You’ve heard about and most likely been paying into it for years, but (like most of us) you probably don’t fully understand it… Medicare.
Thankfully, I work with Al Schiebel, the knowledgeable healthcare insurance expert who runs the ship at www.shopbenefits.com; I spoke with him recently to get a better understanding on exactly how Medicare works, and the different options that you can adjust to best fit your medical and financial situation (Medicare Parts A, B, C, and D). Here’s a quick breakdown inducing what you need to know:
Medicare is available to people age 65+ who are US citizens or who are legal permanent residents, and either you or your spouse have worked for 10 years (or 40 quarters). It’s also available to people under the age of 65+ based on certain criteria. There are multiple factors that can play into your eligibility. If you’d like to see more detailed rules, I believe this article from AARP has a good overview.
Under government-provided Medicare there are two parts (A&B). Medicare Parts A & B together are also known or referred to as “Original Medicare.”
Part A – Hospital Stays Part A covers medically necessary hospital, skilled nursing facility, home health and hospice care stays. Most people do not have to pay a premium for Part A, making it generally a program that almost everyone eligible enrolls in. However, you will pay $407 each month if you don’t meet the requirements to receive Medicare and have to purchase it (ie. You don’t meet the 40 quarters of work test).
As of 2015, there is a $1,260 deductible for day 1 through 60 for what Medicare considers your initial “benefit period”. But also understand that the benefit period resets after 60 days once you are out of hospital care. See this chart for a breakdown of any additional costs.
Part A of Medicare is set up so that the government covers about 80 percent of your medical costs while you cover the last 20 percent with no cap. This is great unless you have a $1 million medical expense, and then suddenly you’re footing the bill for $200,000! Before you panic, remember that this 20 percent unlimited cap is if you only have Original Medicare (Parts A&B).
Part B – Doctor’s Appointments and Out-Patient Visits: Part B of Medicare covers your doctor’s appointments and out-patient visits. It’s different from Part A because it does have a premium that most people have to pay each month. It starts at $104.90 per month, and it’s “mean tested.” AKA- the more your yearly income, the more your monthly premiums for Part B will cost. The monthly cost can be as high as $355.70, so the more money you make, the meaner the payment becomes…Here’s a link to these premiums. Part B also has a $147 deductible, and the plan covers about 80 percent of all costs with no annual maximum out of pocket.
Additional Medicare Options
Original Medicare covers the main costs of healthcare but not everything, like prescription drugs. On top of that, as I pointed out above, while having 80 percent of your medical expenses covered is great, it isn’t guaranteed to save you from financial ruin if medical expenses become extreme.
There are two types of programs people typically opt into to cover their additional medical costs:
While also enrolled in Parts A and B, you can enroll in a Medicare Supplement program with a private insurance carrier. Depending on the supplemental plan that you elect, they will cover some or all of the costs that are not covered by Parts A and B. These programs can also help you to cover the uncapped 20 percent of your medical expenses. There are several Medicare Supplement options that range from Plan A all the way to Plan N.
Medicare Supplements do not have a network of doctors. Typically if your doctor accepts Medicare then the Supplement will pay (based on the terms and conditions of the plan). Medicare Supplements also known as “Medigap,” do not cover medications, so you will have to get a separate prescription drug plan or Part D to cover the cost of prescription drugs.
Medicare Prescription Drug Plan or Part D
These plans are provided by private insurance carriers. Each plan has their own list of approved drugs (also known as formularies) and you should carefully review their list to ensure that your medications are covered. A feature that is widely used within part D is the mail order program which allows you to obtain a 90 day supply of certain medications, and could save you money. Cost Range (from $15/month to over $100/month).
Medicare Advantage or Part C
Medicare Advantage is also known as Part C. This is a program that combines Parts A and B, adds additional benefits (i.e. vision or dental), and most include prescription drug coverage (Part D). Keep in mind that while using Medicare Advantage/Part C, Part A and B do not go away and you are still responsible for those premiums. Medicare Advantage will typically take the shape of either a PPO or an HMO. A PPO gives you in and out of network choices, while an HMO will give you only one network of providers to choose from. If you go to in-network providers, you will receive the negotiated rate. Al advises to make sure you research the chosen plan’s list of providers to ensure that your doctor is available in that network.
These programs typically have maximum out-of-pocket expenses that can be up to $6,700 per year, not including prescription drugs (in-network). Out of network provider expenses can cost even more. However, compared with the prospect of having to pay an “unlimited amount” due to an uncapped 20 percent, $6700 can actually be a steal.
To get the most comprehensive and cost effective coverage possible most people end up electing some version of the following two combinations:
> Medicare A&B, with a Medicare supplement plan and part D (to cover prescription drugs)
> Medicare part A&B, with a Medicare Advantage Plan (part C) most of which include part D (to cover prescription drugs)
Understand that you will have either a Medicare supplement plan OR a Medicare Advantage Plan, but not both.
Premium wise, a Medicare Advantage plan will typically be less expensive per year than a Medicare supplement plan. (Range in GA $0 to over $80/month.)
However, a Medicare supplement plan gives you more flexibility as there is no insurance company’s network of doctors that you are steered towards. (Range in GA $100-$200 depending on your age.)
I would suggest that when thinking about your retirement plan (which according to my research you should do for at least five hours a year) you should be sure to also take time to think about your plan for medical insurance.
If you’ve made it this far in this article, you realized that this process can be daunting. Al recommends that you talk with an independent insurance agent who is contracted with multiple insurance carriers. That way, he or she will be able to provide you with options available in your area so you can make an educated decision.
Please note that we’ve tried to break this down into a brief and general overview. For more detailed information specific to you, please speak with your insurance provider. Al Schiebel is the Vice President of the GA Assoc. of Health Underwriters.
This article was originally published April 6th, 2015 in AJC.com.