Medicare is a health insurance program run by the Federal government. For most retirees Medicare is the primary vehicle for their health insurance coverage in retirement. Medicare can be a bit complex so it helps to start with the basics.
Parts A and B: also known as ‘original Medicare’
Medicare Part A and Part B are often referred to as original Medicare.
Part A is hospital insurance. Part A covers care such as:
Inpatient hospital care
Care in a skilled nursing facility
For most Medicare recipients, Part A is free. However, those who have less than 40 quarters (10 years) of qualified work experience where they or their spouse had paid into Medicare will need to pay a premium, if they qualify for coverage. The monthly premium for 2022 is either $274 or $499 depending how long you or your spouse paid Medicare taxes while working.
There are also deductibles and copays for services covered under Part A. The 2022 deductible is $1,556 for inpatient hospital care.
Part B is medical insurance. Part B covers two broad types of services. The first are medically necessary services that are required to diagnose or treat a medical condition. These services must meet accepted standards of medical practice. The second type of service are preventative services to prevent an illness or to detect it at an early stage.
Some examples of services covered under Part B include:
Services from doctors and other healthcare providers
Durable medical equipment such as wheelchairs, walkers, hospital beds and a host of other types of equipment
Preventative services like health screenings, shots, vaccines and annual wellness checkups
Part B is not free, and the premiums depend upon your tax filing status and your modified adjusted gross income from two years ago. The 2022 Part B premiums are based on your MAGI from 2020. The 2022 monthly premiums range from $170.10 to $578.30.
Additionally there is a Part B deductible of $233 for 2022. After the deductible is satisfied, there is a 20% copay on most covered services.
Medicare Part D: prescription drug coverage
Medicare Part D is prescription drug coverage and is offered by private insurance companies that follow the rules set forth by Medicare. Items covered by Part D plans include prescription drugs as well as many recommended shots and vaccines. Since these plans are offered by private insurance companies, the list of drugs and other medicines that are covered will vary a bit plan by plan.
Besides buying Part D coverage directly, prescription drug coverage can be purchased as part of a Part C Medicare Advantage plan or through another type of Medicare Health Plan. These plans generally bundle drug coverage with Parts A and B, plus other types of coverages as well.
One aspect of prescription drug coverage under Medicare that is critical to keep in mind is that you must sign up as soon as you are eligible or be able to document that you have other, creditable coverage for prescription drugs.
Creditable coverage could include coverage under an employer’s plan, or a spouse’s employer’s plan, if the employer has 20 or more employees. Coverage under COBRA continuation or a retiree health plan would not qualify as creditable coverage, however.
Failing to sign up when eligible and not having creditable coverage elsewhere can result in penalties which translate to permanently higher costs for Part D coverage when you do enroll. You will want to be sure to check the rules governing when you need to enroll and whether other coverage that you may have elsewhere is deemed to be creditable by Medicare.
Premiums, deductibles and copays will vary by plan. One aspect in Medicare drug coverage to be aware of is the “doughnut hole.” This refers to a coverage gap in Medicare drug plans once you and the drug plan have spent a certain amount on prescription drugs and related costs for the year. In 2022 this amount is $4,430. While in the doughnut hole you are responsible for a higher percent of the cost of your prescription drugs. Once you reach the limit for catastrophic coverage, $7,050 for 2022, you pay lower copays for the rest of the year.
Medicare Part C: Medicare Advantage plans
Medicare Advantage plans are offered by private insurers approved by Medicare. Under Medicare Advantage plans you would obtain coverage for Original Medicare Parts A and B as well as prescription drug coverage, in most plans. Medicare Advantage plans are required to offer all of the coverages included under Parts A and B.
In addition, many Advantage plans offer coverage in areas not covered by Medicare such as dental coverage and vision care.
Medicare Advantage plans generally operate under either a Health Maintenance Organization (HMO) or a Preferred Provider Option (PPO) format. In an HMO you typically choose a primary care physician who then directs you to other specialists as needed. Under a PPO arrangement, there is a network of doctors and care facilities that you can use generally without any sort of referral.
Medicare Advantage plans will vary in terms of coverages offered and costs. Be sure to look at what is covered, all costs and deductibles and other features before signing up for a plan. You will also want to review your plan each year in terms of your changing needs and any changes to the plan so you can decide if a change is needed.
This is a review of the four main parts of Medicare coverage, but there are other types of plans such as Medigap and various supplemental plans to be aware of. There are also a number of rules in place that could impact your situation. Be sure to stay current on changing Medicare rules and costs to be sure that your coverage is the best for your situation.