Every day, an average of 10,000 people turn 65. After years of paying taxes, these people finally get the opportunity to sign up for Medicare. Medicare is a federal health insurance program, funded by the Social Security Administration, for Americans 65 and older, qualified disabled Americans, and people with certain approved medical conditions.
There are many surprises for these new enrollees, as well as beneficiaries who have been on Medicare for years, as to what Medicare actually covers. Below, we will break down the four parts of Medicare, what they cost and what they actually cover, to give you a more complete picture.
Medicare or Alphabet Soup
Medicare is composed of four parts: Part A, Part B, Part C, and Part D.
Medicare Part A
Part A is hospital insurance. It covers inpatient hospital care, a limited time in a skilled nursing facility, some home health healthcare services, and qualified hospice care. It does not cover long-term care costs. Generally, if you have worked at least 10 years and paid Medicare taxes during these years, Part A does not require a monthly premium; it is typically referred to as premium-free.
Enrollment in Part A should be done right when you turn 65, even if you still have other coverage. Since you do not have to pay for it, it is a “free” benefit that covers gaps that your other coverage might have. If you already are collecting Social Security benefits, you will typically be automatically enrolled. If not, contact Social Security to enroll.
Part A does come with yearly deductible of $1340 and has annual caps on benefits. A medicare supplement will help cover this deductible as well as beyond the caps. You can learn more about Medicare Supplements here.
Medicare Part B
Part B covers doctor and outpatient services. Coverage includes preventative services, ambulance services, and physical therapy, etc. Unlike Part A, Part B is not premium-free; the yearly premium is currently $134. If you are a high-earner, your monthly premium could increase. This surcharge is called IRMAA, or Income Related Monthly Adjustment Amount.
Part B also has a $183 deductible. After this is met, Medicare will cover 80% of your costs, leaving you with 20%. There is no cap on this. While 20% does not seem bad on a $100 bill, it will be pretty bad with a $10,000 bill. Medicare Supplements cover this 20% and some will even cover the $183 deductible.
Medicare Part C
Part C is also called Medicare Advantage. Medicare Advantage plans combine Parts A and B. Instead of getting benefits from Medicare directly, your coverage is moved to a private company.
Part C coverage has varying deductibles, premiums, and copays depending on which company and plan you go with. Medicare Advantage plans can only be signed up for or changed during a period called Annual Open Enrollment, which happens from October 14 – December 7 each year. At this time, you can also elect to go back to Original Medicare, or Part A and Part B.
Under Medicare Advantage Plans, the monthly payments are usually less than they are under Original Medicare, though you must go to the doctors and hospitals that your specific plan approves of. This is a great plan for some but it does not work for others. Make sure to consult a professional before switching your Medicare plan.
Medicare Part D
Medicare Part D covers Prescription Drugs. For a while, Part D was not around, and seniors on Medicare were having to pay these costs out of pocket. In 2006, this program was added to address the concern of rapidly rising drug costs. This coverage is provided by private companies that are contracted by Medicare.
While Original Medicare (Parts A and B) does not cover drug costs, most Part C Medicare Advantage Plans do.
Just like Part C, enrollment in Part D occurs during Annual Open Enrollment. If you want to switch drug plans, you can only do it during this period as well, unless you just signed up for Medicare or you qualify for a Special Election Period, which can be triggered by events such as moving. Only certain Part D plans are going to be available in certain areas, so plans and prices will vary by your location.
If you do not sign up for a Part D plan when you are first eligible and do not have other creditable prescription drug coverage, you will face a late-enrollment penalty if you do end up signing up for Part D. This is an extra costs that is added to your monthly Part D premium. You pay this extra amount for life, so make sure not to miss your initial enrollment period.
Like Part B, people with higher incomes will pay a surcharge on their Part D monthly premium (IRMAA).
Medicare can get very confusing, but there are people who can help. Make sure to contact a professional, such as your states SHIP office, to help you. Cardinal Advisors can help you as well, just fill out the form below or call 919-535-8261.