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A Guide To The Parts Of Medicare
Entering Medicare can be the start of a great and rewarding retirement. The program is designed to do that very thing: improve quality of life during retirement by making health insurance and health care more affordable. Although the basic program, Original Medicare, is very comprehensive, we all know that it suffers from some shortcomings. These shortcomings are manifested in two ways:
- Gaps in benefits (some services and procedures you want are simply not covered under Original Medicare
- Gaps in coverage (Original Medicare doesn’t pay 100% of the cost for your care, so you’re expected to pay for some of the cost out of pocket
Reducing or eliminating these gaps is a key component in a sound retirement plan. In this guide, we’ll dive into the basics of Medicare coverage, review the gaps you’ll be facing, and give a summary of your options for closing these gaps. By the end of this guide, we will have reviewed all the Parts of Medicare and helped you get started making your own Medicare Insurance plan.
What Does Original Medicare Cover?
To make a wise choice about your overall Medicare coverage, you need to understand what the basic program covers. As you likely know, Medicare is split into two Parts:
- Part A – hospital insurance, which generally covers institutional care, like hospitalization
- Part B – medical insurance, which generally covers routine medical treatment like doctor’s and specialist visits
The thing to keep in mind here is that there will likely be interplay between Part A and B when you use Part A services. For example, if you’re admitted to the hospital due to an accident or health condition, your Medicare coverage will be at work in two ways:
- Your Part A coverage will cover your room and board and other institutional costs
- Your Part B coverage will cover your medical expenses during your stay. This includes visits from your attending physician, various tests you might receive, physical therapy, and the like.
Between Parts A and B, Original Medicare provides comprehensive coverage for health care, including services and procedures like:
- Surgeries (inpatient and outpatient)
- Lab work and diagnostic testing
- Physician services, including primary care doctors, specialists, and therapists
- Durable Medicare Equipment like diabetes monitoring supplies and wheelchairs
- Cancer treatments like chemotherapy and radiation
It’s important to craft your Medicare strategy around the things that Medicare doesn’t cover. Some of the big gaps in Original Medicare coverage include:
- Routine dental
- Routine vision and hearing
- Prescription drug coverage
- Emergency coverage outside the United States
These are some pretty serious misses; most people enjoy having dental coverage and people who are Medicare age and above are very likely to have vision and hearing issues. Since these services aren’t covered by Medicare, you’ll need to either pay cash for the services, or get some kind of private coverage to help with the cost.
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How Much Does Original Medicare Cost?
We just reviewed some of the gaps in terms of what Medicare actually covers. Now we’ll review the spending gaps – what amounts are you expected to pay out of pocket?
There are several categories of costs you’re expected to pay, including:
- Monthly premiums
- Annual deductibles
- Ongoing co-insurance and co-payments
Most people qualify for premium-free Part A, assuming that they’ve worked long enough, or that their spouse has. Generally ten years of fulltime work will qualify you to receive premium-free Part A. If you don’t qualify based on work history or marriage, you can still sign up for Part A, but you will have to pay a monthly premium.
As for Part B, you’ll have to pay at least the standard Part B monthly premium when you enter Medicare. You don’t pay before that time. You’ll pay the standard Part B premium each month (it goes up slightly each year) for the rest of your life. If your income exceeds certain thresholds, you may have to pay more than the standard premium. On the other side of the coin, if you have very little income and you qualify for your state’s Medicaid program, you may not have to pay the Part B premium at all.
There are deductibles for both Part A and Part B. These deductibles for 2022 are:
- Part A Deductible – $1,556
- Part B Deductible – $233
The Part B deductible is on an annual basis; you only pay it once per year. The Part A deductible is based on “benefit periods” and you may have to pay it more than once during the year.
Once you’ve satisfied the Part A and B deductibles, you’ll then pay co-insurance or co-payments for care. Far and away the most common cost you’ll pay is Part B co-insurance. You’ll pay 20% of the cost for every Part B service or procedure you receive during the year.
The most important fact to understand about these costs is that there is no annual or lifetime cap to your spending. Your costs are theoretically unlimited.
How Can I Close The Gaps In The Parts Of Medicare?
The gaps in Medicare tend to make people uncomfortable, because they represent the possibility of uncontrolled out of pocket spending. Because of this, most people choose to use some kind of private Medicare plan. These plan options include:
- Standalone Part D drug plan
- Medicare Supplement Insurance
- Part C Medicare Advantage plan
You can combine coverage between a Part D drug plan and a Medicare Supplement plan, but you can’t combine a Medicare Advantage plan with a Supplement plan, or with a standalone drug plan (expect in very limited circumstances).
Medicare Part D Drug Plans
Since prescription drug costs are a huge component of medical expense as you age, closing this gap is very important. You have two ways to do this:
- A standalone drug plan, or
- A Medicare Advantage plan that includes drug coverage (MAPD)
You can’t combine these two coverages. You’ll need to choose between them. Most people who go with a standalone Pat D plan also elect to add Medicare Supplement coverage. Otherwise, they choose a Medicare Advantage plan that provides drug coverage.
With a Part D drug plan, you can expect to pay these kinds of costs:
- Monthly premium
- Annual deductible (many plans don’t have a deductible, especially MAPD plans)
- Per-prescription co-payments and co-insurance
Part D plans don’t cover every available medication, so it’s very important to make sure that any plan you’re considering will actually cover the medications you take.
Medicare Supplement Insurance
Of the two main options for limiting your out of pocket costs for medical care (Medicare Advantage is the other one), Medicare Supplement Insurance has been around the longest. Ever since Original Medicare went live as a federal program, Medicare Supplement Insurance has been in existence.
Medicare Supplement, which is also known as Medigap, is an insurance coverage provided by private insurance companies designed to work with Original Medicare. Medigap is technically known as secondary coverage. That’s because Medigap pays second – after Original Medicare.
Medigap coverage is standardized – there are ten levels of coverage, all known by “Plan Letter.” The Plans available are: A, B, C, D, F, G, K, L, M, and N. There are high deductible versions of Plans F and G. Currently, the most popular plans are G and N. Plan F used to be the most popular plan, but it is no longer available to new Medicare Beneficiaries (those who became eligible for Medicare on or after January 1, 2020).
All of the various Medigap plans cover different mixtures of the gaps in Original Medicare. This allows you to choose a level of coverage that suits you based on your needs and budget. With either of the two most popular plans for newly-eligible people, Plans G and N, you can limit your out of pocket costs to just a few hundred dollars per year.
If you choose Medicare Supplement Insurance, you will also need to enroll in a standalone Part D Prescription Drug Plan. The Medigap plans that are currently available do not cover prescription drugs.
Medicare Part C – Medicare Advantage Plans
The other option available to close the gaps in the various Parts of Medicare is Medicare Advantage. The Medicare Advantage program – all of the rules, regulations, and benefits, is technically Part C of Medicare. So, it’s not a part of Original Medicare, which only refers to Parts A and B. Instead, Part C plans are an alternative way to receive your Part A and B benefits through a private insurance company.
When you’re only on Original Medicare, your doctors and other providers are paid by Medicare (through CMS, the Centers for Medicare and Medicaid Services). When you enroll in a Medicare Advantage plan, on the other hand, your providers are paid by your insurance plan. Medicare is no longer involved in claims paying.
It’s important to understand that Medicare Advantage plans are required by law to cover everything covered by Parts A and B of Original Medicare. The coverage is identical in terms of the services and procedures covered. The amounts you pay for those services and procedures can be different, though. Generally speaking, Medicare Advantage plan costs are similar to or lower than what you’d experience under Original Medicare. One of the most important upgrades over Original Medicare is that all Medicare Advantage plans have an annual Out Of Pocket Maximum (OOPM) cap. This prevents you from incurring overwhelming health care costs due to major illness.
Most Medicare Advantage plans are offered in one of two forms:
- Preferred Provider Organizations (PPO)
- Health Maintenance Organizations (HMO)
PPOs are the more open and flexible option. You have access to a network of providers; if you use these, you’ll save money. However, you’re free to see providers outside the plan network. HMOs are much more restrictive. You must stay in the network in order for the plan to cover your services and procedures, except in the case of emergency or urgent care.
For many people, the real draw to Part C is that these plans usually offer several valuable Extra Benefits. These are benefits that are not available from Original Medicare, or from Medicare Supplement Insurance. These extras can vary widely, but often include some of these:
- Prescription Drug coverage
- Vision coverage
- Hearing coverage
- Dental coverage
- Fitness benefits like free gym memberships
- Healthy living and food benefits like grocery gift cards
There are other extra benefits, too. The general point of them is to foster healthy living, with an aim to preventing serious illness.
The key thing to remember is that if you choose a Medicare Advantage plan, you generally won’t be able to enroll in a standalone Prescription Drug Plan, so you need to make sure your Part C plan covers medications.
How To Get Help Closing Your Gaps In The Parts Of Medicare
Much of the stress of Medicare enrollment comes from the need to choose between Medicare Advantage and Medicare Supplement Insurance. This doesn’t have to cause turmoil, though. For one thing, they are both good options, and offer improvements on Original Medicare. You can choose wisely by focusing on three key areas:
- Budget
- Need for nationwide coverage
- Your expectation for your health as you age
There’s no two ways about it: Medigap coverage is generally more expensive than Medicare Advantage. For one thing, the monthly premiums are usually higher. Beyond this, though, you have to factor in the cost of other coverages like dental, vision and hearing. Even if you choose not to purchase insurance coverage for these, you’ll be paying out of pocket, so you have to factor these costs in to your overall spending projections. For those who are on a tight budget with a fixed income, Medicare Advantage may well be worth extra consideration.
If you are averse to medical groups and networks, and want to have maximum choice of physicians, Medicare Supplement is the clear favorite in this area. Medicare Supplement Insurance preserves your right to see any provider who accepts Medicare, anywhere in the nation. Medicare Advantage, on the other hand, generally has network requirements and restrictions. In some densely populated urban areas, this may not matter. In other areas, though, your networks may be sparse, and may not have the quality of provider that you’d prefer.
The third way to look at this decision is to make a realistic assessment of your health and preference for receiving care. If you visit the doctor often because you like to be proactive, you might be exposed to many co-payments and co-insurance costs with Medicare Advantage. Medicare Supplement will strictly limit how much you spend out of pocket, which can also give you great peace of mind. On the other hand, if you know you’re the type of person who rarely visits the doctor, and you’re not concerned about a decline in your overall health, you can save some serious money with Medicare Advantage plans.
We know it may still be stressful making a choice for your Medicare coverage. If you’d like to talk to a specialist, reach out to Lakeland Medicare Advisors today. During a free, no-obligation consultation, we can discuss your needs and review the plans available in your area. We can help you compare quotes for coverage as well as lookup your doctors and medications. If that sounds like a great relief, give us a call today.
TALK TO YOUR LAKELAND MEDICARE ADVISOR NOW!