The Basics of Medicare
Medicare provides medical coverage for people age 65 and over. Or if you are under 65 and disabled, you are eligible for Medicare 24 months after being deemed disabled by Social Security.
When should I enroll?
You can start enrolling as early as 3 months before the month you turn 65. If you apply before your birth month, your coverage will start the 1st day of the month you turn 65. If your birthday is on the 1st, it starts the previous month.
Continuing to work? If you are not retiring and have employer health insurance and keep it, you can delay enrolling in Medicare until you are ready to retire or lose your employer coverage for any other reason. There is no penalty for delaying enrollment in Medicare as long as you keep your employer health insurance. Having COBRA does not meet this requirement. As soon as you know you are going to retire and/or you lose your coverage for some other reason, you should start the enrollment process.
It’s always a good idea to speak with an advisor knowledgeable about Medicare as there are enrollment penalties and lock-out periods that could affect you. When in doubt, ask.
What you get from the federal Medicare program – called Original Medicare
Medicare Part A covers inpatient hospital stays and skilled nursing care. There is a $1316 deductible per inpatient hospital stay and for stays longer than 60 days, there is a daily cost. For skilled nursing, there is no cost for the first 20 days, then it varies based on how long treatment is provided. There is no monthly premium for Part A for most people.
Medicare Part B covers pretty much everything else except most medications. After you pay a $183 annual deductible, Medicare pays 80% of your bill and you pay 20% (called coinsurance). There is no maximum limit to your 20%. The monthly premium for Part B is $134 per month or less. There is a “Robin Hood tax” added to the monthly premium for those with higher incomes.
What you get from an insurance company to help you pay your medical and prescription expenses that Original Medicare does not pay.
There are two basic options:
1. Medicare Supplement + Prescription Drug Plan
2. Medicare Advantage Plan
Option 1: Medicare Supplement Plans (G, F, N, etc.) are standardized by the federal government. The benefits for each plan are the same no matter which insurance company you buy it from. Medicare Supplement Plan F is the most popular. It pays the part of your medical bills that original Medicare does not pay – the co-pays, deductibles, and coinsurance. So, the net effect is you won't get any medical bills for Medicare covered services. I say ‘Medicare covered services’ because for example, Medicare doesn't cover private rooms, cosmetic surgery, long term care, etc. Plan G is another popular plan option. Plan G is the same as Plan F except it does not pay the Part B annual deductible of $183. Medicare Supplements allow you to use any doctor or hospital that accepts Medicare - there is no insurance company provider network. This is the main reason people choose a Medicare Supplement vs. a Medicare Advantage plan. The monthly premium for a Medicare Supplement plan increases as you age.
And add a Prescription Drug Plan to help you pay for your prescriptions. There are many different plans to choose from depending on your home zip code. Each plan has a monthly premium (averaging around $25) and a list of medications the plan covers, called the formulary. Each medication in the formulary is assigned a tier - 1 through 5. What tier the medication is in determines how much you will pay for that medication with that plan. What you pay for a medication can vary during the year, especially if you have high prescription drug expenses. The monthly premium, formulary and tiers are different for each plan. So, do not compare plans based on the monthly premium alone. Comparing your plan with your friends and neighbors is pure folly unless you take the exact same medications and shop at the same pharmacy. To compare the plans available to you so you can choose one based on the medications you take, go to www.medicare.gov and click “Find Drug and Health Plans”. Do a prescription drug plan search by entering the medications you take and choosing the pharmacy you use. Check the plan’s formulary to verify that the medications you take are covered by that plan. Also, check for any restrictions such as quantity limits or if prior authorization is needed. This is the process I use to make my recommendation for clients. If you want to do this yourself, check the Library tab under Medicare for detailed instructions.
Option 2: Medicare Advantage Plans are becoming more popular each year. These are probably similar to the health insurance plan you had before Medicare. They combine coverage for medical care and prescriptions in one plan in most cases. You pay a co-pay or coinsurance for medical services and medications. There may be an annual deductible for prescriptions. These plans usually have a much lower monthly premium than a Supplement and a prescription drug plan combined, around $20 a month. The monthly premium is low because the federal government subsidizes the premium. Unlike a Supplement where Medicare pays part of your medical bill, Medicare Advantage plans take the government “off the hook” for your expenses. The Medicare Advantage plan provides your coverage and pays part of your bills. However, you must continue to pay for Medicare Part B. You can’t get out of paying the government!
There are several insurance companies offering PPO and HMO Advantage plans. Each plan has a network of doctors and hospitals for you to use depending on the insurance company / plan you choose. You pay a co-pay or percentage of the cost (called coinsurance) for your medical services and medications. How much you pay for medical services and medications varies from plan to plan. There is an annual limit to your out-of-pocket medical expenses covered by the plan (not medications). Again, this varies from plan to plan. What you pay for a medication can vary during the year, especially if you have high prescription drug expenses. Some Advantage plans have added benefits for stuff like dental and vision care, fitness programs and allowances to purchase over-the-counter health related items.
What’s good for you and how do you choose?
For most people, it comes down to cost versus choice. A Medicare Supplement gives you the broadest choice of doctors and hospitals - you can use any doctor or hospital in the United States that accepts Medicare. The downside is this can be a very expensive option, particularly for those with few medical needs. The monthly premium for Plan F averages $160 for a 65-year-old and the premium goes up as you age. That is $1920 annually that you pay whether you ever go to a doctor or not. So, if you only go to a doctor 4 times a year, each visit cost you $480 ($160 monthly premium times 12÷4)! Plus, you still must buy a separate Prescription Drug Plan to get help paying for your medications. The upside is if you had $1 million in medical bills, you wouldn’t pay anything besides the monthly premium (Plan F).
Medicare Advantage Plans can offer significant savings in your premium cost. For a plan with a $20 monthly premium that has a $20 co-pay for doctor visits, those same 4 doctor visits only cost you $80 per visit ($20 premium times 12 + $20 co-pay times 4÷4). The trade-off is you must use the providers in the plans network. If your favorite doctor is in the network, then it doesn’t matter. Also, make sure to check the plans formulary to verify that any medications you take are covered. As these plans become more popular, finding a plan with your favorite doctors in the network has become much easier. If you have a favorite doctor that is not in the network and you don’t want to switch, or your medications are not all covered, then choose option 1 - a Medicare Supplement and a Prescription Drug Plan.
How do I enroll in Medicare?
To enroll in Medicare, the easiest way is to go online to www.medicare.gov. Click the ‘Apply for Medicare’ button and follow the instructions - it takes less than 10 minutes to complete. You can also enroll at your local Social Security office. You should enroll in Part A and Part B. Other enrollment options are to call Medicare at 800- MEDICARE and say, “new to Medicare” or call Social Security at 800-772-1213 or visit a local Social Security office. You can start this process 3 months before the month you turn 65. Once enrolled, you should receive your Medicare ID card in the mail within a few weeks. NOTE – you must submit your application before you want coverage to start – they do not backdate. Same goes for a supplement, prescription drug plan or Medicare Advantage plan. So, don’t wait till the last minute to do this. Also, don’t forget to call your current health insurance company and tell them to cancel your current policy when Medicare will start.
NOTE, this is a very brief explanation. It does not cover all people in all situations and all Medicare products. That’s what you have McShane Insurance for. We are here to work with you one on one to help you make the choice that’s appropriate for you. We look forward to working with you.