Part A as well as the premium for Part B if they are eligible in all other ways but have not worked long enough to qualify for full benefits
People under 65 are eligible if they:
- Have been eligible for Social Security benefits for at least 24 months (not required to be consecutive)
- Meet all conditions and receive a disability pension from the Railroad Retirement Board
- Have one of two specific health conditions: Lou Gehrig’s disease, or permanent kidney failure requiring ongoing dialysis or a transplant
Full Medicare benefits include Part A coverage at no cost and Part B at the standard monthly premium.
The Parts of Medicare
Medicare coverage is divided into four parts, each representing a different type of coverage. Original Medicare includes two of those parts, while the other two are optional coverage.
Medicare Part A – Hospital
Part A covers hospital care, which includes inpatient hospital stays, hospice, skilled nursing, and some home health care services. Part A is included with original Medicare and has some out-of-pocket expenses, including deductibles and coinsurance amounts. These are pre-determined and can change from year to year.
There is no cost to those eligible for Medicare for Part A coverage as long as they have paid into Medicare through payroll taxes for long enough throughout their working years, and in most cases, you will be automatically enrolled. Those who have not paid in or have not paid in long enough, may still enroll at a monthly cost.
Medicare Part B – Medical
Part B covers medical care in a clinic or doctor’s office, including outpatient services, tests, and treatment. This is the second part of original Medicare, and is also subject to deductibles and coinsurance amounts.
Medicare Parts A and B work together to provide comprehensive coverage. For example, if you are in the hospital for surgery, Part A will cover the hospital stay, while Part B will cover the surgeon’s services.
Unlike Part A, there is a monthly cost to be enrolled in Medicare Part B for all recipients. That monthly rate is determined each year, and is the same for most Medicare recipients. Those that are over the income threshold set by the government may pay a higher premium.
Enrollment in Part B is optional, but you will need to be enrolled if you want to select a Medicare Advantage plan.
Medicare Part C – Advantage
Medicare Part C combines both Part A and Part B in a plan administered by a private health insurance company. Advantage plans vary in terms of cost, coverage, and additional options. Some plans do not require any additional premium beyond the cost of Part B. Others charge a monthly rate, but may offer lower copays and deductibles as well as additional benefits such as a fitness membership.
Advantage plans, like regular health plans, offer various networks and coverage. They may be a health maintenance organization (HMO), Preferred Provider Organizations (PPO), or in some cases even a point of service (POS) plan. Advantage allows Medicare recipients to choose the plan and network that suits their needs.
In order to enroll in Part C, you must already be enrolled in both Part A and Part B.
Medicare Part D – Prescription Drugs
Coverage for prescription drugs is not automatically included in any of the original Medicare plans, although some Medicare Advantage plans do include it. The only exception to this is prescriptions that are administered during a hospital stay.
If you choose either original Medicare or an Advantage plan that doesn’t come with Part D, you will need to purchase a plan from a private insurance company. Plans vary in terms of coinsurance costs and may require deductibles and copays for some types of prescription drugs.
You can enroll in a Part D plan if you are enrolled in either Part A or Part B, or if you have a Part C Medicare Advantage plan.
Medicare Supplement (Medigap)
As noted above, the original Medicare plan does have some out-of-pocket costs associated with the coverage. These include deductibles, co-pays, and coinsurance amounts for which the insured will be responsible. To cover some or all of those costs, you have the option to purchase a Medicare supplement plan, also known as a Medigap plan, from a private insurance company.
Medicare supplement plans are standardized, and in all but three states they use a set of letter codes that provide the same coverage regardless of who sells them. Minnesota, Wisconsin, and Massachusetts do not use the letter-coded plans, but they do have their own set of standard plans. Again, the coverage is the same regardless of the company that sells them.
Medicare supplement plans can only be purchased in conjunction with original Medicare, and not with a Medicare Advantage plan.
Medigap Standardized Plans
The letter-coded Medicare supplement plans are sold by private companies, and these companies can choose which plans to offer. Most offer a selection of the most popular plans.
Those that were eligible for Medicare before January 1, 2020 can purchase plans that cover the Part B deductible, but a rule change removed those options as of that date. The letter-coded plans offer a variety of choices in terms of both monthly cost and out-of-pocket costs to meet the needs of most people and their budgets.
Each of the three states that do not use these plans offer their own selection of options for Medigap coverage.
In Massachusetts, there are three plans available. The Core plan is the most basic. There are two other plans, Supplement 1 and Supplement 1A. The only difference between these is that Supplement 1 covers the Part B deductible, and as noted above this type of plan is only available if you were eligible for Medicare before January 1, 2020.
In Minnesota, there are two plans, the Basic and the Basic Extended plan. The second of these offers the most comprehensive coverage, although there are still out-of-pocket costs.
In Wisconsin, there is one basic Medigap plan available, and you can also choose to buy the plan with either a 50% or 25% cost-sharing option. There is also a high-deductible version of the plan available.
The Cost of Medicare Coverage
Medicare costs for original Medicare are determined by the government, and can change from year to year. If you have worked long enough, you will not pay anything for your Part A coverage. If you haven’t, your cost for enrolling will be determined based on how long you have worked using a system of work credits.
One work credit is given for each $1,470 in earnings, with a maximum of four credits per year. The cost of Part A is based on three levels of credits:
- Less than 30 work credits: maximum cost
- 30-39 credits: Partial cost
- 40 credits: no cost
The actual rates that you pay for Part A will change from year to year.
The cost of Medicare Part B is the same for everyone, as long as you are eligible. Like Part A, this rate can change from year to year.
Rates for Medicare Advantage, supplemental plans, and Part D coverage vary widely. Some Medicare Advantage plans are available at no additional cost. These plans are offered and administered by private companies, and those companies set the rates for each plan.
What you pay will depend on a number of factors including:
- Where you live
- Your age and gender (particularly for Medicare supplement)
- The out-of-pocket costs you are willing to pay, such as co-pays, coinsurance, and deductibles
- The type of plan (for Advantage) that you choose (HMO plans are generally more affordable than PPO plans because of the lack of out-of-network coverage)
As a general rule, plans with higher deductibles and coinsurance amounts will have a lower monthly cost. Choosing a plan means striking a balance between what you want to pay monthly and what out-of-pocket costs you are prepared to pay when you need care.
What Medicare Covers
The conditions, treatments, and therapies that are covered by Medicare are determined by the federal government and are the same across plans. As a general rule, anything covered by original Medicare will also be covered by a Medicare Advantage plan. Advantage plans may offer additional coverage not available with original Medicare.
To be covered by Medicare, the treatment must be medically necessary and approved by the FDA.
Medicare covers a wide range of medical needs, including durable medical equipment. Some treatments may require pre-approval.
What Medicare Doesn’t Cover
Original Medicare doesn’t cover any treatments that are cosmetic or experimental. In addition, it doesn’t include coverage for dental care, vision, or hearing. Acupuncture is also not covered. These may be included in a Medicare Advantage plan. You may also be able to purchase standalone plans for dental, vision, and hearing coverage.
Neither Medicare Advantage nor original Medicare offer coverage for long-term care, like in-home nursing care. Long-term care insurance is available as a standalone policy from most life and supplemental insurance companies.
How Medicare Claims are Handled
For the most part, a Medicare claim will be handled in much the same way as any other health insurance claim. Your provider will bill Medicare, or, in the case of an Advantage plan, will bill your health insurance company. They will pay the appropriate amount directly to the provider, and the insured doesn’t usually need to do anything further.
You will be responsible for any out-of-pocket costs like coinsurance, and may be required to pay them at the time of service. Any additional charges that are not covered may be billed to you after your visit.
If you have Medigap, the bill will first be sent to Medicare, and then the remaining balance will be billed to your Medicare supplement provider. Depending on your plan, there may still be a balance that you need to pay.
There may be rare situations where you are required to pay up front and submit for reimbursements. This usually happens when you receive care outside the United States.
Choosing and Enrolling in the Right Medicare Plan
Choosing from the many options available for Medicare coverage can seem overwhelming. Having a lot of choices, however, means that you can combine coverage options in a way that suits both your budget and your medical needs. Some of the things that you should consider are:
- Any chronic conditions you have
- Your general level of health
- Any prescriptions you currently take that you anticipate will be long-term
- Whether you prefer to pay more on a monthly basis to avoid the potential for out-of-pocket costs in the future, or pay less monthly and be prepared to pay larger amounts at the time of service, should it be needed
- If there is a specific provider network you would prefer to have access to, including doctors you currently see
- Whether you want to purchase one comprehensive plan or prefer to determine what coverages you want and create your own plan out of standalone options
The many Medicare options allow a great deal of customization and budget-friendly choices. Comparing your options will help you to find what works for you.
The number of people enrolled in Medicare has increased over time, partially due to a longer average lifespan.
Enrolling in a new Medicare plan can only be done during specific enrollment periods. It’s important to know when your window is to make sure you get the coverage you want, or you may have to wait.
You can sign up for Medicare:
- Up to three months before you turn 65
- During the month of your birthday
- Up to three months after you turn 65
- Between January 1 and March 31 of each year (the regular annual enrollment period)
There are also special enrollment periods. You can sign up if:
- You are employed or your spouse is employed and you’re covered by a group or union health plan as part of that work
- Your employment ends or your group coverage ends (you can sign up one month after either of these events and have eight months to sign up)
Missing any of these enrollment periods will mean you will have to wait until the next opportunity. Sign up as soon as you can to avoid gaps in coverage.