Medicare 101
When people approach me to first discuss their Medicare coverage with them, oftentimes they seem timid to admit that perhaps they don't know all that much about it.
To be fair, why would they?
Medicare by itself isn't terribly confusing, but as people approach the age of 65, they are inundated with pile after pile of mail advertisements, TV advertisements, insurance agents calling left and right. Understandably, many people throw their hands up in frustration and just want to throw in the towel on the whole thing.
Below, we've tried to compile what we consider to be Medicare 101, or the basics. It isn't meant to be the most expansive piece on Medicare that you could find on the internet, but it is meant to give you a comprehensive look at what your options are so that you can start your journey towards the option that is best for you.
Understanding the Parts
The chart below underscores just what is covered by the various parts of Medicare. Keep in mind the only Parts A and B are what is considered "Original Medicare." Part C is what is oftentimes referred to as a "Medicare Advantage" plan and Part D is your Prescription Drug Coverage. More on that later.
Original Medicare
Part A
Medicare Part A is also known as your hospital insurance. It is generally premium-free for most beneficiaries, covered by the taxes you saw coming out of your payroll during your working career. Part A covers inpatient hospital care, lab tests, surgery, hospice, skilled and home nursing care. The vast majority of beneficiaries are automatically enrolled as they turn 65, having received their Medicare card in the mail three months before their birthday with their enrollment date and Medicare number.
Part B
Medicare Part B covers doctors services, such as a visit to a primary care doctor or specialist, flu shots and the like. Medicare pays 80% of all covered services, while the beneficiary pays 20% after the annual $183 deductible is met. There is a premium associated with Medicare Part B, the standard Part B premium will be $134 in 2017 (or higher depending on your income). This amount is generally deducted from your Social Security every month. You are also enrolled in Medicare Part B as you turn 65, but may opt-out if you have group coverage or simply don't wish to receive coverage. Keep in mind that if you do decide to defer Medicare Part B coverage, you will incur a penalty of 10% of the Part B premium for every 12-month period you did not have Part B coverage or comparable private insurance coverage.
Part C - Medicare Advantage Plans
Medicare Advantage Plans (MA, MAPD)
Medicare Advantage plans are private insurance plans that are required to cover as much as Original Medicare, but oftentimes include extra coverage. Medicare Advantage plans operate in a very similar fashion to the private insurance plans you may be used to prior to enrolling in Medicare. The main difference between Medicare Advantage plans and Original Medicare is that Medicare Advantage plans contain networks, and often switch the co-insurance structure of Original Medicare (20% of the cost to see a primary doctor) to co-pays ($10 to see a primary doctor) There are stark differences, however, between the different types of Medicare Advantage Plans. There are three major types: HMO, PPO, and PFFS. PPFS is a Private Fee-For-Service plan and they have been all but eliminated from the market, so I won't focus on them here. This leaves us with two.
HMO
HMO stands for a Health Maintenance Organization. There are usually no additional premiums associated with this plan. The main drawbacks to an HMO is that you must use their network of doctors for coverage, and a visit to a specialist usually requires a referral. However, co-pays on HMO plans are usually less than with a PPO, anywhere from $0-$15 to see a primary care physician, and $0-$25 to see a specialist. The only other large consideration to make with an HMO is the risk of seeking non-essential emergency care. If you were to, for example, believe you were experiencing a heart attack. You would call an ambulance and they would take you to the nearest medical center, regardless of whether that provider is in-network or not. If you were truly experiencing a heart attack, coverage would apply as a medical emergency would be occuring. However, if you were experiencing extreme indigestion or angina, things that can sometimes mimic the symptoms of a heart attack, if you visited an out-of-network provider, you would be responsible for the majority of the cost of care. Oftentimes those that seek Medicare advice are dissuaded against enrolling in an HMO option. Keep in mind Medicare options are never a one size fits all solution. If you are a relatively healthy individual who likes their primary care physician, doesn't travel much and is aware of the circumstances surrounding an HMO option, it can be a appropriately cost-effective plan.
PPO
PPO stands for a Preferred Provider Organization. The main drawback with PPOs is that they have marginally higher co-pays to see a doctor compared to HMO plans. These co-pays usually range from $15-$25 to see a primary care physician, and $25-$40 to see a specialist. However, you may go to any doctor that accepts Medicare for healthcare and referrals are not needed to see a specialist. Many PPOs are set-up so that co-pays are less if you see a doctor in-network, but the access to care is a lot less limited overall. There may or may not be additional premiums associated with a PPO depending on the plan you choose. Plans without additional premiums tend to have much larger out-of-pocket limits than ones that do, and some that are bundled with Part D (prescription drug coverage, more on that below) can have additional premiums, as well. As always, sound advice is to sit with a Medicare advisor prior to enrolling in any Medicare Plan to make sure coverage fits your specific needs.
Medicare Supplement Insurance
Medicare Supplements are not subsidized by the government, are offered through private insurance companies and always have additional premiums associated with them. They are designed to come in and fill the gaps of Original Medicare coverage, which is why they are oftentimes called Medigap insurance. There are nine main Medicare Supplement Plans available in the marketplace today. The coverage is definitive across all carriers, so it is mainly a game of finding the carrier that can offer you the plan that you desire for the lowest price. The chart of the nine main options can be found below:
Medicare Supplements almost always do not come with Part D coverage, which can be purchased separately. Some people like the idea of Supplement insurance in the forms of Plan C or Plan F, knowing that they can budget a specific premium out of their income and know that no matter what happens with their health, their cost of care is completely covered. It is important if you choose to enroll in a Medicare Supplement to enroll early. Premiums increase as you enter advanced age brackets. While premiums can increase slightly each year, they increase based on the age bracket that you originally enrolled, meaning it is much more cost effective to be enrolled in a Medicare Supplement at age 75 if you originally enrolled at age 66 vs a 75 year-old beneficiary enrolled at age 73.
Prescription Drug Plans (Part d)
Medicare Part D is known as Medicare Prescription Drug Coverage. It is solely used for the cost of prescription drugs not covered under Original Medicare, but can often be found bundled with Medicare Advantage Plans (MAPD). There are premiums associated with Part D coverage that vary with each insurance carrier. Similar to Part B, there is also a penalty to late-enrollment in Part D if you did not have comparable prescription drug coverage after becoming initially eligible for Medicare Parts A and B. This penalty is calculated as 1% of the "national base beneficiary premium" for Part D, which in 2018 is $35.63, for each month you were not covered. This penalty is added to the premium of whichever Part D insurance you are enrolled in.