Medicare? You’ve gotta be confused! Medicare is great, and if you’ve been paying for your own insurance, it’s also going to look like a bargain.
But with the bewildering array of choices, including many going by similar-sounding names, many people can’t bear to think about it. Sometimes they miss important opportunities. Don’t be one of those. This is really not as hard as it looks.
Let’s look at three basic terms:
- Medicare (Original Medicare)
- Medicare Advantage
- Medicare Supplement
They may sound alike, but they’re three completely different things.
Medicare is a government insurance program that you’ve probably been paying into all your life through payroll deductions. Once you qualify by turning 65 or qualifying as disabled, it starts paying you back by paying most – but not all – of your hospital, doctor and other medical bills. The providers get paid directly by the government.
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Medicare supplements, also known as Medigap plans, are private insurance policies that fill in the gaps in Medicare. Medicare typically pays for around 80% of your medical expenses, and the supplement pays most or all of the rest. There are 11 different Medigap plans that are standardized regardless of what insurance company you buy from. Most companies offer just a handful of the more popular plans.
Medicare Advantage is also private insurance, but it serves as an alternative, not a supplement, to regular Medicare. Advantage plans are subsidized and regulated by Medicare, but they have their own rules that can both limit and enhance regular Medicare benefits.
Typically, Medicare Advantage plans want you to work with certain doctors and hospitals for non-emergency situations, but they also can include dental, vision and other services that Medicare doesn’t cover. Advantage plans come in many variations. Monthly premiums can be as low as $0, but you can expect copays when you go to the doctor.
A key takeaway here is that while Medicare by itself will pay most of your medical expenses, you’ll still have to pay around 20% yourself, and 20% of a medical bill can be a very big number – possibly enough to bankrupt most people.
Getting Original Medicare…
You can get Medicare when you turn 65, and it’ll happen automatically if you’re already getting Social Security. Your red, white, and blue Medicare card should show up in your mailbox three months before your birthday. If you’ve held off on getting Social Security, you’ll have to sign up for Medicare. You can do that, starting three months before your birthday, at a local Social Security office, online at medicare.gov.
You’ll get hospital benefits, known as Part A, for free if you have 10 years of payroll deductions under your belt. Medical benefits, meaning doctors, labs and the like, are called Part B, and they’ll cost $134 a month for most people, more for higher income people.
Part A helps pay for inpatient care at hospitals, skilled nursing facilities, and hospice facilities plus home health care. Part A has a complicated system of copays, coinsurance and deductibles. For example, for a hospital stay, there’s a $1,316 deductible for the first 60 days and daily coinsurance after that up to a lifetime maximum of at least 150 days.
Skilled rehabilitative nursing care following a hospital stay of at least three days is 100% covered for 20 days, and then daily coinsurance kicks in. If you wind up homebound, Part A pays the full cost of necessary home health care.
The upshot is that unless, or until, something really horrible happens, you won’t pay more than that $1,316 hospital deductible any time you’re in the hospital. On the other hand, if you need skilled nursing services and haven’t spent three days in a hospital, you may be on your own.
Part B, unlike Part A, couldn’t be simpler. After a $183 yearly deductible, it pays 80% of the bill for doctors, therapists, lab work, imaging, walkers and other medical equipment, and many other services. It pays 100% of the cost of a list of screenings for cancer, depression, cardiovascular disease, and other conditions as well as for flu shots, annual physicals, and other preventive services.
Medicare has a deeply discounted rate schedule for these services, so your 20% share of the cost is less than you might expect.
Starting in 2006, Medicare added a new prescription drug benefit labeled Part D. It’s private insurance subsidized by Medicare to make prescriptions more affordable. Most people have 20 or more plans to choose from with varying monthly premiums, drug prices, and lists of covered drugs.
Adding a Medicare Supplement
While Medicare alone covers the bulk of your health care costs, there’s no cap on the share you would pay if you have a devastating accident or illness. That’s why many people buy a supplement, or Medigap plan, to pick up where Medicare leaves off.
Medigap plans have letter names from A through N, making them easy to confuse with Medicare Parts A, B, C, and D. Don’t do it. Medicare Part A and supplement Plan A are completely different, unrelated things.
By far the most popular Medicare supplement is Plan F, which is also the most expensive. Plan F covers your share of everything that Medicare covers except for prescription drugs.
Medicare supplement premiums vary very widely depending mainly on your ZIP code, the company you buy from, and your age. Plan F, for example, can cost from around $100 to more than $500 (in some high-cost areas) a month for a 65-year-old, so it definitely pays to shop around. Premiums typically go up every year as you get older and as medical costs go up.
At the other end of the spectrum is Plan F – High Deductible. It covers everything Plan F covers except that you pay the first $2,180 in health care costs each year. If you’re in reasonably good health, you won’t pay anywhere near that because Medicare is paying the first 80% of the cost, and you’d have to reach nearly $11,000 in medical bills before you’d pay the full $2,180 deductible. Meanwhile, you’re monthly premiums might be as low as $20 (or as high as $150 or more).
Other policies include Plan G, which covers everything after the $183 Part B deductible and often makes up for that with lower premiums, and Plan N, where you pay the $183 deductible plus a $20 copay for doctor visits and up to $50 for emergency room visits.
If you want a Medicare supplement, the best time to get it is when you first start getting Medicare. There’s a six-month open-enrollment period when you’re guaranteed the right to buy a policy. After that, you can be denied based on your health.
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The Medicare Advantage Alternative
Medicare Advantage plans are a form of privatized Medicare where you get your benefits from an insurance company instead of directly through Medicare. They’re an alternative to Medicare alone or Medicare plus a supplement.
You get the same services Medicare would provide plus, in most cases, additional perks.
Most plans offer prescription drug coverage, and many offer dental, vision, hearing, health and wellness programs, and other benefits. Many plans have monthly premiums of $0, and most others are under $50 a month and don’t go up because of your age or health. You’ll have deductibles and copays, but there’s an annual out-of-pocket limit of $6,700 or less that you don’t get with Medicare alone.
Advantage plans, also known as Medicare Part C or as Medicare Health Plans, typically have a network of local area doctors and other providers. The plans may be set up as a Health Maintenance Organizations (HMOs), which limit you to certain providers except in emergencies, Preferred Provider Organizations (PPOs), which have lower copays for in-network providers, or other structures.
You can sign up for a Medicare Advantage plan during a seven-month period before and after your 65th birthday, during open enrollment between Oct. 15 and Dec. 7 each year, or at other times in certain circumstances. You must be signed up for Part A and Part B, live in the plan’s service area, and be a US citizen or otherwise in the country legally.
Enrollment in Medicare Advantage plans has climbed steadily and now accounts for nearly one in three Medicare beneficiaries. About one in five have a Medigap plan, leaving nearly half of beneficiaries with Medicare alone and no cap on their out-of-pocket costs.
Medicare plans vary a lot, so it’s hard to say which type is better, but here are some things to consider:
- Most Advantage plans have much lower premiums than most Medigap plans, but there are exceptions.
- Most Advantage plans keep premiums low by using deductibles and copays. That keeps costs down when you’re well but can run up pretty big bills if you’re not.
- Advantage plan premiums are flat regardless of your age. Most Medigap premiums are based on your ever-rising “attained age,” although some are based on your age when you buy the plan or just on where you live, like an Advantage plan.
- Most Advantage plans cover prescription drugs, coverage you have to buy separately with a Medigap plan.
- Most Advantage plans, even the free ones, include some extra coverage for things like vision and dental that you don’t get with a Medigap.
- Most Advantage plans either require or incentivize you to use their own doctors and hospitals. Medigap plans like to boast that they cover you wherever you want to go, including the Mayo Clinic or other premier facilities.
- Advantage plans can have extra rules, such as requiring a referral before seeing a specialist, that you don’t have with a Medigap plan.
- Advantage plans are more complicated than Medigap plans, so you need to compare carefully to understand what you’re getting and choose a plan that meets your needs. Medigap plans are identical, regardless of insurance company, but rates differ widely.
- Advantage plans expire at the end of the year, so you can pick a new one or keep something similar if it’s still available. Medigap plans stay the same except for rate changes and changing Medicare deductibles.
- You’re never too sick to get an Advantage plan, but once you pass your initial eligibility period, you may have to pass a physical to get a Medigap policy.
There’s no best plan, and you can’t really know in advance what’s the best plan for you. But if you understand your options, you’re probably ahead of most people, and you can make an informed choice.