Understanding Medicare – What you need to know, or let me rephrase that, what I need to know. I am approaching that time in my life when I am anticipating retirement, and faced with a multitude of hard decisions involving 401K’s, Social Security, and Medicare. What do I need to know? What exactly is Medicare? Do I need it? Do I have to get it? If so, how do I get it? Here is an overview of Medicare – what it is and what you need to know about it.
UNDERSTANDING MEDICARE
WHAT IS IT?
Medicare is a Federal health care program in the United States. It covers people age 65 and older, and younger people with certain disabilities. Signed into law by President Lyndon B Johnson in 1965, Medicare is the primary health insurance for 59.9 million people.
Medicare is primarily funded by a mandatory payroll tax levied on employees and on employers. Self-employed people must pay both halves of the tax. The tax is automatically deducted from your payroll check and remitted by your employer to the government.
Nonetheless, Medicare is not free. Enrollees pay a monthly premium, just like any other insurance. Furthermore, Medicare doesn’t cover the entire medical claim. Enrollees also pay a copay and any uncovered part of the claim, just like any other insurance.
So why buy Medicare instead of a private insurance plan? Because it is mandatory!
On top of that, in most cases, a permanent penalty will be applied to your premium cost if you do not sign up for Medicare when you first become eligible!
WHO IS ELIGIBLE?
In general, Medicare is open to people 65 years of age or older, who are United States citizens or a permanent legal resident for five (5) continuous years. But it is also open to younger people who are disabled.
Of course, you do not need to sign up for Medicare until you (or your spouse) retires or loses the coverage.
HOW DO I GET IT?
Understanding how, and when to sign up for Medicare is important. If you already receive Social Security benefits, you will automatically be enrolled in Medicare Part A & Part B when you become eligible. Three months before you turn 65, Medicare will send you a “Welcome” packet to get you started.
However, if you are turning 65 or over 65 and NOT receiving Social Security benefits, you will need to sign up to get Medicare.
Medicare premiums are deducted from your Social Security or Railroad Retirement Board benefits. If you don’t receive these benefits, you will be billed for the premiums.
For a personal look at how to sign up for Medicare, read How To Register for Medicare.
UNDERSTANDING MEDICARE – PARTS & PREMIUMS & PAYOUTS
Understanding Medicare begins with understanding the Parts of Medicare. Medicare is divided into the following four (4) parts.
- A: Hospital/Hospice insurance;
- B: Medical Insurance;
- C: Medicare Advantage plans; and
- D: Prescription drug plans.
Each part is a separate component with different provisions, different premiums, and different payments and payouts. Nonetheless, much like conventional insurance policies, the total coverage is not complete; and often doesn’t cover the entire medical claim. For this reason, many people choose to buy a supplemental insurance policy to cover the gaps in Medicare coverage.
Let’s take a look at each part.
MEDICARE – PART A
Coverage
Medicare Part A is Hospital / Hospice insurance. It covers the following:
- Inpatient care in a hospital or in a skilled nursing facility
- Hospice care
- Home Health Care
Coverage includes a semi-private room; meals; nursing services; operating rooms; special care units; drugs, medical supplies, and equipment during your stay; and rehabilitation services. It does not cover long-term custodial care; private room; private-duty nursing; or items such as a phone or television.
You are free to use any hospital or facility that takes Medicare, anywhere in the United States. However, it is important to realize that Medicare only covers your hospital stay if you are actually admitted to the hospital. It does not pay if you are held for observation for several days and not admitted. Several years ago, my husband had an accident and was taken by ambulance to the ER. After spending a day in the ER, he was moved to a room in the hospital and kept for 3 days. We assumed that Medicare would cover the cost of the hospital. But we were wrong. Although he was held for observation, he was never actually admitted to the hospital! Medicare did not cover his stay. Luckily, he had a secondary insurance that did.
Premium – How much will it cost?
The premium cost varies depending on how many years you (or your spouse) paid Medicare taxes. The cost of the premium will be automatically deducted from your Social Security check. If you paid Medicare tax for less than 7.5 years, the premium cost in 2020 is $458 per month. If you paid Medicare tax for more than 7.5 years, but less than 10 years, the premium cost in 2020 is $252 per month. Finally, if you (or your spouse) paid Medicare tax for more than 10 years, the monthly premium for Medicare Part A will be waived.
Co-Insurance
Surprisingly, Medicare benefits do not cover your entire medical bill. The actual schedule of benefits is a complicated, complex chart. Accordingly, Medicare payments depend on the type of facility and length of stay. The remainder of the medical claim is your responsibility. In some cases, it can leave you financially bankrupt
As is common with most private insurance, a deductible must be met before Medicare will pay on the claim. For hospital stays, the deductible for 2020 is $1,408. After that, co-payments are based on the number of days spent in the hospital. For example, for every day from Day 1 – Day 60, the copay is $0. But, for Day 61 – Day 90, the copay is $352 for every day. And, after Day 90, the copay is a whopping $704 for every day.
As a result of the high co-payments for hospitalization, quite often patients are moved to skilled nursing facilities for additional care. Luckily, there is no deductible for stays in a skilled nursing facility. Furthermore, the copay is $0 for the first 20 days (3 weeks). After 20 days, the copay for Day 21 – Day 100 is $176 per day. Finally, after Day 100, you assume all costs.
And lastly for Hospice and Home Health Care, you pay $0 cost for services, plus a small percentage cost for drugs and durable medical equipment.
For information on Medicare Part A, read here.
MEDICARE – PART B
Coverage
Medicare Part B is medical coverage. It covers things like clinical research; ambulance services; durable medical equipment (DME); mental health services; and limited outpatient drugs. In addition, it includes medically necessary services needed to diagnose or treat your medical condition. Finally, it includes health care to prevent an illness or detect it at an early stage. As with PART A, you may choose any doctor or facility in the United States that accepts Medicare.
Premium – How Much Does It Cost
The premium is based on your income. In 2020, the premiums range from $144.60 – $491.60 per person per month. The premium is automatically deducted from your Social Security check.
Co-Insurance
Again, just like private insurance, Medicare demands a deductible prior to any payments on medical claims. For the year 2020, the deductible is $198. After the deductible is met, the copay is 20% of the Medicare approved amount of the claim.
It is worth noting that neither PART A nor PART B cover long term custodial care; dental care; eye exams and glasses; dentures; cosmetic surgery; acupuncture; hearing aids; routine foot care; and other miscellaneous items.
For more information on Medicare Part B, read here.
MEDICARE – PART D
Coverage
Medicare Part D is prescription drug coverage. This is an optional benefit that is available to everyone with Medicare. It covers self-administered prescription drugs.
Premium – How Much Does It Cost
As with the Part A & Part B, there is a complex schedule of premiums for coverage.
Co-Insurance
In like manner, there is yearly deductible and a complex schedule of co-insurance payments on prescriptions.
For more information on Medicare Part D, read here.
MEDICARE – PART C
Coverage
Medicare Part C is usually called Medicare Advantage. It is an “All in One” alternative offered by private companies who contract with Medicare to provide Part A & Part B.
The coverage includes the same as the original Part A & Part B. On the positive side, the plans often include Part D Prescription drugs, as well as many services that are not covered in Part A or B such as vision, dental, hearing; wellness programs; and urgent care.
Nonetheless, a key point to remember is that the plan only covers medical providers and facilities included in the plan network. Therefore, review the provider list to verify that your own doctors are included before purchasing.
Premium – How Much Does It Cost
The premiums vary by company, but in general you will pay an amount equivalent to the monthly Part B premium cost plus a monthly Advantage premium cost.
Co-Insurance
The deductible and co-pay vary by company, so review the plan prior to purchase to ensure it meets your needs.
For more information on Medicare Advantage, read here.
MEDIGAP INSURANCE
Medicare insurance does not cover the entire medical claim amount. Understanding Medicare is like putting together a puzzle with missing pieces. Those missing pieces – the Gap – could cost you thousands of dollars. Because after Medicare has paid their portion of the claim, the remaining balance is your liability, leaving enough debt to eat up your nest egg and causing financial ruin. Therefore, many people purchase a Medicare Supplement Insurance, or Medigap Insurance, to help mitigate those costs. Medigap protects against many of the costs Medicare doesn’t cover.
Medigap Insurance is sold by private companies who offer a variety of plans with a variety of coverage. To make things really confusing, these private plans are also classified by letters of the alphabet, starting with Plan A, Plan B, Plan C … and ending with Plan M and Plan N. Each plan is different. Each company is different.
COMPARE
Medicare Advantage and Medigap Insurance both protect against medical costs that are not covered by Medicare. However, there are several key differences between them. First, both types require an additional premium. Although Medigap generally has a higher premium, it usually results in a lower out-of-pocket expense. Advantage generally costs less, but also covers less.
Second, Medigap covers medical costs only in facilities and only with providers who accept Medicare. It does not cover costs in facilities or with providers who do not accept Medicare. Whereas Advantage plans only cover medical costs with providers and facilities who are in their network.
Third, Advantage plans generally operate within regions and may not provide coverage in other states or out of the country. Traditional Medicare provides coverage in any facility in the United States that accepts Medicare. If you travel frequently, Medicare plus Medigap might be the plan that’s right for you.
For more information on Medigap Insurance, read here.
In conclusion, understanding Medicare is imperative to both your medical and your financial future. But choosing a plan that is right for your needs is confusing. Professional planners, insurance company advisors, and even Medicare planners are available to help you determine the best plan for your needs, your health, and your budget. To begin, Medicare has a plan finder to help you.
Leave a Reply