What is Medicare?
In simple terms, Medicare is the Government Major-Medical Health Coverage Program for Americans who have contributed into the Social Security Program via payroll taxes during their working careers. It is made up of several parts, all of which will be explained in greater detail. To summarize: Part A, covers hospitalization; Part B, covers doctor & medical services; Part C, is the Medicare Advantage program; and Part D, covers prescription drugs. There is also private coverage that works in conjunction with Medicare known as Medicare Supplemental or Medigap coverage that although overseen by Medicare, is still considered private insurance. Understanding a few key facts about how Medicare works can save you thousands of dollars each year.
Who is Eligible for Medicare?
To become eligible for Medicare, you must have paid Social Security payroll taxes for at least 40 quarters (10 years) during your working career. There are generally three times when you can enroll in Medicare (when eligible) 1) the first day of the month when you turn 65 (“Initial Enrollment Period”); 2) at any age, when you have been receiving Social Security Disability Benefits for 24 months; 3) if older than 65, when you give up or lose, either voluntary or involuntary, your existing “creditable” coverage (i.e. as good or better than Medicare), obtained either through current employment or a retirement benefit package. Enrollment in Part A is automatic at age 65, but you must “opt-out”, or decline, Part B if you have “creditable” coverage, so you don’t have to pay the Part B premium. Every November 15th to December 31st is the “Annual Enrollment Period” in which beneficiaries can make any changes to their Medicare coverage. January 1st to March 31st is the “Open Enrollment Period” in which beneficiaries can make “like-to-like” changes in regard to their prescription drug coverage. Starting in 2011, the Open Enrollment Period will be eliminated.
What are Your Costs for Parts A & B?
There is no additional cost or premium for Part A, but Part B has a monthly premium of $110.50 in 2010. The premium starts the month the coverage becomes effective and can be paid one of two ways, 1) Monthly, when you elect to have the premium automatically deducted from your Social Security Administration benefit check, or 2) Quarterly, if you elect to be billed by mail. The premium for Part B usually goes up each year; the last increase from 2009 to 2010 was about 15%.
What does “Traditional” or “Original” Medicare cover?
Again in simple terms, Traditional Medicare, i.e. having just Parts A & B, covers 80% of your total “approved” medical costs, after you pay the annual deductibles. The Part A annual deductible is $1,100, Part B is $155. After paying these deductibles, you are responsible for paying the remaining 20% of your “approved” medical costs. If a cost isn’t “approved” by Medicare, you are responsible for 100% of the cost.
What is Medicare Supplemental (a/k/a “Medigap”) coverage?
Being responsible for this 20% can be a potentially catastrophic expense, so there has been an set of “Medicare Supplement” programs developed, also know as “Medigap” policies, that will pay this 20% “gap” (hence the nickname), and also the 2 annual deductibles. These Medigap policies are not considered part of Medicare, rather, they are private insurance policies sold and administered by private health insurance companies. The premiums for these policies vary from company to company.
It seems as if in an attempt to confuse our seniors, the Medigap policies are labeled by letters, A thru M. Each policy offers different coverage levels and has a different premium cost. Even though these policies are considered private, the coverage they provide is strictly controlled by Medicare. This means that the coverage is standardized in each of the plans. The coverage cannot vary one iota from one company to the next. The only thing that the company has control over is the premium it charges for the policy.
What is Part C of Medicare?
Part C of Medicare (a/k/a the “Medicare Advantage” program) combines Parts A & B, Part D, and additional coverage (usually purchased through a Medigap policy) all into one Medicare Program. The basic concept is that Medicare has chosen to outsource the administration and payment of Medicare benefits to established health-care insurance companies in an attempt to control their sky-rocketing costs. Medicare pays the insurance companies a set amount of money each month for each Medicare member who enrolls in a Part C plan. With this money, the companies provide Parts A, B & D and also the additional coverage. This is why if you enroll in a Part C program, you can’t buy (or use) a traditional Supplemental/Medigap policy. This is the only alternative to Traditional Medicare. Because the companies providing Part C coverage are being paid each month by Medicare, the premiums are usually much lower than traditional Med Supp plans, which receive no money from Medicare. Understanding this situation can save you literally thousands of dollars each year.
Under Part C, because it is a Medicare Program, you still retain all rights and privileges under Medicare, including the right to appeal, even though the program is administered by a private insurance company. It’s easy to lose track of which plans are “Medicare” (Part C) and which are “private insurance” (Med Supp/Medigap) because it’s the same companies providing both types of plans.
There are several types of Part C plans such as HMO’s, PPO’s, PFFS’s, and MSA’s, and each has its advantages and drawbacks. As far as cost, the monthly premiums for a Part C program can range from $0 to $266 per month; it depends on the company, the plan, and which county you live in (a/k/a your “service area”).
What is Part D of Medicare?
Part D of Medicare (a/k/a “PDP”) covers prescription drugs. All Medicare PDP’s must have a “Formulary” which lays out which drugs are covered and a schedule of premiums, deductibles and co-pays. There are four “Tiers” that each drug can fall into that determines the co-pay you are responsible for: Tier 1 is for Generics; Tier 2 is for preferred Brands; Tier 3 is for non-preferred Brands; and Tier 4 is for Specialty drugs.
The PDP plan may or may not have an annual deductible, then the company will pay for your drugs during an “Initial Coverage” period and you will have to pay a co-pay based on the drug’s tier. Once the total spent on your drugs reaches $2,850, you must now pay 100% of your drug costs until you’ve spent $4,550 out of your own pocket. This is known as the “Coverage Gap” or “Doughnut Hole.” Plans may offer coverage through the “Gap” but only for generic drugs. Beyond this amount, you’ve reached the “Catastrophic Coverage” stage where you only pay a 5% co-pay and the company pays 95%. At the end of the year, the plan resets and starts over again at the “Initial Coverage” stage. This year the government sent a $250 check to every person who reached the coverage gap.