Understanding The Basics Of Medicare

Learn About The Four Parts of Medicare- Parts A, B, C And D

If you feel confused and anxious about Medicare, take comfort in the fact that you aren’t alone. There thousands (if not more) people that share these feelings. While there is no way to truly simplify this complex subject, it’s important to first understand who is eligible for Medicare. By definition, Medicare is available to people age 65 or older who are U.S. citizens or who are legal permanent residents, and either you or your spouse have worked for 10 years (or 40 quarters).

It is also available to people under 65 with certain disabilities, and people of any age with End-Stage Renal Disease. To determine if you qualify for Medicare, ​AARP has some great information

The next step to understanding Medicare is to acquaint yourself with the four basic parts of Medicare: Part A, Part B, Part C, & Part D. Parts A & B are together known as and referred to as “Original Medicare.” Part C and Part D help fill the gaps in areas that your Original Medicare doesn’t cover. 

Part A – Hospital Insurance 

Part A helps cover inpatient care in hospitals, skilled nursing facility care, home health care and hospice care stays.

Most people do not have to pay a premium for Part A if you or your spouse paid Medicare taxes while working. For this reason, the Part A program is the one that almost everyone who is eligible enrolls in. If you don’t meet the requirements (if for example you don’t meet the 40 quarters of work requirements), you will have to purchase Medicare and pay $407 each month.

  

As of 2015, there is a $1,260 deductible for days 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.

Medicare Part A is designed so that the government covers about 80% of your medical costs while you cover the last 20% with no cap.

It is important to note that this 20% unlimited cap is if you only have Original Medicare (Parts A&B), which is why supplemental insurance, as discussed below, is so important. 

Part B – Medical Insurance (Doctor’s Appointments & Out-Patient Visits)

Part B covers services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and some preventive services.

Part B differs from Part A as there is a premium that most people have to pay each month. The premium starts at $104.90 per month, and is “mean tested.” This means that the higher your yearly income, the more your monthly premiums for Part B will cost. The monthly cost can be as high as $355.70. A link to these premiums can be found here

Part B also has a $147 deductible, and the plan covers about 80% of all costs with no annual maximum out-of-pocket expenses. 

Additional Medicare Options and Medicare Supplements

While Original Medicare covers the main costs of healthcare, it’s critical to understand that there are additional costs that will not be covered. However, there are options to fill the gaps in your Original Medicare coverage. If you are enrolled in Medicare Parts A and B, you can also choose to buy Medicare Supplement Insurance policy, known as “Medigap” from 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 cover the uncapped 20% of your medical expenses. There are several Medicare Supplement options that range from Plan A all the way to Plan N.

Medicare Supplement plans do not have a network of doctors, but typically if your doctor accepts Medicare then the supplement will pay (based on the terms and conditions of the plan). Take important note that Medicare Supplement plans 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.

Part D- Medicare Prescription Drug Plan

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 may increase your cost savings.   

The cost for these plans can range from anywhere between $15 to over $100 per month.

Part C- Medicare Advantage

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 from which to choose. If you go to in-network providers, you will receive the negotiated rate. Be sure to 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%, $6700 does not sound too terrible. 

Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.