Medicare is one of the more misunderstood and confusing subjects, just like any government program like it. This is because it was written without consideration to normal having to use it and learn it and with terms such as Medigap and the donut hole it only confuses people more. Fortunately, it’s not that complicated. Don’t get me wrong Medicare is a big complex thing, but it can be explained in way for anyone to understand. I’m going to at least attempt to do to make the basics understandable and as succinctly as possible. This way if you are someone or even a child with a parent that is about to go onto Medicare you can understand it. Make sure you do a lot research, the medicare.gov website does do a great job of breaking the benefits down for you as well as handy FAQ’s and don’t be afraid to ask the questions you think are “stupid” when you sit down with your insurance agent. All of the premiums, deductibles and co-pays are as of 2015 and they do change each year, typically up. First, a little history on the Medicare program.
Medicare began in 1965, as Title XVII under the Social Security Act. It’s main focus was to help out with the care of persons 65 and older. Back then, if you were in this age bracket you would have to purchase insurance, just like younger people, but only if it were available to you. Then, if you were able to get insurance it would be extremely expensive, since the older you are the more likely you are to need some form of medical treatment. Medicare was created to rectify this issue, by making an insurance program that everyone that is a US citizen for at least five years and is 65 or older qualify for. Also, people with certain disabilities are covered regardless of their age.
What is Medicare and How Do You Qualify
The first thing you must understand about Medicare, just like Social Security it does not and was never intended to cover everything. Social Security is a supplement to whatever money you had saved up for retirement and Medicare is meant to help out with your medical insurance in the same way. Just like with saving money for retirement you will also need something to supplement your existing Medicare coverage from the government. We’ll get to supplements at the end of this article. So, lets cover what Medicare coverage is.
Medicare is subdivided into several parts A, B, C and D. Part A, is hospital and hospice coverage. Part B, is medical coverage such as, visits to you doctor or outpatient procedures. Part C, is Medicare Advantage or known previously as Medicare+Choice, but I will get into this one more specifically a little later with supplements. Part D, is for your drug coverage. Part A, B and D do cover a lot, but there are still holes in the coverage and additional cost.
Now, how do you qualify for Medicare? Open enrollment for someone turning 65 to enroll into Medicare is a seven month period, three months prior to the month of your birthday and the three months that follow your birthday month. Obviously, this would also include the month of your birthday. For example, I was born on June 20, if I was going to turn 65 this year my open enrollment would begin in March and would continue till September. If you don’t sign up during this time, there is a general open enrollment from January 1st till March 31st.
The draw back to waiting to sign up for Medicare during this time is you will end up paying more on your premiums for each part as a late penalty and coverage will not begin till July 1st of that year. So, do not miss your open enrollment, because it will cost you more in the form of late penalties and during the time till July 1st you will not have Medicare coverage. After you are already enrolled in Medicare, you are then able to review and make changes, for example changing the Medicare Advantage or part D drug plan you are on, every year from October 15th to November 7th. Part A, B and D are the basics of Medicare that you will have to decide on when you first enroll into it.
Medicare Part A
Part A, the hospital and hospice coverage you get automatically and typically there is no premium for it. The reason there is no premium in part A is because of the tax that you paid toward medicare every paycheck. There is a hitch, if you or your partner didn’t pay this tax for at least 40 or more three month quarters (This is one of the reasons why things like Medicare are so hard to understand, “40 or more three month quarters.” It amounts to paying the tax for at least ten years.) you will have to pay a premium. This part will cover hospital care, skilled nursing care, nursing home care (not if it is need for just custodial care), home health services and hospice services (covered 100% by Medicare). Now, there are stipulations for each of these services to be covered by Medicare.
Hospital care is covered on an inpatient basis for stays of 90 days. These stays are also covered if you are in and out of the hospital for a period of time. So, if you go into the hospital for seven days, out for two weeks, and then back in for another seven you still have 76 of covered days. For the 90 day period to start over you must go 60 consecutive day, without being admitted to the hospital.
The type of things that are covered are semi-private room, meals, drugs required for your treatment and other hospital services and supplies. Things like a private room (unless medically necessary), television, the phone in the room or personal care items. You must have a doctor order requiring at least two or more overnight stays. In order for Medicare to pick up the bill you must be admitted to the hospital overnight two nights. Also, these two days do not count the day you’re admitted, so you are actually in the hospital for 4 days. Medicare will not pay if your kept for observation.
In terms of cost there is $1260 deductible for each period and must be paid again when the period resets. For the first 60 days you pay nothing additional to your deductible after that there is a $315 a day co-pay till day 90. After your 90 days are up there is an additional 60 lifetime reserve days available with a co-pay of $630 a day. Each of these reserve days can only be used once and after they are gone they can never be used again. After you have used the 90 and 60 lifetime reserve days it is all out of your own pocket. I will provide a chart for all of the charges after I outline the different parts.
Skilled nursing care is covered as follows. In order, for Medicare to cover this it must be first, ordered by a doctor and must follow a hospital stay of at least three overnight stays. As with the hospitals stays you must be admitted to the hospital, it doesn’t count if you are there just for observation. Skilled nursing care is covered for 100 days. The first 20 days are covered 100% by Medicare. From day 21 till 100 days, there is a $157.50 per day co-pay and after that it is all on you.
Home health services must also be ordered by a doctor for intermittent skilled nursing care, in order for it to be covered. You must be homebound, meaning you cannot leave your home. By leaving you home I mean you can’t even walk out onto your front porch or into your backyard, unless for something like a doctors appointment or religious event. This is an important note, because I’ve heard horror stories where people have lost this care, because they were caught outside your home. Medicare will pay for all of the home health services, but there is a 20% co-pay for durable medical supplies that Medicare approves.
Medicare Part B
Part B is the medical part of you coverage. This part is optional when you enroll into medicare and it does have a monthly premium which will come out of your Social Security check each month. The base premium is currently $104.90 a month, but depending on you or your partners income it can be more. It covers two types of services, medically necessary and preventive services. So, thing like getting your yearly flu shot, wheelchair or walker, ambulance, doctor visits, surgeries, second opinions prior to surgeries or lab tests are covered. There are co-pays with these services, which is 20% and a yearly deductible of $147. There are three factors that go into what Medicare part B will and will not cover according to medicare.gov.
- Federal and State law.
- National coverage decisions made by Medicare about whether something is covered.
- Local coverage decisions made by companies in each state that process claims for Medicare. Those companies decide whether something is medically necessary and should be covered in their area.
Medicare Part D
Part D, is a little bit more complicated. This is because there are a couple of different types of drug plans and each of these drug plans has its own list of drugs that it does and doesn’t covers. I’m not going to get into each individual plan, it all comes down to what you need. If your currently on any prescription drugs, this will help you choose your drug plan.
The base monthly premium in 2014 was $33.13, but your premium will vary depending on the plan you are on. Like with part B an additional amount will be added if you or your partners income is over curtain levels. The yearly deductible is $320. The co-pays can vary from a set amount to a percentage of co-insurance and depends on which drug plan you are on. Note, if you do not get part D when you first enroll into Medicare, there will be a late enrollment fee of 1% of the current base premium for each month you were eligible for it. Also, you will be able to review your drug plan every year during open enrollment, so as your needs change you be able to adjust accordingly.
One of the most confusing things in Medicare is the donut hole, which finds it’s home right here in part D. The first thing I’m going to tell you about the donut hole is, you probably don’t have to worry about it. Only a vary small percentage of people find themselves inside it. Also, there are programs such as Extra Help that can help out in this situation or you may qualifying for Medicaid at the time, which picks up the leftovers. The donut hole is a coverage gap where your drug plan and you spend over $2960. After hitting this amount you are responsible for 45% of the cost till you get back out of the gap. After you then reach $4,700, the co-pays will be returned to what they where before.
I know some drugs can cost a lot, I have an 80-year-old neighbor that has one pill that cost about $3,000 a year. Though like I mentioned, the Extra Help program can help you avoid hitting this gap and most people don’t get even close to it anyway. The good news is, the impact of the donut hole has been limited over the years and hopefully it will be phased out, all together.
Please view this link to a chart with some of the cost involved in Medicare.
- Medicare 2015 costs at a glance | Medicare.gov
Find out how much Medicare Part A, Part B, Part C, and Part D costs. Get costs for monthly premiums, deductibles, penalties (like the late enrollment penalty), copayments, and coinsurance.
As you can see the premiums for part B and D can vary based on you and your partners income levels. To calculate this medicare goes off of your tax returns from two years ago. There are charts available at medicare.gov that show what will be added to your monthly premium
Part C: Medicare Advantage and Supplements
As you can see there are a lot of gaps in coverage where you’ll be spending a lot of money, but there is a solution. As you are turning 65 you’ll have a lot to consider, judging by that giant pile of Medicare stuff you have sitting somewhere in your home. Some of that stuff is from Medicare and the rest are from insurance companies trying to sell you an Advantage plan or a Supplement. Don’t ignore these, in fact and unfortunately, I encouraging you to read them all for two reasons. One, it will help you learn as much as you can about Medicare. Two, you’ll be able to start the process of figuring what plan is best for you.
Medicare part C or Medicare Advantage, was created to sort of replace your regular Medicare. Basically, you have a plan through an insurance company such as Humana or AARP, that takes over your Medicare coverage, in turn they will also supply additional benefits to cover some of the gaps that are in Medicare. The premiums that you would be normally paying to Medicare, Medicare pays them to the insurance company for taking over the risk. With some of these plans there is an additional premium that you must pay for the additional benefit provided. It’s typically a small additional premium you would have to pay, but there are typically a lot of co-pays. One draw back to these plans, is that you will be limited to the plans network of doctors and hospitals since they are HMO’s or sometimes even PPO’s. There will still be some considerable gaps in coverage, but they are much cheaper than a supplement plan.
Supplement plans are what sound like, they are plans that go on top of your existing Medicare plan. They are also known as Medigap plans, because the plans will cover the gaps that are not covered by regular Medicare. Most companies will offer several different supplements, some will cover some of the gaps and have small co-pays and others will cover all the gaps. So, with the cover all supplements, all deductibles and co-pays will be covered. You won’t have the network restrictions that you would have with an Advantage plan, so if your current doctor excepts Medicare you can keep on going to them. The one drawback is they are expensive and the premiums can sometimes be several hundred dollars a month. Also, if you want to change your supplement from one company to another, because you have found a cheaper one, you will have to answer medical questions and it would be fully underwritten like it would with life insurance. There is no open enrollment for you to switch supplement plans, but there is an exception for that, which will get to in a moment.
When you look at Advantage or Supplement plans, the first things you need to consider is what’s appropriate for you and how much can you afford. The biggest thing you need to consider is the future. Right now at 65 you might be in amazing shape, you don’t take any prescription drugs, you don’t have any conic illnesses and as far as your concerned you’ll live forever. That will not be the case, because you will not be this way forever. If you do think that way, you will short change yourself in coverage that you will need in the future. If you don’t believe me I’ll hit you with this fact from the Department of Human Services, “70% of people turning 65 can expect to use some form of long term care during their lives.” Those people also had to spend some time in hospital due to an accident or illness and probably will have ongoing issues from this event. By the way, that other 30% are going to have health problems to, they just didn’t need long term care afterward. I can 100% guarantee that you will have some type of illness that will come up in your lifetime.
There’s advantages to having either plan, which I’ve already outlined some of them. With both you could run into this problem, the plan your on could be discontinued in your area and you will have switch providers. This happened to my grandparents, they we not happy. The good news is you will be in an open enrollment period where you will not have answer medical questions. Another draw back is the premiums will go up every year and this will be very noticeable with supplements. There are also still some holes that supplements and Advantage plans do not cover for example, after your 100 days are up with Skilled Nursing Care. After the 100 days the cost would still be on you, which means you’ll have to plan accordingly by either saving, spending down your assets till you are on medicare or an additional insurances such as Long Term Care policies.
Here is a short list of things not covered by Medicare, that you will need to consider. (As listed on the medicare.gov)
• Long term care (also called custodial care)
• Most dental care
• Eye examinations related to prescribing glasses
• Cosmetic Surgery
• Hearing aids and exams for fitting them
• Routine food care
When your picking the plan that is appropriate for you, make sure you consider all of things I mentioned earlier. The biggest thing I can tell you is that you need to look at every single plan that you can find. By doing this you be making the most appropriate and affordable for you. Make sure you ask what the rate increases are usually like every year, because it’s possible you may be looking at a plan that may be expensive right now, but in the future it may be a lot cheaper compared to others.
Like I said in the part D section, make sure you get some form of drug coverage, even if you don’t need it right now, because the penalty is a hefty one. Remember, you’ll be building a plan for the future, not for what you need right now. Some states have programs like Wisconsin’s prescription drug program Senior Care, which also qualifies as a drug plan in Medicare’s eyes. With these programs they are a low cost alternative or something that can have to tied you over till you need part D. Good luck and I hope this has been helpful for you.
Austin Marion is a licensed insurance agent in the state of Wisconsin.
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