Understanding Medicare
Signing up for Medicare is a rite of passage for so many Americans. With roughly 10,000 Baby Boomers retiring each day, Medicare is a program that is central to retirement planning and periodically, a political lightning rod.Whether you’ve officially retired or are still working full time, it’s possible your health insurance options are changing. Depending on your age or health status, you may soon be qualified for Medicare. While you’ve likely heard of it before, we’re breaking down what exactly it is, who Medicare benefits and what each Medicare part covers.
What Is Medicare?
Medicare is a government-funded national health insurance program that was established in 1966. It is designed to offer coverage to individuals including:1
- Those who are 65 or older
- Individuals under 65 with qualifying disabilities
- Individuals with End-Stage Renal Disease (ESRD)
Medicare is broken down into several parts that cover specific services. While Part A and Part B are part of the “original” Medicare plan, Parts C and Part D offer optional additional coverage.
Part A: Hospital Insurance
Part A is considered hospital insurance. As such, it covers hospital-related expenses such as:2
- Inpatient hospital care
- Skilled nursing facility costs
- Hospice
- Lab tests
- Surgery
- Some home health care services
Most beneficiaries don’t pay Part A premiums out of pocket if they or their spouse paid Medicare taxes while working.1 It’s important to note, however, that annually adjusted standard deductibles still apply.
Many pre-retirees are frequently warned that Medicare Part A will only cover a maximum of 100 days of nursing home care (provided certain conditions are met). Under the current Part A rules, you would pay $0 for days 1-20 of care in a skilled nursing facility (SNF). During days 21-100, a $176 daily coinsurance payment may be required of you.3
Knowing the limitations of Part A, some people look for other choices when it comes to managing the costs of extended care.
Part B: Medical Insurance
Part B is considered the medical insurance portion of Medicare. It covers expenses like:2
- Physicians’ fees
- Outpatient hospital care
- Certain home health services
- Durable medical equipment
- Some offerings not covered by Medicare Part A
Part B does come with some costs, however, which are adjusted annually. The premiums vary, according to the Medicare recipient’s income level, but the standard monthly premium amount was $144.60 for 2020, with a yearly deductible of $198.3
Part C: Medicare Advantage
Sometimes called “Medicare Part C,” Medicare Advantage (MA) plans are often viewed as an all-in-one alternative to Original Medicare.
MA plans are offered by private companies approved by the federal government. Although these plans come with standardized minimum coverage, the amount of additional protection offered can differ drastically from one person to the next. This is due to unique provider networks, premiums, copays, coinsurance and out-of-pocket spending limits.
If you’re interested in obtaining a MA plan, you may find it beneficial to compare prices and services offered from different vendors.
Part D: Prescription Drug Coverage
While MA plans often offer prescription drug coverage, insurers also sell federally standardized Medicare Part D plans as a standalone product to those with Medicare Part A and/or Part B.
Every Part D plan has its own list of covered medications. If you’re interested in obtaining a Part D plan, Medicare’s website offers the formulary of approved drugs and prices, organized by tier.
If you’re approaching 65 or think you may be otherwise eligible for Medicare, review each part carefully to determine what may work best for you. If you have any questions, your trusted financial professional may be able to help you review your coverage options in detail.
- https://www.medicare.gov/Pubs/pdf/11306-Medicare-Medicaid.pdf
- https://www.medicare.gov/what-medicare-covers
- https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles#:~:text=Medicare%20Part%20A%20covers%20inpatient,quarters%20of%20Medicare%2Dcovered%20employment
First Enrolling & Open Enrollment
If you have yet to sign up for Medicare, your period to do so runs between the three months before and three months after you turn 65. Aside from the familiar age-based milestone, for those who work beyond 65 and maintain coverage through an employer plan when you stop receiving coverage you are eligible to sign up during your “Special Enrollment Period” though this will also require your employer signs a form. Even for those with coverage offered through an employer plan, enrolling in Medicare Part A at 65 might be wise as there is no premium associated with this coverage unlike Part B.
If you miss this initial enrollment period, you can not sign up for Medicare during the open enrollment period beginning in October. Instead, you must wait until Medicare’s general enrollment period, which runs from January 1 through March 31.2
Medicare’s open enrollment period happens once a year between October 15 and December 7. During this time, current Medicare beneficiaries have the option to adjust their coverage for the coming year. This can be a useful option for those who may have recently changed medication, underutilized their current coverage or found they could use additional benefits.1
How to Search For Medicare Plan Options
It shouldn’t take a ton of research to determine what your current coverage is and what options are available for you during this coming enrollment period. You should receive information from the government regarding your current Medicare coverage each year. Even if your coverage hasn’t changed within the last few years, it’s important to still take time to review your current coverage and identify any areas for improvement.
There are tools available online or by phone to learn more about other plans if you’re thinking about switching or changing coverage. Medicare offers a Plan Finder tool online or you can call 1-800-MEDICARE to find out about new Advantage plans in your area. Or, check out the State Health Insurance Assistance Program site to find help in your state.
Can Anyone Make Changes During the Open Enrollment Period?
Medicare’s Open Enrollment Period is only for those who are already existing Medicare beneficiaries.
If you have yet to sign up for Medicare, your period to do so runs between the three months before and three months after you turn 65. If you miss this initial enrollment period, you cannot sign up for Medicare during the open enrollment period beginning in October. Instead, you must wait until Medicare’s general enrollment period, which runs from January 1 through March 31.2
Are Changes Made During Open-Enrollment Effective Immediately?
No, the changes you elect to make during Medicare’s open enrollment period will not go into effect until January 1, 2024.
What Changes Can Be Made During Medicare’s Open Enrollment?
During the open enrollment period, you are eligible to change your Medicare coverage, and you also have the option to switch between different Medicare plans. Below are a few coverage options you can choose to add, drop or adjust depending on your needs for the new year.
Medigap & Medicare Advantage Plans
Medigap is a supplemental insurance policy designed to help cover the costs of certain medical expenses that Medicare doesn’t cover. Your Medigap policy may cover expenses such as:
- Copayments
- Coinsurance
- Deductibles
- Medical care when traveling abroad
Whether you’ve had Medigap coverage in the past or you’d find it beneficial moving forward, you can adjust, add or drop your Medigap coverage during open enrollment.
Medicare Advantage Plans are another offering that allows an extension of benefits generally with lower out-of-pocket expenses but where coverage is tied to the plan’s coverage network. For many healthy people who don’t need to see a specialist and have little, or no prescription needs they may opt for this program as the costs may be lower than if you opted to use a Medigap plan. These plans may offer dental, hearing and vision coverage options which are not covered by Medicare Parts A & B.
The balancing act when evaluating coverage both medically and financially can be a daunting task with potentially serious consequences. Speaking to professionals like your doctor and a financial planner can help you avoid common pitfalls and find coverage.