Turning 65? Medicare is going to play a major role in your health care for the rest of your life. It’s complicated. Know your options so you can make more informed decisions.
In this article, we’ll cover:
- A Brief History of Medicare
- Medicare Eligibility
- An Explanation of Available Medicare Plans—Including Original Medicare, Advantage, Supplement, and Part D Coverage
The Origins of Medicare
Medicare was passed into law in 1965 and is designed to provide health insurance for seniors, younger disabled persons, persons suffering from end-stage renal disease (ESRD), and Lou Gehrig’s disease (ALS). It was an unprecedented government effort to provide health care to vulnerable Americans. Fifty-five years later over 44 million seniors are enrolled in the program.
If you are approaching 65, and you meet the other eligibility requirements, Medicare will most likely become the basis for your health care for the rest of your life. Even if you don’t plan to retire at 65 and you continue to work, at some point you will need to select the coverage(s) available to you through Medicare.
Originally, Medicare consisted of a hospitalization plan and a plan for medical services (doctor visits, labs, etc.). Since 1965, the program has evolved to better accommodate advances in medical technology and theory, and a recognition that one-size coverage doesn’t necessarily fit all. As a result, Medicare now consists of four parts instead of the original two.
Insurance policies are complex and confusing and Medicare plans are no exception. You’re going to have to choose one, and it’s wise to make it the right one, because changing it can be problematic. Keep reading for advice on how to navigate these plans and make an informed choice.
The basic requirements for Medicare eligibility are pretty straightforward. But when you dig into it, many questions and situations go unanswered. Here are some answers to the most common questions regarding eligibility:
- Age and citizenship—With a few exceptions, you need to be at least 65 years old, a United States citizen, or a legal permanent resident who has lived in the U.S. for at least five consecutive years.
- Eligibility for disabilities—Medicare is available to anyone who has received 24 months of Social Security disability payments regardless of age. The insurance is also extended to people suffering from end-stage renal disease (ESRD), in need of a kidney transplant, or who have been diagnosed with Lou Gehrig’s disease (ALS).
- Qualifying quarters—This is the one that causes confusion. You’ve paid into Medicare all your working life via FICA payroll deductions. To qualify for the insurance, you need to have paid FICA for a minimum of 40 quarters (10 years). For everyone who has paid 10 years of FICA or self-employment tax, qualifying quarters are not an issue.
- Sharing spouse’s qualification quarters—If you are a stay-at-home parent or entered the workforce later in life and have not acquired 40 quarters, you can use a spouse’s quarters as your own. If your spouse, living, dead, or divorced, has 40 quarters, you can use those quarters to qualify for eligibility.
- No quarters or short on quarters—If you meet the age and citizenship requirements, you may be able to buy into Medicare even if you have no qualifying quarters.
If you are taking Social Security retirement benefits early or plan on taking them at 65, you will automatically be enrolled in Part A and Part B of Medicare. Social Security will send you information on eligibility and your Medicare card as you near 65. If you delay Social Security benefits you can apply for Part A and Part B at age 65.
Medicare Plans Explained
Medicare has evolved over time. Initially Medicare paid health care bills directly from the government. Since 1965, Medicare has enlisted approved private insurance companies to help administer the program and provide flexibility. The net result is a Medicare program that looks like this:
- Part A: Hospitalization
- Part B: Medical Services
- Part C: Medicare Advantage plans and Medicare Supplemental Coverage
- Part D: Prescription Drugs
Part A and Part B are packaged as “Original Medicare” where the government pays provider bills directly. Part C and Part D are alternative plans provided by private insurance companies who are approved by Medicare.
Affordable Original Medicare
Medicare is a great program, but it does have its limitations. It does meet its original objective of providing health insurance for every senior, but it also has some expensive gaps in coverage. Original Medicare, like the alternative plans, is right for you only if it fits your medical needs. Here’s a quick rundown on the pros and cons of the program:
- Pick your own doctor—You can use any doctor, hospital, specialist, or other covered provider you like, providing they accept Medicare, and most do. You can use the coverage anywhere in the United States and its territories. That’s an important feature if you plan to travel extensively when you retire.
- Coverages—Part A is for hospitalization and includes skilled nursing facilities, long-term care hospitals, home health care, and hospice care. Part B covers medical services and some types of equipment including doctor visits, labs and imaging, physical therapy, specialists, and a variety of medical appliances.
- What Original Medicare doesn’t cover—There are still gaps. Some of the most obvious areas of health care that the program does not cover include: prescription drug coverage, vision care, dental care, hearing health, and custodial care (nursing home).
- Deductibles and coinsurance—Part A is free but comes with an annual deductible of $1408 (as of 2020). If you are hospitalized for an extended period of time, the first 60 days have a $0 coinsurance. Visits that exceed 60 days have coinsurance requirements ranging from $352 to $704. Part B has a monthly premium of $144.60 which is deducted automatically from your Social Security benefits. In addition there is an annual deductible of $198 (as of 2020). Once you have satisfied the deductible, there is a 20% coinsurance charge for all covered medical services and durable medical equipment.
Original Medicare is popular because of its universal acceptance by health care providers. This takes on even more importance in rural areas where the choice of providers may be limited.
Part C: Filling the Gaps with Medicare Supplement Insurance (Medigap)
Medicare is a good plan but with the 20% coinsurance requirement it can get expensive, particularly for seniors with chronic diseases like arthritis, heart disease, and diabetes. No one insurance plan is right for everyone and Medicare realizes it. To provide more customization, Medicare has authorized private insurance companies to offer Medicare-based products that address deductibles, coinsurance, and services. Medicare Supplement, also known as Medigap, is one of three private insurance plans authorized by Medicare.To qualify for Medigap, you must be enrolled in Medicare Part A and Part B.
Medigap works directly with Medicare and covers some or all of the out-of-pocket expenses Medicare doesn’t pay for including deductibles and coinsurance costs. Coverages are approved by Medicare and all companies offering the plans have to provide identical coverage. The only difference between companies is the value you receive, both in premium cost and service, making comparing companies easy.
If you want to adjust Medicare deductibles and coinsurance to better meet your needs, Medigap can make a lot of sense.
Here are a few of the considerations you should take into account:
- Pick your own doctor—Like Medicare, you can choose any doctor or health care organization providing they accept Medicare. There are no networks or preferred provider lists. Like Medicare, that also means you have coverage anywhere you go in the country or territories.
- Coverages—This is where it gets tricky. Medigap pays for all, or a percentage of your out-of-pocket expenses for Part A and Part B. As of 2020, there are nine separate coverage plans each designated with a letter (Part F, Part G, etc.). The plans vary in their payment percentages and range from comprehensive to low-cost supplement. Approved companies who are licensed in your state can sell one or all nine plans. However, the lettered plan they sell has to be identical to the Medicare approved percentages for the plan. If cars were sold that way and you wanted to buy a Ford Mustang GT and got prices from five dealers, they would have to price the Mustang based on identical trim and equipment as the other dealers. They could offer a better warranty and service deals. The same goes for Medigap companies. The only difference can be in premium cost and service.
- Security—You cannot be cancelled for any reason except for failure to pay premiums. A company selling medical supplement insurance cannot “leave the market” for any reason except bankruptcy.
- What Medigap does not cover—Medicare supplement insurance is tied to Medicare coverage. As a result, it cannot offer coverage for benefits that Medicare does not offer like dental, vision, and most notably, prescription drugs.
- Costs—Your monthly premium for Medigap will depend on the plan you choose and the insurance company. Comprehensive plans can be pricey but other plans are very affordable. You will also need to continue to pay the premium for Medicare Part B.
If Medigap sounds like an option you like, it is extremely important that you carefully examine the plans to see what best fits your situation.
Part C: Medicare Advantage – An Alternative to Medicare Coverage
Medicare Advantage is a completely different animal from Medigap. Companies who provide Medicare Advantage plans enter into a contract with Medicare to provide benefits to enrollees in a specific geographic area for a flat rate per enrollee. At a minimum, they guarantee to provide benefits and coverages provided by Original Medicare. Because of this different business model, Medicare Advantage providers are organized differently, deliver services differently, and are focused on keeping you healthy (reducing extreme claims) through preventive medicine.
There are two major differences between Medicare Advantage plans and Medigap policies and Original Medicare. Medicare Advantage plans use healthcare provider networks. Most are organized as an HMO or PPO. Consequently, who you get your healthcare services from is often limited to only those providers who are in the network. The second big difference of a Medicare Advantage plan are the additional benefits offered above and beyond those provided by Original Medicare.
There’s a lot to unpack about these plans so let’s get started:
- Limited choice of doctors—If you choose an Advantage plan that is organized as an HMO, you are really getting a managed health program. You will only be able to get service from providers and organizations that are part of the HMO’s network. Your primary care provider acts as a dispatcher and refers you to specialists and other care. PPOs are less restrictive. They have comprehensive networks but allow you to use out-of-network providers if you don’t mind paying a higher copay. In both cases, you can visit the company’s website and view the network membership to see who you can use.
- Coverages—As mentioned, Medicare Advantage plans want to limit serious claims by keeping their members as healthy as possible. To accomplish that, they offer benefits not provided by Medicare, that can contribute to maintaining health or preventing health issues from becoming major events. Nothing demonstrates that approach more than the inclusion of prescription drug coverage. Seniors with chronic diseases can develop serious, even life-threatening conditions, if they can’t afford their maintenance drugs. That’s bad for the plan member and bad for the company. Other coverages offered by some plans include eye care, dental care, hearing care, discount or free fitness club memberships, and even transportation to healthcare appointments.
- Security—Unlike Medigap where you can’t be cancelled unless the company goes out of business, your care on an Advantage plan can disappear. At the end of the contract term with Medicare, an Advantage company can decide to withdraw from the market and end coverage. This is unlikely in urban areas, but sparsely populated rural areas may not provide enough network doctors to make it viable.
- Restrictions—Medicare Advantage plans are based on specific geographic areas, usually counties. If you travel outside your area and require medical care, the plan will only cover emergency (stabilizing) services. If you break an ankle playing tennis on a visit to your kids, setting the ankle and casting is covered. You have to return home for follow up care and therapy. This is not a plan for “snowbirds” who have winter homes away from their lawful residence.
- Deductibles and copays—To qualify for these plans, you have to have Medicare Part A and Part B, meaning you will continue to pay Part B premiums. Deductibles will be no greater than those in Medicare and some may be reduced or eliminated. Fixed copays are charged for doctor visits and other services. Monthly premiums may be charged but many areas are eligible for premium free enrollment.
Like all plans, Medicare Advantage programs have pros and cons. It’s up to you to determine if the additional coverages are worth the restrictions on who you can see and where you can see them.
Part D: Stand Alone Prescription Drug Plan
Part D drug plans are offered by private companies. Medicare established minimum standards on the type of drugs that must be covered and the maximum annual deductible. Beyond that, the companies were free to carry additional types of drugs, establish tiers, and carry brand names as well as generics.
If you have Original Medicare or Medigap coverage, you really need to get a Plan D program to augment your healthcare insurance. Here are a few items to consider when shopping for a plan:
- Formularies—The private companies who offer these plans are free to create their own list of drugs (formulary) that they will offer. Medicare does require that certain classes of drugs have to be available but not specific brands. Obviously, not all formularies are the same. It’s important that you know the drugs you’ll need and then check the formulary of the company(s) that you are interested in to see if they carry it. Also, these companies work on a year-to-year contract with Medicare and are free to change their formulary at each new renewal of the contract.
- How it works with other plans—If you are receiving insurance from an employer (retirement benefit), TRICARE, VA, or other plan, you’ll want to check with them to see how this coverage affects your existing insurance. If you enroll in a Part D plan while a member of a Part C plan which offers drug coverage, you could become dis-enrolled in the Part C program.
- Deductibles and costs—There is a maximum annual deductible set by Medicare of $435 (as of 2020) but many plans charge less. You’ll have to make a copay or coinsurance payment for each drug you receive. Above that, you’ll have a monthly premium as well.
Part D plans are another example of needing to know what you need in order to make an informed decision. All of these plans can be tricky and it’s important that you don’t just focus on cost to determine what is going to work best for you.
You shouldn’t self-diagnose an illness, but rather see an expert (doctor) to get effective care. For the same reason, you should talk to an expert to help guide you through this senior healthcare issue. If you are eligible and uncovered, you can get answers to your questions from a licensed professional.
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