Many struggle to properly understand the intricacies of Medicare and exactly how it works. If you find yourself in this category or just generally want to learn more about how Medicare — this guide is for you.
What is Medicare?
Medicare is a federal health insurance program for people who fit into any of the following three categories:
- Are over 65 years old
- Are younger than 65 but have disabilities and have received SSDI for 24 months
- People with End-Stage Renal Disease (permanent kidney failure) or ALS
One must be an American citizen or be considered a permanent resident to be eligible for Medicare.
What is Medicare Part A, B, C, & D?
Medicare breaks down into 4 separate parts that cover separate services.
- Medicare Part A (Hospital Insurance)
Part A covers inpatient hospital stays, hospice care, care in a skilled nursing facility, and some home health care after a hospitalization.
- Medicare Part B (Medical Insurance)
Part B covers outpatient care, doctor visits, preventive services, and medical supplies.
- Medicare Part C (Medicare Advantage)
Medicare Advantage Plans are a type of Medicare health plan run by private insurance companies. They are contracted with Medicare and therefore by law must provide all of the same basic benefits of Medicare. Most Medicare Advantage Plans also offer prescription drug coverage (Part D) included in the plan. Think of this as a one-stop-shop for all parts of Medicare bundled into one package.
- Medicare Part D (Prescription Drug Program)
Part D covers prescription drugs (together with vaccines and many recommended shots). They are administered by private insurance companies and are referred to as PDPs.
Most people pay nothing for Part A as you’ve paid into this through tax dollars. However, those who haven’t earned 40 work credits (10 years of paying Medicare taxes) by either you or your spouse, will pay a premium.
Everyone pays a premium for Part B. The standard Part B premium amount in 2020 is $144.60. Most people will pay this standard amount. However, if your modified adjusted gross income from 2 years prior is above a certain amount, you’ll have to pay an additional prorated amount referred to as IRMAA (Income Related Monthly Adjustment Amount). See more about IRMAA here.
In addition to the Part B premium, both Part A and B have deductibles. Part B also requires co-insurance for medical services, where you must pay 20% of most non-preventive type services out of pocket.
What Doesn’t Medicare Cover?
Generally speaking, Original Medicare (Part A & B) does not cover routine care for:
Medicare also does not pay for Long Term Care, i.e. extended stays at a nursing home or similar facility.
When and how should I sign up for Medicare?
If you are getting Social Security Benefits at least 4 months before you turn 65, you’ll automatically get Part A and Part B starting the first day of the month you turn 65. In this case, no sign-up is necessary and you will receive your Medicare card in the mail 3 months before your 65th birthday.
If you are not receiving SS benefits 4 months prior to 65, you will have to sign up for Part A and/or Part B. The easiest way is to apply online at Social Security. You may also visit your local Social Security office or give them a call at 1-800-772-1213.
When should you apply?
You can sign up any time during the 7-month period that begins 3 months before the month you turn 65. This period includes the month you turn 65 and ends 3 months after the month you turn 65.
Example: if you turn 65 on August 15th, you may first apply May 1st and can apply until the end of November.
This 7-month period is known as your Initial Enrollment Period (IEP).
What if I or my spouse is still working and I’m covered under a group plan?
In this case, you may opt not to sign up for Medicare during this initial period. You will have an 8-month Special Enrollment Period (SEP) to sign up for Part A and/or Part B. This period will start the month after the employment ends, or the month after the group health plan ends, whichever happens first.
Should I delay signing up for Medicare and stay on my group plan?
Whether or not you should delay Medicare and continue on your current plan is an entire discussion on its own with many moving pieces. I recommend you give me a call 6 months before you turn 65 to discuss which option is best for you. For many people it makes sense to drop their coverage at 65 and join Medicare as the rates are much more in your favor, where for some I’d advise they keep their group coverage. No two situations are the same and this is why I’m here to help guide you personally through this journey.
What’s Medicare Supplement Insurance?
Medicare Supplements are additional coverage offered by private insurance companies that fill the gaps of Original Medicare. These plans are referred to as Medigap, Medicare Supplements, or often by their plan name such as Plan F, G, or N.
These supplements cover all or parts of the deductibles and coinsurance of Part A and B. (You will still have to purchase Part D individually for your prescription drugs.) They are an extra monthly premium charge on top of your Part B $144/month and guarantee that no matter what medical expenses you incur, the supplement will pay for it.
These plans offer peace of mind for the unknown as well as the inevitable high costs of health care that one incurs as they age. Under a Medigap plan, you know that your future is certain and no surprise bills will come your way. Additionally, you are not pinned down to any particular network and can see any doctor that accepts Medicare. Hence why these plans are so sought after.
As we mentioned before, Medicare Advantage is an alternative to Original Medicare where a private insurance company will administer your Medicare benefits. These are a less costly and very popular option for many Americans. In fact, over ⅓ of Medicare beneficiaries are on Medicare Advantage, and this number is expected to rise to 50% by 2030.
Why? To answer this question we must first highlight what exactly do they offer that Original Medicare does not.
- Medicare Advantage plans offer a maximum out of pocket amount.
Under Original Medicare (Part A & B) there is no limit as to how much you could pay out of pocket. Medicare Advantage plans are required by the government to set a limit to this, currently set to a maximum of $6,700 in-network and $10,000 out of network. After this amount, your Medicare Advantage plan will pay for everything.
- Medicare Advantage offers additional benefits.
Unlike Original Medicare, Medicare Advantage plans offer additional benefits such as dental, vision, hearing, gym memberships, transportation to appointments, and more.
- Medicare Advantage typically includes a Part D drug plan
With an MA-PD plan (Medicare Advantage – Prescription Drug plan) you do not have to pay an additional premium for a standalone prescription drug plan (Part D). This is almost always included in your plan.
- Many Medicare Advantage plans cost ZERO premium
These plans have gotten so competitive that many plans cost you nothing per month. The caveat here is that you still do pay copays so it is not entirely “free”. But for no extra monthly charge, switching to a Medicare Advantage plan from Original Medicare is extremely enticing.
What’s the catch?
Based on the last 4 points why would someone prefer a Medigap plan? The answer lies in one word: network. Although MA plans offer many perks, they limit your network to providers who are contracted with their specific insurance company. The good news here though is that with the popularity of these plans, most doctors and hospitals are covered. However, one must still regularly check, as it can happen that doctors decide to drop certain plans.
An additional point to consider is that these plans are one-year contracts and the terms change each year. This means that you will have to stay up to date each year to make sure the terms of your plan do not change to your disliking. (What was once the most competitive plan with the lowest co-pays could look very different in 3-4 years, prompting you to switch to another plan.) This is why I personally check in with my clients each year to make sure their needs are still being met, and if not, I will help switch you to a more favorable plan.
Medicare Advantage vs. Medigap
After reading all of the above information one is naturally led to ask the question: which one should I choose — Medicare Advantage or a Medigap plan?
It must first be prefaced that as a Medicare beneficiary you should unequivocally pick one of these options. For as we mentioned, Original Medicare leaves you open to the possibility of incurring infinite amounts of out-of-pocket expenses. At the very least one should sign up for a Medicare Advantage plan that puts a roof, so to speak, over their head.
Now back to the question. The answer is as follows: it all depends on your current health, financial situation, and state which you find yourself in.
If you can afford it, getting a Medigap supplement is the safest option and most simple choice to guarantee your coverage. While $200 per month in premium for a Medicare supplement together with a prescription drug plan (PDP) might sound like a lot (this is just a rounded estimate), this could end up saving you thousands of dollars a year. Particularly if you are in a state that requires medical underwriting, such as Pennsylvania, you will find it extremely difficult to get into a Medigap plan later on in life when you need it and would be better off to sign up for it from the beginning.
However, in a state with no medical underwriting — such as New York or Connecticut, this really depends. If you are a healthy individual who doesn’t foresee any upcoming outpatient procedures such as a knee surgery — you will likely save money and be just fine on a Medicare Advantage plan. In such states, you can always switch to a Medigap policy later on in life.
Ultimately this is a preference that requires much deliberation on your part as to which track fits best with your lifestyle. I recommend that you reach out to me so we could discuss what makes sense for your particular situation. I offer a free consultation and could be reached at any time to go over this with you, regardless of whether you use me as your broker or not.
As you can see, Medicare is an intricate subject to understand. This is why I am here to help guide you through the process. Give me a call today at 215-853-6892 and let’s discuss the best options for your needs. I charge nothing for my service.
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