Whether you’re just diving into Medicare, or you’ve done enough research to thoroughly confuse yourself, you’re on the right website. Medicare can be very difficult to navigate as there are many important choices and complex terms to sort through. But with a clear sense of the basics and a good understanding of your needs, we can help you find a way to make Medicare work for you.
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Let’s start with the basics. Medicare was put into place by the federal government to help people over 65 and people with disabilities get the health care they need at an affordable price. The program provides coverage for more than 55 million Americans (and accounts for about 15% of federal spending). It’s a big program and the only truly universal health care administered by the U.S. Government.
You may have heard about different “parts” of Medicare. The first step in understanding how the larger system works is to break it down into its parts. There are two main providers of Medicare coverage: the federal government, which administers parts A & B, and private insurance companies, which offer additional coverage. We’ll discuss both of these options, starting with the step you need to tackle first.
Medicare A & B
You’ll often see Part A and Part B collectively called “Original Medicare” or “Traditional Medicare.” Typically, if you’re already receiving social security benefits when you turn 65, you’ll be enrolled automatically in Parts A & B. If you don’t get Medicare automatically, you’ll need to apply through the Social Security Administration. If you’re approaching your 65th birthday, you can use this article to create your personal Medicare timeline.
What’s the difference between Medicare A & B?
Medicare Part A is also known as hospital insurance. Part A covers inpatient hospital stays, nursing care, hospice care, and skilled nursing facility stays. Medicare Part B, also known as medical insurance, takes care of medical or surgical services from doctors. This includes lab tests, preventive services (like mammograms and yearly “wellness visits”), and medical supplies (like wheelchairs and walkers).
Together, Original Medicare helps pay for the basics, but it doesn’t cover everything. Take a look at the list below to see some common health care costs that aren’t covered.
Parts A & B don’t cover:
- Drugs from the pharmacy
- Most dental care, including dentures, dental procedures or cleanings, fillings, dental plates, tooth extractions, and checkups
- Cosmetic surgery
- Long-term nursing home care that goes over 100 days
- Hearing aids
- Routine foot care
- Eye exams for prescription glasses
Things that aren’t covered under Parts A & B of Medicare are typically referred to as “gaps.” How important it is to fill in those gaps with additional or supplemental coverage depends on your medical needs, current coverage, and doctors you’d like to see. We go over your various coverage options in more detail in this article, but for now, we’ll provide a brief overview of each of these options: Medicare Part C (also known as Medicare Advantage), Medicare Part D, and Medicare supplement.
Medicare Part C or Medicare Advantage
Medicare Advantage (or Medicare Part C) is a popular type of additional coverage. These are plans run by private insurance companies, and while you still have to pay the government for Original Medicare, your Medicare Advantage plan will manage your benefits for Part A & B. These plans also typically include coverage for things like dental, hearing, vision, and prescription drugs.
So, why get Medicare Advantage? In addition to receiving coverage for all of the services you get with Medicare Parts A&B, depending on which Part C plan you choose, you may also receive coverage for added benefits like dental, hearing, or vision coverage at a low upfront cost for your premium.
Why wouldn’t you want to go with this option? Typically, there are network restrictions, which we’ll dive into that a little more now.
Unlike Original Medicare, Medicare Advantage plans are structured like the employer or individual insurance plans that you’re probably used to. There are two main types of plans:
- Health maintenance organizations (HMOs)
- Preferred provider organizations (PPOs)
With Medicare Advantage there are a few important terms you’ll need to understand in order to compare plans effectively. A premium is a set dollar amount you pay each month to get coverage, and a deductible is the amount you pay before the insurance “kicks in”. After you’ve reached your deductible, which is typically low or $0 on Part C plans, you start cost-sharing with the insurance company. That means each time you access care, you pay a copay (a fixed dollar amount) or coinsurance (a percentage of the cost) for services while your insurance covers the rest. Cost-sharing amounts can vary between different Medicare Advantage plans, so you should look into the breakdown for services you use most when picking a plan.
These plans also have a yearly limit on your out-of-pocket costs for Medicare-approved health care services (called an “out-of-pocket maximum”). Once you reach this limit, you won’t have to pay anything for covered services. Each plan has a different limit, and the limit can change year to year. The out-of-pocket maximum for Part C plans is capped at $6,750 for 2018. Make sure to consider out-of-pocket maximums when comparing plans, especially if you plan on having a lot of medical costs in the upcoming year.
Unlike Medicare Advatnage plans, Original Medicare sets no limit to how much you spend for covered services throughout the year. Also keep in mind that costs for prescription drugs do not have a limit on any plan type.
Each of the Medicare Advantage plan types comes with its own pros and cons. For example, with most HMOs, you can only go to doctors, hospitals, and providers included in the plan’s network. Additionally, your primary care doctor typically needs to give you a referral to see a specialist or other health care provider. However, if you’re ok with a smaller network, an HMO may have a lower premium than a comparable PPO. If you’re considering an HMO and have a favorite doctor or specialist, you should ensure that they’re in-network before enrolling.
With a PPO plan, you pay less for health care services when you use doctors, hospitals, and other providers that are included in your plan. If you use doctors, hospitals, and other providers outside of the plan, you’ll still be covered, but you’ll pay more.
Medicare Part D & prescription drug coverage
Part D plans are meant to help you pay for any prescription drugs you may be taking. Before you can sign up for a Part D plan, you need to be enrolled in Part A and/or Part B. Signing up for Part D coverage is optional, but if you don’t sign up during your eligibility period, or you don’t already have full coverage, you may have to pay permanent late enrollment penalties if you choose to sign up later. Even if you aren’t currently taking any drugs, we recommend signing up for a Part D plan within your IEP to avoid future penalties. You can use our free initial enrollment period finder tool to identify your unique 7-month eligibility period.
If you’re enrolled in Parts A and/or B, you can get Part D coverage through a stand-alone Prescription Drug Plan. If you have a Medicare Advantage plan, drug coverage is almost always included (plans with drug coverage included are typically abbreviated as MAPD). Keep in mind that every Prescription Drug Plan has its own list of covered drugs. Also known as a “formulary”, this list of covered drugs is different on each plan. Your plan’s formulary may also change at any time. If this happens, you will get a notice from your plan provider.
It’s a good idea to check that all of your drugs are covered before enrolling in a plan. You may want to consider paying a little extra for a plan that covers all the medications you’re taking to save money in the long run.
Commonly referred to as “Medigap,” Medicare supplement plans are another type of coverage that can help with the costs of Original Medicare. Designated by plan letters (such as Plan F or Plan K), the coverage levels of these plans are standardized by the government. That means that even though they’re offered by private insurance companies, the plan benefits are the same for each plan type regardless of which company’s plan you enroll in. For this reason, it is definitely worth shopping around to find the plan you need at the best price.
Supplement plans are structured to help you pay for the coinsurance, copayments, and deductibles associated with Parts A & B. For example, all 10 supplement plans cover the coinsurance cost for Part A. Unlike Medicare Advantage, these plans will not manage the benefits you get from Parts A & B. Instead, they are stand-alone plans that run on their own. If you want to learn more about these Medigap plans, visit our article ”Choosing the right Medigap Policy.”
Plan F also offers a high-deductible plan. In 2017, you would have to pay $2,200 before your policy pays anything. Typically, this is a trade-off for a lower premium.
“X” indicates that coverage is 100% of the Medicare allowable amount. A percentage number indicates the proportion of the Medicare allowable amount covered.
Plan N has a copayment of up to $20 for physician office visits and up to $50 for emergency room visits (which may be waived in certain circumstances).
Plans K and L pay 100% after the out-of-pocket limit is reached. In 2017, the out-of-pocket limits for Plan K and Plan L were $5,120 and $2,560, respectively.
As illustrated in the table above, Plan F offers the most comprehensive coverage while Part A covers the least. The monthly premiums for these plans can range from as low as $60 to as high as $500. Premium prices will depend on several factors, including your gender, tobacco use, plan area, and the insurance company you choose. Note that Medicare Supplement plans are the only plan type allowed to charge more based on your gender, age, and health status. They also do not include coverage for prescription drug, vision, or dental benefits.
We’d typically recommend looking into supplemental coverage if you don’t want to be restricted by a provider network and are not in need of vision or dental coverage. To learn more about which supplement plan would be most beneficial for you, check out our article Choosing the right Medigap policy.