Medicare is a U.S. federal government run healthcare program generally available to retirees age 65 or older and certain disabled individuals. Workers contribute into the system via their earnings. As an employee, you pay 1.45% of your wages towards Medicare.
Your employer also contributes an additional 1.45% of your earnings into the system. If you are self employed, you pay both the employer and employee portions, or 2.9%. Under the relatively new Affordable Care Act (ACA) rules, high income earners may pay an additional Medicare tax.
When you retire, you will generally no longer have health coverage through your employer. So Medicare is there to provide a healthcare safety net for your retirement years. However, Medicare insurance by itself is usually not enough. You may need to purchase supplementary insurance to cover most of your health insurance needs during retirement.
There are four parts to Medicare. These are Part A, Part B, Part C, and Part D.
Medicare Part A (Hospital insurance)
This insurance helps pay for inpatient hospital care or a skilled nursing facility after a hospital stay, as well as hospice care. Home health services and nursing home care are also covered as long as custodial care isn’t the only care you need.
Custodial care is non-skilled care such as help with daily activities. Examples of these types of activities include eating, bathing, and getting dressed. Home health services are covered on a part-time or intermittent basis. Medicare does not pay for 24 hour home care.
Part A is the only part of Medicare which usually does not require premiums to be paid. The contributions from you and your employer during your working years cover your cost for this insurance.
Use of hospital or skilled nursing facility (SNF) care is measured using a “benefit period.” A benefit period begins when you are admitted as an inpatient and ends when you have not been an inpatient for 60 days in a row. This period is used to determine your deductible and coinsurance amounts.
Hospital Deductibles and Coinsurance for Part A
For 2017 there is a $1,316 deductible for each hospital inpatient benefit period. Coinsurance for each benefit period varies depending on the length of your say.
For days 1-60, there is no coinsurance. From days 61-90, you have a coinsurance requirement of $329 per day. After day 90, coinsurance rises to $658 for each “lifetime reserve” day. You get 60 such days over your lifetime.
After this, you are responsible for all costs for that specific benefit period. Please note that deductibles and coinsurance change from year to year.
SNF Coinsurance for Part A
In order for Medicare to cover SNF care, you must have been an inpatient at a hospital for a minimum of three days. Then you must have been admitted to a Medicare approved SNF within 30 days of your hospital stay.
In 2017, there is no SNF coinsurance for days 1-20 of each benefit period. For days 21-100, coinsurance is $164.50 per day. After day 100 of each benefit period, you are responsible for all SNF costs.
Eligibility for Part A Once You Reach Age 65
You are eligible for Part A at no cost once you reach age 65, are a citizen or permanent resident of the U.S., and you or your spouse receives or is eligible to receive Social Security benefits (SSB). You also must be married at least one year before applying based on your spouse’s work history.
If you do not meet these requirements, you can purchase Medicare Part A coverage. You can do so during specific enrollment periods. In 2017, the premium may be as low as $227, and as high as $413, depending on how long you paid Medicare taxes while you worked.
Keep in mind that you are not required to be collecting SSB at the time you enroll for Medicare. If you have chosen to delay receiving SSB, you should sign up for Medicare three months before you turn 65. However, if you are already receiving SSB, then you will be contacted a few months before eligibility for Medicare so that you can apply.
If you are a resident of the United States, you will generally be automatically enrolled in Part A since it does not require a premium. Parts B, C, and D, which require premiums are optional.
You May Be Eligible for Part A Before Age 65
Part A may also be available without a premium requirement before age 65 as well if you are disabled. To meet this exception, you generally must have been entitled to Social Security disability benefits for at least 24 months.
Medicare Part B (Medical insurance)
If you are eligible for Part A without paying a premium, you can apply for Part B. This part helps pay for medically necessary services and supplies provided by doctors and other healthcare providers, outpatient hospital care, home health care, durable medical equipment, laboratory tests, and some preventive care services.
You must pay a premium for this Part B insurance. Those with higher incomes may pay higher premiums. If you are receiving SSB, Medicare premiums are usually deducted from your benefits check.
If you are not eligible for Part A without paying a premium, you can still purchase Part B if you are at least age 65 and either a U.S. citizen or a lawfully admitted noncitizen who’s lived in the U.S. for at least 5 years.
The Part B monthly premium amount is $134 in 2017, but may be higher depending on your income. However, most individuals who receive SSB pay $109 on average. The deductible for Part B is $183 per year. After this deductible, you generally have a coinsurance amount of 20% for most doctor services and durable medical equipment.
Enrollment Periods for Part B
When you are first eligible for Part A, you have an initial enrollment period of seven months to sign up for Part B. For those eligible due to reaching age 65, this period begins three months before the month in which you turn 65, and ends three months after. Qualification based on disability is based on the date the disability or treatment started.
If you do not enroll in Part B during this initial period, you may have to pay a late enrollment penalty for as long as you have the Part B coverage. If you enroll during the first three months of this enrollment period, your coverage will begin during the month you are first eligible. Enrollment between months four to seven will result in coverage starting one to three months after enrollment.
After the initial enrollment period, you still have an opportunity to apply for Part B coverage each year. This “general enrollment period” lasts from January 1 through March 31. Coverage would begin July 1st. The late enrollment penalty will be 10% for each 12-month period that you were eligible for Part B but didn’t enroll.
Switching to Medicare Part B from an Employer Group Plan
There is a special enrollment period rule if you are covered after your initial enrollment period by a group plan sponsored by your own or a spouse’s current employer. If this is the case, you may be able to enroll outside of the Part B general enrollment period and also avoid the late enrollment penalty. The rule also applies if you enroll within eight months after the month in which your employment or group coverage terminates, whichever occurs first.
If you enroll while still covered under a group plan or within the first full month after coverage ends, you have more options. You can start coverage on the first day of the month you enroll or on any of the subsequent three months. If you enroll between months two to seven of the special enrollment period, your coverage will begin on the first of the following month.
Note that coverage under COBRA or a retiree health plan will not count as current employer coverage for this exception.
Part C (Medicare Advantage plans)
Original Medicare is when you receive Part A and B services directly from the government. But you may also select a private insurance company to provide these services. Such a company must be approved by Medicare, which pays these insurers to cover your Medicare benefits. These plans, referred to as Medicare Advantage, typically include coverage offered by Parts A and B, but may also include prescription drug coverage (Part D) and some other services such as dental and vision.
Medicare Advantage plans can be HMOs or PPOs, and are very similar to regular private health insurance. They also typically have out-of-pocket maximums, which Original Medicare does not have. Each plan will have it’s own rules, copay’s, coverage, etc. So it is important to compare plans and prices.
You cannot obtain Medigap (see below) insurance when you have Medicare Advantage coverage. The reason for this is that these Part C plans pay for much of the same care that a Medigap policy would cover. This may include items such as extra days in a hospital that Original Medicare may not cover.
The initial enrollment period is the same as that for Part B. But you can also enroll during the Medicare enrollment period each year from October 15 to December 7 for coverage beginning on January 1st.
Switching from a Part C plan to Original Medicare
If you switch from a Medicare Advantage plan (Part C) to Original Medicare coverage (Parts A, B, and D), you can do so between January 1 and February 14. Coverage will begin on the first of the month after enrollment.
Medicare Part D (Prescription drug coverage)
This part helps you pay for the cost of prescription drugs and also requires a premium payment. The coverage is optional. You are eligible for Part D if you enroll in Parts A and B. Part D may also be built into Medicare Advantage (Part C) plans. Premium amounts vary by plan. If you have a higher income, you may pay more in premiums. The national average premium for Part D coverage in 2017 is about $35.63 per month.
Part D Enrollment
As with Part B, if you don’t enroll when first eligible, you may pay a late enrollment penalty if you apply later. The penalty will apply as long as you have coverage. There is no penalty if you are enrolled in Extra Help (see below) or another prescription drug plan. This other plan must pay on average at least as much as a standard part D drug plan.
The initial enrollment period is the same as that for Part B. You can also sign up during the Medicare open enrollment period from October 15 to December 7. The effective date will be January 1 of the following year.
What Medicare Doesn’t Cover
For starters, as with other healthcare policies, Medicare has deductibles and coinsurance payments. Note that in addition to coinsurance and deductibles, you may be liable for doctor bills in excess of what Medicare approves for services and supplies. So make sure that your healthcare provider “accepts assignment” for Medicare covered services so that the bill cannot be more than the Medicare approved amount for care.
In addition, Medicare doesn’t cover services or supplies which are not medically necessary. This means that care must be necessary to diagnose or treat an illness, injury, or condition or its symptoms, and meets accepted standards of medicine.
Specifically, medicare does not cover long-term care (aka unskilled or custodial care). It also does not cover hospital and skilled care after a specific number of days for each benefit period. Also not covered are dentures, most dental care, eyeglasses, and eye examinations for the purpose of prescribing glasses. Medicare also does not cover hearing aids, routine foot care, acupuncture, and cosmetic surgery. Nor does it cover care outside of the United States.
Long-Term Care is Expensive
Keep in mind too that typical health insurance policies also do not cover some expenses such as unskilled nursing home care (long-term care). Long-term care can be very expensive, as is the insurance which covers it.
Another option for potential long-term care needs is to self-fund them if possible. A benefit of this approach is that you can use the money for other purposes if you ultimately do not need long-term care. The downside, of course, is that many do not have the means to save the required funds.
In order to supplement some of these “gaps” of Medicare, individuals often purchase supplemental insurance referred to as “Medigap” from private insurers. There are ten different types of Medigap insurance, depending on the individual’s needs. These types of plans cover items such as deductibles, coinsurance, and some hospital and SNF days not covered by Original Medicare.
Medigap insurance combined with Original Medicare may cost more than a Medicare Advantage Plan. However, the combined coverage will typically cover most out of pocket costs. Medigap plans also do not include prescription drug coverage. So you will likely need to purchase Part D insurance.
Should You Have Another Healthcare Policy In Addition to Medicare?
Part A enrollment is automatic and does not require a premium once you qualify. The issue arises with Parts B and C, which require premium payments. Should you pay these premiums if you already have other coverage for medical and prescription drugs? You need to look at your private policy to see what it covers.
If your other coverage does not have high out-of pocket expenses such as deductibles and coinsurance, you may wish to forego signing up for parts B and C. However, if this is not the case, it may be worthwhile to use Medicare as a primary or secondary payer along with your other policy so that more of your costs may be covered.
You Can No Longer Contribute To A Health Savings Account Once Medicare Coverage Begins
Also keep in mind that once your Medicare coverage begins (even just part A), you can no longer contribute to a Health Savings Account (HSA). Part A coverage begins six months before the date you apply for Medicare or Social Security benefits, but not earlier than the first month you were eligible for Medicare. So to avoid a potential tax penalty, you should stop HSA contributions at least six months before applying for Medicare.
If you have low income, you may also qualify for a state-run program called Medicaid. This program provides hospital and medical coverage. Eligibility and coverage vary by state. Click here for more information.
You May Qualify for Assistance in Paying for Medicare
If your income is low enough, you may be eligible for assistance. A program called Extra Help is designed to help you pay for prescription drugs under Medicare Part D. Besides low income, you must also enroll in Medicare Part A, and reside in the United States. You are automatically in Extra Help if you have full Medicaid coverage, collect Supplemental Security Income (SSI) or participate in a state program which pays your Medicare premiums. Click here for more information.
Medicare Savings Programs can also help you pay Medicare premiums in general, and sometimes even out-of-pocket medical expenses, deductibles, and coinsurance. You can find out if you qualify for such services by contacting your state’s Medicaid agency or social services office. Click here for more information.
We obviously need more healthcare services as we get older. This is why it is critical to plan on how you will receive such care in a cost efficient manner. Medicare can be a key component in receiving needed care. Knowledge about your options will help you in making the right decisions.
The agency that runs the Medicare program is called The Centers for Medicare & Medicaid Services. But applications are submitted via Social Security. For more specific information about which medical services are covered by Medicare, click here.