No matter how we spin it, Medicare is not as easy as it looks. This blog is going to attempt to help explain some of the basics about Medicare. You will learn how it works. You will understand Medicare Part A and Part B and the choices you have to make once you sign up for Medicare.
Medicare Part A covers you for inpatient hospitalizations, skilled nursing facilities and hospice. It also covers home health care if you are physically unable to get to a medical facility.
For inpatient hospitalizations, you must first satisfy the Part A deductible before Medicare will cover the rest of your care for the first 60 days. The deductible is $1,408 in 2020 for a Medicare benefit period. A benefit period is not the same as a calendar year, and you can have more than one benefit period in the same calendar year, potentially incurring multiple deductibles.
You will have a copay of $352 per day from 61 through 90 days. Beyond 90 days you are utilizing your Lifetime Reserve Days, of which only 60 are available during your lifetime. The copay for your Reserve Days is $704 per day. You are responsible for all charges beyond the Lifetime Reserve Days.
Most of us do not pay a monthly premium for Part A unless we or our spouse did not have 40 quarters (10 years) of work history in which we paid our Medicare tax. That’s the 1.45% tax that is deducted each pay period.
Medicare Part B is the portion of Medicare that pays for physician visits, outpatient tests, lab tests, physical therapy and so on. This is the part of Medicare that people use most, since most of our medical care is received on an outpatient basis. Many procedures which were previously done in the hospital are often performed today on an outpatient basis at a Surgicenter or equivalent.
Everyone must pay for their Part B insurance. In 2020, this is $144.60 per month for most individuals, although it is income-related. If your income is higher, you may pay more. The exact amount will depend on your adjusted gross income (AGI) as of 2 years ago and when you began receiving your Medicare. If you want to check out this year’s income levels and adjustments, go to www.Medicare.gov and then search for the “Cost of Medicare Part B”.
Each year, you must satisfy a Part B deductible ($198 in 2020). After that, you receive 80% coverage for Medicare-approved services, leaving you to pay the remaining 20%. There is no maximum out-of-pocket limit that you may pay in any given year.
Together, Parts A and B are the foundation of Medicare and are referred to as Original Medicare. This is a term you will hear often and therefore important that you remember and understand it.
Original Medicare is accepted country-wide and by 93% of all physicians (2020) and over 5,300 hospitals. Many of the doctors who don’t accept Medicare are pediatricians so I’m thinking that if you’re reading this you probably won’t be affected much by that group. (Plastic surgeons might be a different story.) The point is that you can pretty much go to any doctor you want, and you won’t need a referral.
Now that you have a basic understanding of Original Medicare, you have 3 options.
Option # 1 is to do nothing. Keep Medicare Part A and Part B. Some people do make that choice. The problem with doing nothing is that it opens you up to unlimited financial exposure. There is no maximum out-of-pocket limit on your medical expenses, potentially resulting in a catastrophic financial loss.
Option #2 is to exchange Original Medicare for a Medicare Advantage Health plan. Medicare Advantage Health plans are also referred to as Part C. These plans are run by private insurance companies. Instead of using your red, white and blue Medicare card when you visit a doctor, you would present the card that was issued to you by the insurance company.
If you enroll in a Medicare Advantage Health plan, you must utilize a network of providers for coverage based on the type of plan that you’re enrolled in.
- Health Maintenance Organizations (HMO)—you must utilize in-network providers to receive coverage for services, except in emergency or urgent care situations.
- Preferred Provider Organizations (PPO)—you can utilize the plan’s network of providers and facilities to pay the lowest copays/coinsurances for covered services. You are still able to go outside of the network but will pay higher out-of-pocket costs, and you must still see a provider/facility that participates in the Medicare program.
There are at least 3 benefits to enrolling in a Medicare Advantage Health plan vs. doing nothing:
- Medicare Advantage plans have a Maximum–Out-Of-Pocket (MOOP) which makes them unique compared to all other parts of Medicare.
- Many Medicare Advantage plans also include prescription drug coverage. *Prescription drug costs and non-covered benefits do not apply toward the MOOP.
- Many Medicare Advantage plans include extra benefits which make the plans attractive to some people. These benefits can include dental, vision, hearing, fitness, transportation, chiropractic, acupuncture, telemedicine, over-the-counter supplies, and more.
Another significant feature that is attractive to some people is that many of the Medicare Advantage plans have no monthly premium.
Option # 3 is to keep your Original Medicare Parts A and B, but add a Medicare supplement plan that pays the copays and deductibles that come with Original Medicare. Medicare supplement plans are also called Medigap plans. The terms are interchangeable, but they are the same product.
There are numerous benefits to Medigap plans:
- Any physician or hospital who accepts Medicare has to accept a Medigap plan from any insurance carrier. You don’t have to worry about whether your doctor is in your network. As long as he or she accepts Medicare, he accepts your Medigap policy.
- If you are a snowbird or travel, you don’t have to worry about medical coverage.
- Medicare supplement plans are standardized in most states except Wisconsin, Minnesota and Massachusetts. They are known by letter: Plan G, Plan F, Plan N, etc. Every plan G (F, N, etc.) is the same. The only difference from one company to another is price.
- Billing with Medicare supplement plans is very different from Medicare Advantage. With Medicare Advantage plans, the insurance company makes the decisions. With Medicare supplement plans, Medicare tells the insurance company what to pay and when to pay it. The Medicare supplement insurance company has no say. There is no debate.
Medicare supplement plans have a monthly premium and you need to obtain a separate Medicare Part D plan if you want to help cover the cost of your outpatient prescription drugs. Many of the Medicare Advantage plans include Part D at no additional cost. The stand-alone Part D coverage that you would purchase to complement your Medicare supplement plan has a premium associated with it.
Residents of New York and Connecticut have certain rights and privileges as a result of state laws that make them unique. These rights and privileges should affect your strategy when deciding which option is best for you. That is beyond the scope of this blog but will be covered at a later date.