Medicare is health insurance for U.S. citizens and legal residents ages 65 and older. Benefits are also available to people with certain disabilities, and those with kidney failure (End-Stage Renal Disease) or Lou Gehrig’s Disease. The federal program was created in 1965 to help seniors pay for their health care expenses. It is the most successful and popular federal program in U.S. history.
Medicare is managed by the Centers for Medicare and Medicaid Services (CMS), the largest division of the U.S. Department of Health and Human Services (HHS). Like Social Security, Medicare is an entitlement program that’s funded by the beneficiaries. Most people earn their Medicare benefits by working and paying taxes. For those who did not work for the minimum number of years required, you may still be entitled to receive Medicare benefits, albeit at a higher rate.
Original Medicare Explained
When Medicare was first conceived it had two parts, A and B. This is commonly called Original Medicare. Part A is hospital insurance. It covers approximately 80 percent of all inpatient care. Most beneficiaries do not pay a monthly premium for their Medicare Part A benefits. It’s funded for you through payroll taxes while you work.
Medicare Part B is medical insurance. It covers approximately 80 percent of all doctor visits, lab tests, specialists, and other care you might receive as an outpatient. Medicare Part B does not cover hearing, vision, and dental care, and it does not cover prescription medications. Most people pay a monthly Medicare Part B premium. The premium is deducted for you from your Social Security check each month.
As mentioned, Medicare does not pay 100 percent of your medical bills. You share some of the costs. Most people must pay a deductible before Medicare benefits begin.
In the case of Part A, you pay a deductible each time you are admitted into the hospital for inpatient care. After that, Medicare pays the full bill for up to 60 days. After day 60 there is additional cost-sharing. With Part B insurance you pay an annual deductible, then your share drops to 20 percent of the bill at the doctor’s office. For all lab services that help your doctor make a diagnosis, Medicare pays 100 percent of the bill.
Private Health Insurance
In 1997 the Medicare system opened its doors to private insurers and Medicare Part C was born. Originally known as “Medicare Choice”, the system was updated a second time in 2003, and the privatized plans became known as Medicare Advantage.
Medicare Advantage plans are private health insurance plans that model traditional Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans. If you had health insurance through an employer, you’re already familiar with this type of health insurance.
There are other types of Medicare Advantage plans, too, including Health Savings Account (HSA), Private Fee For Service (PFFS), and special needs plans. HMO and PPO plans are the most common.
Medicare Advantage (MA) is optional. When you enroll in an MA plan you are automatically dis-enrolled from Original Medicare, but don’t let that frighten you. All MA plans must provide the same benefits are Medicare Part A and Part B. No exceptions.
Here’s the advantage of Part C: plans can include additional benefits. Depending on the insurer, benefits range from lower deductibles and copayments to additional health services, such as dental, hearing, vision, and more. The most common additional benefit is prescription drug coverage. Some of the more extensive plans will even cover the care received while traveling outside the United States.
As of plan year 2013, more than 14 million Medicare beneficiaries chose to upgrade their coverage to a Medicare Advantage plan. As the cost of health care continues to rise, Medicare Advantage is a smart choice for seniors looking to control their health care budget and get quality care.
Prescription Drug Coverage
Medicare Advantage was not the only update made to the Medicare program in 2003. The same year Medicare Part D was born. A Part D Plan is prescription drug insurance.
Like the MA plans, Part D Plan (PDP) benefits are optional, private insurance. You will pay a separate monthly fee for a Part D plan, and the rates vary among insurers and plan coverage. Plus, you will share in the costs of your prescriptions according to the requirements of the plan. Typical costs include a deductible, a flat copay amount, or coinsurance (a percentage of the full drug cost).
Unlike Medicare Advantage, Medicare can charge a penalty if you don’t enroll in a PDP as soon as you are eligible. So, even if you don’t take prescription medications when you turn 65, it’s a good idea to enroll in a basic plan.
If you have a limited, fixed income, don’t worry. The Social Security Administration has a program called Extra Help that offers financial assistance to help those in need afford their monthly premium, deductible, copay, or coinsurance.
If you’re concerned about all of the deductibles, copays, and coinsurance in your Original Medicare, you’re not alone. To avoid the potential financial risk of the Medicare insurance gap you can purchase Medigap insurance.
A Medigap plan, also called a Medicare Supplement, pays the coverage gaps up to the limits of the policy. Unlike Medicare Advantage, a Medigap plan cannot offer extras. If Medicare doesn’t cover it, a Medigap plan won’t cover it.
There are ten lettered Medigap plans (A through N). Each plan offers different levels of insurance coverage. Medigap Plan A has the least amount of coverage, whereas Plan F has the most coverage (pays all deductibles, copayments, and coinsurance).
Many seniors believe that the best health insurance they can get is their Original Medicare, a Medigap plan, and Medicare Part D for prescription medications. That’s because it offers the flexibility to see the doctors of your choice, without restrictions, while limiting the liability of medical expenses to a fixed monthly premium.