Understanding Medicare

Understanding Medicare is easier said than done. Every year you receive a Medicare & You Handbook in the mail, full of terms you’ve probably never heard before. Not only that, but you get tons of mail trying to gain your interest.

How do you know which mail should go in your “KEEP” pile and which mail to throw away?

Medicare can feel a little scary when it’s entirely new to us. Historically, most people spent their lives working for an employer who selected the insurance plan for his/her employees. An employee would go to an annual benefits meeting and sign up for the plan that was chosen.

Once a person ages into Medicare at 65, he or she is typically clueless about Medicare and its dozens of plan options.

Perhaps you are new to Medicare, and it will be your primary insurance. Maybe you are still working and not even sure if you need Medicare, but you want to make sure you don’t unknowingly get a late enrollment penalty.

One thing is for certain: if you feel lost, you are not alone in not understanding Medicare!

1) Understanding Medicare Basics First 

Who can get Medicare? If you are at least 65 in America including permanent residents who have lived here at least 5 years, you can get Medicare. People who have qualified for 24 months of Social Security disability also become eligible. For people aging into Medicare at 65, it doesn’t matter if you are taking Social Security benefits yet.

Once you’ve confirmed that you qualify for Medicare, start with the basics. People get confused when jumping right into figuring out Medigap plans and Medicare Advantage plans before they even understand how their Original Medicare benefits work.

That’s putting the cart before the horse, so let’s set that aside for now. Before you worry about all that, I want you to first familiarize yourself with the Medicare basics. Your Original Medicare consists of Part A and Part B.

These are provided to you by the federal government…in fact, you will enroll in these two parts (and only these two parts) through the Social Security office. Anything in your mailbox that comes from the Social Security office or the Centers for Medicare & Medicaid Services is mail you want to keep, so don’t throw away that Medicare & You Handbook!

The Parts of Medicare

Medicare itself has PARTS (not plans).

Part A is your Hospital Coverage. This coverage pays for your room and board in the hospital or in a skilled nursing facility.

Part B is your Outpatient Coverage. This includes pretty much everything else: doctor visits, equipment, lab-work, surgeries, durable medical equipment, diagnostic tests, etc.

Part D is your drug coverage. This is a pharmacy card which will allow you to purchase your prescriptions at a much lower price than retail. It is insurance you buy for present AND future medication needs. It’s pretty important to have unless you can afford to pay for all your medications out of pocket.

You are eligible for these 3 parts of Medicare on the first day of the month in which you turn 65 (or earlier if you have qualified for Medicare due to disability).

Once you understand these 3 basic parts, you are well on your way to understanding your Medicare Options.

2) Understanding Medicare Costs for these Parts

Alright, so we know you are eligible for the 3 parts of Medicare at age 65. Now you’ll need to know what you can expect to pay for each of these parts. This is especially important if you are deciding whether to stay working past age 65 for an employer who offers health benefits or whether you will retire and go onto Medicare as your primary insurance.

Medicare Part A is free for most people, as long as you or your spouse worked at least 10 years in the United States (You will often see this requirement written as 40 quarters).

Costs for Part B

Medicare Part B depends on your income. People new to Medicare 2020 have a base rate projected to be $144.30/month. However, people in higher income brackets will pay an “Income Adjustment.” Really that’s just a fancy government term for explaining that people who earn higher incomes pay higher costs for Medicare. (As soon as CMS announces 2020 Part B costs, I will update this article).

Understanding Medicare Costs: Your Part B premium is based on your income from 2 years prior. Social Security bases your income adjustment on your income as reported on your tax returns. They are usually looking at your income tax return from two years prior to now.

If your income has decreased since then, you can file a reconsideration request. You’ll present proof of your lower income and ask Social Security to lower your Part B premium. They will reconsider your premium and notify you if it can be lowered.

Once Social Security has determined what you’ll pay based on your income, they will deduct your Part B premiums from your monthly income benefits. If you have delayed enrollment into your Social Security income benefits, then they will invoice you for Part B on a quarterly basis.

Later on, when you file to start your income benefits, they’ll switch over to the monthly deduction from your Social Security check.

Is Part B Necessary?

Medicare Part B is an absolute must if Medicare will be your primary insurance at age 65. In fact, you can’t buy any supplemental insurance unless you first have both A & B.

However, if you actively work for a large employer (20+ employees) you may stay on your employer’s group plan as your primary insurance. Then Medicare will be secondary, so you can consider delaying Part B since your group insurance probably includes outpatient benefits already.

Costs for Part D

Understanding Medicare Part D costs is a bit tricky because plans have varying premiums. Beneficiaries also might pay more due to their income, just as mentioned above in the Part B costs section.

Most states have more than 20 different Part D plans to choose from. The national average Part D premium is currently around $35/month. That’s a good ballpark figure to use if you are just running some estimates today.

Part D plans have different drug formularies, so you’ll choose one that offers your medications at decent prices. The Medicare website has a handy plan finder tool to help you choose one that fits you.

Part D premiums get paid directly to the insurance carrier. However, you can request that Social Security deducts that monthly premium from your SS income check. If you owe an income adjustment for having a high income, this surcharge will be added to the monthly premium of your chosen Part D drug plan.

So we’ve learned that both Part B and Part D have a base premium, and also an income-related additional premium for people in higher income brackets.

3) Understanding Medicare Parts: What’s Covered and What’s Not?

So what are the benefits a Medicare recipient can expect to receive?

Medicare covers most of your health care costs, but you are still responsible for your share. This includes things like deductibles and coinsurance and copays.

Understanding Medicare coverage: It’s imperative that you know what’s covered by Medicare and what things you need supplemental insurance to cover.

If you had employer coverage in the past you’ll find that there are many similarities. You paid your share of the monthly premium through paycheck deductions. That purchased the insurance coverage. Then when you used that insurance, you also paid your share of each medical service. You had co-pays at the doctor’s office. You probably also incurred a deductible if you had surgery or a hospital stay. It works the same with Medicare.

What Medicare Pays For:

Part A pays for your first 60 days in the hospital. Your share of that cost is a hospital deductible, which is $1,364 in 2019. After 60 days consecutive days in the hospital, Medicare pays a diminishing share of your benefits. You begin paying a larger share in the form of a daily hospital copay. This can be hundreds of dollars per day, so you need supplemental coverage to protect you from those expenses on Part A services.

Part B pays for your outpatient care. This includes things like doctor visits, lab-work, imaging tests, surgeries, durable medical equipment, and even things like chemotherapy, radiation, and dialysis. After you pay a small deductible once per year ($185 in 2019), Part B will cover 80% of all of these services for you.

Your share is the other 20% of all of these services, with no cap. That can be quite a bit of money for certain surgeries or cancer treatments. You’ll need supplemental coverage to protect you from high Part B expenses.

Part D helps to pay for retail prescription medications that you yourself pick up at a local pharmacy or order through the plan’s mail order pharmacy service.

You do NOT need any supplemental insurance for Part D. It has built-in co-pays for medications so that you don’t get smacked with paying 100% for necessary medications. When the time comes, it’s easy to find the right Part D plan by using Medicare’s Plan Finder Tool at Medicare.gov.

Finally…

4) Understand Your Supplemental Coverage Options

Which Medicare plan is right for you?

Now that you know what Medicare pays for, and what your share of the costs are you’ve probably discovered that some sort of supplemental insurance is necessary for you. This is MOST of what’s been filling up your mailbox: solicitations for supplemental insurance.

Once you decide between the two main types of coverage we are about to discuss, you’ll be able to toss out most of that stack of mail. There’s no need to keep mailers about Medicare Advantage plans if you determine that Medigap plans are a better fit for you, and vice versa.

One of the great things about the Medicare insurance options is that there are plans available for any budget on the spectrum

Medigap Plans (also called Medicare Supplements)

Medigap plans pay AFTER Medicare. They pay for the things that are normally your share of your medical costs. For example, all Medigap plans cover the 20% Part B coinsurance that was mentioned above. So Medicare will pay 80%, and your Medigap plan will then pay the other 20% of your Part B outpatient expenses! Some Medigap plans also cover your Part A and B deductibles. You can choose your own Part D drug plan to go alongside this coverage.

Medigap plans also allow you freedom of choice in your medical care. You can see any physician or healthcare provider that participates in Medicare (there are nearly 900,000 providers across the nation). These plans cost more than Advantage plans because they are more comprehensive. They also give you more freedom in choosing your providers.

Medicare Advantage Plans (also called Medicare Part C)

Understanding Medicare Advantage plans can be a bit confusing because the Medicare Advantage program is also called Part C of Medicare.

Medicare Advantage plans pay INSTEAD OF Medicare. These plans are optional. They were created to give a low-cost alternative to Medigap.

Advantage plans are private insurance plans with their own local network of providers, generally an HMO or PPO style plan. When you join an Advantage plan, you’ll see these providers in order to get the lowest copays.

You will pay co-pays for doctor visits, hospital stays, and any other Medicare-approved services. Medicare Advantage plans generally have lower premiums than Medigap plans. That’s because you agree to share in the costs by paying co-pays for services as you obtain them. (Whereas with a Medigap plan, you often will have NO copay, depending on the plan you choose.)

Most Medicare Advantage plans also include a rolled-in Part D drug benefit. This can be a benefit or a hindrance, depending on whether that rolled-in benefit includes the specific medications you need. Each type of plan has its advantages and disadvantages. You’ll want to be thinking about what things are most important to you.

So, which plan is best for you?

Good questions to ask yourself include: Would a local network plan work for me or do I need wider access because I travel? Which plan would give me the most peace of mind? Am I okay with paying co-pays as I go along in order to get lower premiums up front?

These are the kinds of questions that will lead you to the right coverage.

So…back to that stack of mail, here are some suggestions:

Mail from the government are items to keep. Look for any mail that has come from the Social Security Administration or the Centers for Medicare & Medicaid Services. These items generally pertain to your Original Medicare benefits, so they are keepers. Don’t throw them away.

Ads from insurance companies can mostly be thrown away. Start with this: Work through Step 4 above. Afterward, you may have an idea as to whether you want a Medigap plan or a Medicare Advantage plan. If you’ve decided on Medigap, then you can throw away any mailer ads that reference Medicare Advantage plans. This includes anything that refers to Part C or an HMO or PPO plan. All of those terms relate to Medicare Advantage. You can get rid of them! Likewise, if you have decided Medicare Advantage fits you best, then you can toss the ads from Medigap insurers.

Part D mailers are items you should/can throw away.Why? Because you never want to choose your Part D plan based on an advertisement. You want your agent to help you run an analysis using Medicare’s Prescription Drug Finder tool. There’s no better tool to help you identify the most comprehensive drug plan for you. I’m going to help you with your Part D and if you would like me to, I will even show you how to use the Prescription Drug Finder tool for yourself, should your medications change in any way.

So your best bet is to sidestep that ENTIRE mountain of mail solicitations. Instead, get the help you need in one place…i7 Insurance. I will help you understand what is important and what isn’t. My service is free, and you will be treated with patience, courtesy, and kindness. I have many years of working with senior adults and quite enjoy it. I will help you find the most suitable supplemental coverage and a cost-effective drug plan. And I can help you avoid any unnecessary coverage.

Did I do a good job of explaining the basics of Medicare?

While there is no truly simple explanation of Medicare, I hope I helped you get the basics down. There’s no need for you to do this alone. Make the choice today to get someone on your side when it comes to understanding Medicare. There’s absolutely no cost to you for my help.