Medicare – What exactly is it?

I remember back in my 20’s being quite concerned about my parents’ health insurance as they began to have some health issues.

I thought to myself, “The older you get, the greater the chance there is of having a serious health problem. How will Mom and Dad pay for medical care if, or when, something goes wrong?”

That’s where Medicare comes in.

Medicare is the national health insurance program provided by the Federal government. But, it’s not available to everyone.

• 65 and older
• Under 65 with certain disabilities
• With End-Stage Renal Disease (ESRD) which is permanent kidney failure that requires dialysis or a transplant

Unlike traditional health insurance that combines everything together, Medicare separates the different parts of its health insurance coverage into…

The 4 Parts of Medicare

These parts each are known by the first 4 letters of the alphabet.

The first 2 parts are provided directly by the federal government. These are Part A and Part B. Together, they are known as Original Medicare. These are the only 2 parts of Medicare provided by the government.

You can see a sample of the Medicare health insurance card which show Part A and B on there, along with the date each part started for you.

The other 2 parts, Part C and D, are provided to you by insurance companies.

Let’s take a look at each part in a bit more detail:

Part A: Hospital Insurance

Part A of Medicare will cover most of your costs during a hospital stay.

(Notice I said most.

This is why you need to get some type of secondary, or supplemental, insurance to go along with Medicare to help cover the things and some of the expenses that Medicare doesn’t.

We’ll take a look at these supplemental insurance options a bit later.)

Part A also covers much of your cost for a skilled nursing facility (SNF). This is where you might go after a hospital stay to get a little bit better before you can come home.

In addition to covering inpatient hospital and SNF stays, Part A will also cover:

• Hospice
• Home health care

Part A Costs

The good news is that about 99% of people on Medicare don’t pay a monthly premium for Part A.

Johnson box for premium definition

If you have less than 30 quarters (7.5 years) of qualified work history where you’ve paid Medicare taxes, then your Part A premium is $471 per month in 2021.

But, if you have between 30 and 39 quarters of work history, your Part A premium is $259 per month.

If you have less than 40 hours of work history and are a little concerned that you might have a big bill for Part A each month, don’t worry just yet. There are a couple other ways you can get Part A for $0 each month, based on your spouse’s work record or if you have certain health conditions, for example.

The bad news is that, like I mentioned a bit earlier, Medicare doesn’t pay for all of your…

Part A Expenses

If you get admitted to the hospital, you’re responsible for the Part A deductible of $1,484 in 2021.

This deductible is something you’d likely owe the first day of your hospital stay, and it covers you for a 60-day benefit period.

If your stay lasts for longer than 60 days, then you’d owe a copay of:

• $371 per day for days 61 thru 90, and
• $742 per day for after day 90. These are called “lifetime reserve days” and you only get 60 in your lifetime. You’ll pay all costs once you’ve used all these days.

If you’re in an SNF, Medicare covers the first 20 days of your stay there. However, you’ll pay a daily copay of $185.50 for days 21 thru 100.

Again, you’ll pay all costs if your stay lasts over 100 days.

Well, that’ll do it for Part A, now on to…

Part B: Medical Insurance

This is the part of Medicare you’ll use much more often than Part A.

Part B covers things like:

• Doctor’s visits
• Tests (e.g. blood work, x-rays)
• Treatments (e.g. chemotherapy)
• Therapy (e.g. physical therapy)
• Outpatient surgery (e.g. cataract surgery)
• Medical equipment (e.g. wheelchairs, CPAP machines)
• Preventive services (e.g. mammograms, colonoscopies)
• Ambulances and emergency rooms
• Home health care

Basically, just about anything medical or doctor-related will be covered by Part B.

But, how much does it cost?

Part B Costs

Most people will pay a monthly premium of $148.50 per month for Part B.

However, if your modified adjusted gross income is over certain amounts, then you’ll pay more for Part B. See the charts below to find out how much you might be paying for Part B.

Part B Expenses

Have you heard before that you need supplemental insurance to cover the 20% that Medicare doesn’t?

If you have, that’s because they’re talking about the 20% Part B co-insurance.

Part B also has a deductible just like Part A, but it’s much smaller and it lasts for the entire calendar year. The 2021 Part B deductible is $203. It starts over every January 1 and can be a little bit different from year to year.

After you pay that deductible, that’s when Medicare will pay 80% of your Part B costs and you owe 20%

Part C: Medicare Advantage Plans

As I mentioned above, Part C of Medicare is another name for something called Medicare Advantage plans.

In order to get a Medicare Advantage plan, you must be enrolled in Part A and Part B.

However, when you sign up for one of these plans, you no longer receive your healthcare from Medicare. But instead, you now get your healthcare from an insurance company.

These plans will combine Part A items like hospital and SNF stays, as well as Part B items like doctors’ visits, test, and treatments. Most of these plans include prescription coverage too.

So, they are one complete managed care plan that delivers your Medicare benefits in a different way. There are pros and cons to this type of healthcare.

The biggest “con” to these plans is having added restrictions to your care. Every Advantage plan will have a network of healthcare providers that agree to participate in the plan. If you get treated out of this network, you either won’t be covered at all or you’ll pay a much higher amount to see this provider.

Also, since an insurance company is calling the shots rather than Medicare, they can impose more restrictions, limits, and “red tape” which can make it more difficult for you to get the care you need when you need it.

One “pro” of these type of plans is that they’ll almost all include some benefits that Original Medicare does not. Many Medicare Advantage plans will give some basic dental, vision, and hearing coverage. This will include help in paying for root canals, crowns, new glasses, and hearing aids. Almost all of these plans will provide free memberships at participating gyms.

Another “pro” involves:

Part C Costs

The main reason folks pick Medicare Advantage plans is because most of them have little to no additional premium each month.

This means you can get a $0 premium Medicare Advantage plan in many areas around the country. (of course, you still need to pay your monthly Part B premium).

However, the premiums on these plans will sometimes be as high as $300 per month in some areas.

The other “con” to these plans involves…

Part C Expenses

Every Advantage plan will limit the amount of total healthcare expenses that you’re responsible for in any given calendar year.

This is known as the maximum out-of-pocket amount. These amounts will usually range from $3,000 to over $10,000 per year in most areas of the country.

Also, with most of these plans, you will pay something out of pocket almost every time you use them.

Instead of Medicare choosing the amount you pay as they would with Part A and Part B expenses, your Medicare Advantage insurance company chooses these amounts with these plans.

And last but not least:

Part D: Prescription Drug Coverage

You can actually get Part D one of 2 ways:

• Included in a Medicare Advantage plan (mentioned in the last section), or
• Included as a standalone Prescription Drug Plan (PDP)

Part D Costs

If you get your Part D coverage as part of an Advantage plan, there is no separate monthly premium for the drug coverage. The overall plan premium will include the drug coverage too. And if your plan premium is $0, then that means there is no monthly premium for your drug coverage either.

If you get your Part D thru a PDP, then plan premiums can be as little as about $7 per month to as much as over $100 per month.

Part D Expenses

Your prescription drug expenses can be as little as $0 for common meds, or up to thousands per month for specialty drugs.

Lower cost drugs are usually called generic, and will be considered Tier 1 or Tier 2. More expensive drugs are brand name or specialty drugs, and can be Tier 3, 4, or 5.

Your out of pocket cost for your meds will depend on 2 things:

• The tier your drug is in, and
• The retail cost of this drug

And every drug plan is a little different. Your drug could be a Tier 2 drug with one plan, and Tier 4 with another. Your drug may have a retail cost of $20 per month at CVS and $8 per month at Rite Aid.

Most Part D coverage will have a deductible too. Usually, this deductible will only apply to the higher tier drugs. For example, there may not be any deductible for Tier 1 and 2 drugs, but you may be required to meet a deductible first before your plan will help share in your cost for drugs in Tiers 3 and up.

The maximum allowed deductible in 2021 is $445.

For some folks on Medicare who take more expensive medications, then you can get into something called the Donut Hole at some point during the year.

If the total retail cost of your drugs goes over $4,130 total for the year, then your copays for all of your drugs are then 25% of the retail cost. However, some drug plans will lower your cost on some of your drugs in this Donut Hole.

If you get in the Donut Hole and your retail drug costs are high enough, you’ll get into the Catastrophic Coverage phase of Part D. At this point, your maximum drug copays are 5% for the rest of the year.

Medicare – How to get signed up

Ok, now that we have a pretty good idea of what Medicare is and what it covers, let’s learn how to get started.

Medicare at 65

Most of you will be eligible to start Medicare for the first time when you turn 65.

If you’re drawing any form of Social Security income, Medicare will start automatically for you the 1^st day of the month you turn 65. (it’ll start the 1^st day of the month before if your birthday is on the 1^st of the month)

If you’re not drawing Social Security, you will need to sign up for Medicare. You can sign up as early as 3 months before the 1^st day of the month you turn 65.

But not all of you will start at age 65:

Medicare before 65

If you qualify for Social Security Disability, you can qualify for Medicare younger than age 65.

You’re eligible to start Medicare the 25^th month after you are first eligible to collect Social Security Disability Insurance.

Medicare after 65

If you still have good insurance at work once you are eligible for Medicare, you may not need to get Medicare right away. This can be from insurance at your work or your spouse’s work.

Once you’re ready to leave this coverage, you’ll have a Special Enrollment Period to sign up for Original Medicare. Along with Part A & B, you’ll be able to sign up for the other parts of Medicare we discussed earlier like Part C, Part D, and a Medicare Supplement (Medigap) policy.

Medicare – Next Steps

Now that you understand the basics of Medicare, what’s next?

• Are you looking to learn more about Medigap, Medicare Advantage or Part D coverage?
• Are you looking to sign up for Medicare because you’re turning 65 or leaving work coverage?
• Are you interested in changing supplemental insurance?