Medicare 101- A Comprehensive Guide to Understanding Medicare

Introduction

According to a February 2023 article in the Washington Post, more than 1 in 6 people living in the United States were age 65 or older in 2020. The majority of those people were enrolled in Medicare for their health coverage. Right now, Medicare is the largest federal health insurance program in the U.S. providing health insurance to people age 65 or older and younger people with disabilities. If not for Medicare, the elderly would have to rely on their savings – or possibly even sell off their assets – to be able to afford healthcare. Many retirees have returned to work just to afford their healthcare. Let’s take a look at Medicare and its role in providing seniors and those with disabilities some peace of mind.

Medicare Basics

Signed into law in 1965, Medicare was designed to provide health insurance coverage, and subsequently, a measure of financial security for American senior citizens and people under age 65 with disabilities or medical conditions. Also, people at any age with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS), commonly referred to as Lou Gehrig’s Disease.

There are four main components to Medicare: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage – offered by private companies approved by Medicare) and Part D (prescription drug coverage).

To qualify for Medicare, you must be age 65 or older and eligible for Social Security, or be under age 65 with a disability or any age with ESRD or ALS. If you apply for Social Security retirement or disability benefits, you are automatically applying for Medicare.

Around the time you turn 65, you are within the Initial Enrollment Period, which lasts for seven months, beginning three months before your 65th birthday and ending three months after your birth month.

The General Enrollment Period, designed for those who missed the Initial Enrollment window, takes place annually from January 1 through March 31.

The Annual Enrollment Period begins October 15 and ends December 7, and any new coverage or changes go into effect January 1.

The Special Enrollment Period is a two-month period during which you can switch to a different Medicare Advantage or Part D plan because of certain qualifying life events. These include moving out of your plan’s service area, moving into or out of a qualifying institution such as a nursing home, or gaining or losing eligibility for Medicaid or a Medicare Savings Program.

Medicare Part A: Hospital Insurance

Medicare Part A (hospital insurance) covers inpatient hospital care, skilled nursing facility (SNF) care, hospice care, and limited home health care services. Financed through payroll taxes, premiums and deductibles, most beneficiaries do not pay premiums for Part A primarily because they (or their spouse) paid Medicare taxes while working if they worked more than 10 years. There is a monthly premium ($278), however, if you or your spouse worked from 7.5 to 10 years and a premium of $506 if you or your spouse worked fewer than 7.5 years. Other costs include a $1,600 deductible for a hospital stay, $400 coinsurance for days (in the hospital) 61 to 90, and $800 coinsurance for 60 “lifetime reserve” days. Lifetime reserve days are additional days Medicare will pay for when you are in the hospital for more than 90 days. There are no coinsurance fees for days 1 to 20. For SNF care, there is no deductible for each benefit or coinsurance of days 1 to 20, but there is a $200 daily coinsurance for days 21 to 100. For home health care or hospice, there are no deductibles or coinsurance, but there is a small copayment requirement for hospice inpatient respite care and outpatient drugs.

Medicare Part B: Medical Insurance

Medicaid Part B medical insurance covers doctor visits, outpatient care, preventive services, medical equipment, and some home health care services. Part B is funded primarily with general tax revenue, but also with monthly premiums and interest on social security payments. Premiums and deductibles are based on income.

Medicare Part C: Medicare Advantage

Part C or Medicare Advantage is a health plan offered by private insurance companies, and it provides all Part A and Part B benefits, and typically offers additional benefits including vision, hearing, dental coverage and/or health and wellness programs. Depending on the provider, prior authorization may be required for some services.

Medicare pays a set amount each month to the companies offering Medicare Advantage Plans. Medicare Part C premiums, deductibles and copays vary by plan and location. Part C plans cap out-of-pocket costs for services; once you reach the cap, you pay nothing for the remainder of the year.

Medicare Part D: Prescription Drug Coverage

Medicare Part D covers prescription drug costs. While all Part D drug plans are required to cover a range of prescription drugs, including drugs to treat cancer and HIV/AIDS, each has its own list of covered drugs. This list, known as a “formulary,” includes both brand-name and generic drugs. All Medicare Part D plans must cover at least two drugs per drug category, but plans can choose which drugs they will cover.

Payments for Part D drug coverage are made through monthly premiums, annual deductibles, and copayments or coinsurance. Most Medicare Part D plans have a coverage gap, commonly referred to as a “donut hole,” which means there is a temporary limit on what the plan will cover. This gap begins after you have spent a certain amount for covered drugs. In 2023, if your plan has spent $4,660 on covered drugs, you are in the coverage gap. The amount is subject to change annually. If you have spent $7,400 out-of pocket (in 2023), you are out of the donut hole and are automatically set to receive “catastrophic coverage,” which means you will pay only a small coinsurance amount or copayment for Part D-covered drugs for the remainder of the year. Part D is financed through premiums, deductibles and tax revenue, and costs vary by plan and location.

Medigap: Supplemental Coverage for Original Medicare

Medigap is a type of private insurance that supplements Original Medicare (Parts A and B) by covering some or all of the out-of-pocket costs that Original Medicare does not cover. There are 10 standardized plans, each with a range of coverage and costs. Medigap is funded by monthly premiums, and because each plan is standardized, it’s important to shop for the best priced plan.

Choosing a Medicare Plan

Be sure to know your options when choosing a Medicare plan. Consider costs of monthly premiums, deductibles, coinsurance and copayments. Consider coverage, especially for specific services or condition. Medicare has limited coverage of services or supplies outside the U.S. The Medicare Plan Finder tool (Medicare.gov) allows you to explore your plan options and is highly user friendly. Once you choose a plan, review the Summary of Benefits and Coverage, and if you still have questions, don’t hesitate to call plan representatives directly.

Conclusion

Medicare plays a critical role in providing health care services to millions of senior citizens and people with disabilities in the United States. If you are approaching retirement age, it’s important to know what each Medicare plan can do for you. Take the time to visit Medicare.gov or contact a Medicare representative.