The first thing to understand about Medicare is there’s a lot to understand about Medicare. Not only does the term refer to multiple plans and configurations, but it represents choices that impact how you’ll receive healthcare in your later years and how much you’ll pay for it. There’s not a quick way to break it all down, but once you get the basics, answering the question “What is Medicare?” becomes a lot easier.
Here, we provide an overview of Medicare and what to expect when it comes time for you to enroll to help you make an informed decision and avoid coverage gaps and penalties.
Medicare Eligibility and Costs
Medicare is the federal government’s healthcare program. According to the Department of Health and Human Services, “Medicare is available for people age 65 or older, younger people with disabilities, and people with end-stage renal disease (permanent kidney failure requiring dialysis or transplant).”
If you are in the aged 65 category, your initial enrollment period begins three months before your 65th birthday and ends three months after. The date when coverage starts is dependent on multiple factors like when in the month you sign up, but in most cases, coverage will begin a month after you sign up.
Most people qualify for no-cost Part A Medicare. Part B has a monthly premium. In 2022 the standard monthly premium for Part B is $177.10. Both parts have their own schedules of deductibles and coinsurance. There are more details provided about the costs associated with each part below in addition to other options for receiving Medicare benefits with different price structures.
Medicare’s eligibility and premium calculator can give you specific information about when you will be eligible and how much you can expect to pay.
What Are My Medicare Options?
The term Medicare can be confusing because it refers to multiple plans and options, many of which overlap. In addition to original Medicare, there are two plan types available:
- Medicare Advantage plans are known for their added benefits and services.
- Medicare supplement plans give you more freedom to manage your care and help cover your out-of-pocket costs.
Following is a more detailed description of each kind of plan:
Original Medicare
The federal health insurance program we know as Medicare was signed into law in 1965. Medicare is funded through payroll taxes paid by employees and employers.
Original Medicare consists of Part A (Hospital Insurance) and Part B (Medical Insurance).
Anyone who has paid Medicare taxes through employment or self-employment for at least ten years does not pay a premium for Part A enrollment.
It’s also important to note that original Medicare does not include prescription drug coverage. You have to purchase Part D coverage separately for that.
Medicare Advantage Plans (Med Advantage)
These plans are approved by the federal government and offered by private insurance companies. They provide the same coverage you get in Parts A and B of original Medicare and follow the rules set by Medicare.
Premiums for these plans vary as do rates of deductibles and copays. Many companies offer $0 premium plans. However, before choosing one of these plans you should be very clear on deductibles and other variable costs, which may be higher than other plans to compensate for the absence of a premium.
Unlike original Medicare, most Medicare Advantage plans include drug coverage (Part D) and extra benefits like dental, vision, and hearing coverage. These plans have yearly limits on what you pay out-of-pocket for covered services. In most instances, you will need to choose healthcare providers in your plan’s network.
Within Medicare Advantage, there are four plan types:
- Health Maintenance Organization (HMO). These plans are designed to coordinate your care and lower healthcare costs. Care and services need to come from providers in the plan’s network, and a referral will be required for specialist visits. If you choose to go outside of the network, your plan may not cover it.
- Preferred Provider Organization (PPO). These plans typically cost more than HMO plans but give you more control over your care. While PPO plans also have a network of doctors and hospitals, there is more freedom to see out-of-network providers (usually at a higher cost), as long as they accept Medicare. Many PPO plans also let you see a specialist without a referral.
- Private Fee-for-Service (PFFS). This option determines upfront how much it will pay doctors, other healthcare providers, and hospitals and how much of the bill you will be responsible for. Unlike an HMO plan, you don’t have to choose a primary care doctor, and you won’t need a referral to see a specialist.
- Special Needs Plans (SNP). Reserved for people with chronic, debilitating diseases such as autoimmune disorders, cancer, end-stage liver disease, and HIV/Aids. SNPs benefits, provider choices, and drug formularies are tailored to members’ specific health needs.
Medicare Supplement Plans (MedSupp)
Also known as Medi-gap plans, supplement plans are offered by private companies and are not considered health insurance. This option is simply designed to help you cover many of the expenses not covered by original Medicare, like:
- Copayments
- Coinsurance
- Deductibles
With a Medicare supplement plan, you can see any doctor or specialist who accepts Medicare. You’ll also be covered for medical care when you travel outside the U.S. Many Medicare supplement plans now offer extra benefits like gym memberships and senior discounts. There are ten plan types available in most states, and each plan is labeled with a different letter.
Unlike a Medicare Advantage plan, a supplement plan only covers one person. If you and your spouse each want a supplement plan, you’ll have to buy separate policies. Some plans do offer spousal discounts.
What Are the Different Parts of Medicare?
Medicare coverage is broken into parts. Each part covers a different element of medical care. You may choose which parts to sign up for based on your personal needs and situation. Following are explanations of what each part includes and a basic rundown of premiums and other costs.
PART A: Hospital Insurance
Part A covers hospital stays and skilled nursing facilities, including hospice and home healthcare.
People who worked and paid into Medicare through payroll taxes for over ten years get Part A at no cost. This is called “premium-free Part A.” Though it does not have premiums, it does have deductibles and copays for various services like hospital stays.
People who don’t meet the qualifications for premium-free Part A can purchase it. Premiums for Part A are set depending on how many years you or your spouse worked and paid Medicare taxes. If you are not eligible for premium-free Part A and want to purchase it, you will also be required to purchase Part B coverage. You can also opt to purchase Part B without Part A.
PART B: Medical Insurance
Enrollment in Part B is optional. Unlike Part A, most people pay a monthly premium for Part B coverage.
After deductible, original Medicare Part B only covers about 80% of an individual’s medical expenses. Medicare pays its share of the Medicare-approved amount, and the covered person pays a 20% coinsurance. Supplemental coverage can help you cover coinsurance and other non-covered expenses.
If you are enrolled in Social Security, your Part B bill will be deducted from your monthly social security payments. If you aren’t yet collecting Social Security, you will be sent a bill every three months.
Part B covers routine medical services, including:
- Surgeries, x-rays, and diagnostic tests
- Outpatient hospital care
- Durable medical equipment like wheelchairs
- Preventive care and screenings
- Other medical services and supplies not covered by Part A
- Limited coverage for prescription drugs
PART C: Medicare Advantage
Part C is a combination of Parts A and B (and sometimes Part D). In the 1990s, when Medicare Advantage plans were new, they were called Part C. Since being named Medicare Advantage, this term is used less frequently. If you do hear it, it simply means a Medicare Advantage plan.
PART D: Prescription Drugs
The government contracts with different companies and health plans to offer Part D plans. Part D helps pay some of the costs for your prescription drugs, so you usually pay less than the retail value.
Most Medicare Advantage plans include Part D coverage. But it is not part of original Medicare or Medicare supplement plans. It’s important to know that if you don’t sign up for Part D when you’re first eligible, you could pay an ongoing late enrollment penalty.
What Isn’t Covered by Original Medicare?
While original Medicare offers basic medical care for emergencies and routine physical care, there are quite a few medical necessities it doesn’t cover. Most people do want and need more coverage, which is one reason why Medicare Advantage plans are popular.
The following are not covered by Original Medicare:
- Prescription drugs
- Long-term care
- Deductibles and copays
- Routine dental and vision care
- Hearing aids
- Care when traveling outside the country
When Can I Enroll in Medicare?
Like enrolling in a health plan through employer-provided benefits, enrollment in Medicare is only available during specific periods. It’s important to understand when you are eligible to enroll. Missing enrollment can result in penalties and issues with medical coverage.
People who are already collecting Social Security when they turn 65 will automatically be enrolled in Medicare and receive a Medicare card in the mail. Though automatic enrollment will be for both Part A and Part B, you can drop Plan B if you would prefer not to pay for it.
The start of your Medicare coverage depends on when you sign up. It’s usually 1-3 months after you enroll.
Once you’ve enrolled in Medicare, you do not need to re-enroll unless you want to change your plan or coverage. However, it’s always a good idea to review your coverage annually in case there are changes in the provider lists, formularies, or coverage boundaries that impact you.
The following enrollment opportunities are for original Medicare and Medicare Advantage plans. Medicare supplement plans have their own schedule.
Initial Medicare Enrollment Period
According to Medicare.gov, most people sign up for Parts A and B during their initial enrollment period. Your initial enrollment period is determined by the date you turn 65. It’s a seven-month period, starting three months before, and ending three months after your 65th birthday.
If you haven’t started collecting Social Security benefits before your Initial Enrollment Period, you’ll need to sign up for Medicare online.
Medicare Annual Enrollment Period
The annual enrollment period, which runs from October 15 to December 7 every year, covers both existing Medicare members and people enrolling for the first time.
If you are already enrolled in original Medicare or a Medicare Advantage plan and are happy with your coverage, you do not need to re-enroll. However, if you’d like to make changes to your plan, annual enrollment is when you are able to change coverage or switch plans. Coverage for people who enroll during this period begins on January 1 of the following year.
General Medicare Enrollment Period
If you miss both the initial and annual enrollment periods, you can sign up during this time which runs from January 1 to March 31. Your coverage will begin on July 1 of the year you enroll. If you signed up for a Medicare plan during the previous annual enrollment period and you’re not satisfied with your new plan, you can switch plans during this time.
Special Enrollment Period
As the name implies, the special enrollment period applies to people with special circumstances. Some examples of qualifying circumstances include:
- You change where you live—like moving out of your plan’s service area.
- You lose your current coverage—such as your employer discontinuing your current plan, or you go through a divorce and are no longer covered by your spouse’s plan.
- You have a chance to get other coverage—This can occur when your employer offers a new plan.
- Your plan changes its contract with Medicare—As in, Medicare cancels your plan’s contract.
When you sign up during special enrollment, coverage starts the first day of the following month.
With Medicare supplement plans, you have a six-month period that begins the first day of the month after you turn 65 and are enrolled in Part B. If you try to enroll after this time, you could be declined or charged more based on your medical history.
What if I Want to Keep Working Past Age 65?
You don’t have to enroll in Parts A and B when you first turn 65 if you or your spouse are still working and have creditable coverage for your health plan and prescription drugs – for instance through a group employee health plan.
Employers with 20 or more employees can’t legally force you to enroll in a Medicare plan. However, The Employee Retirement Income Security Act of 1974 doesn’t apply to employers with a workforce under 20 employees. In that case, it’s a good idea to enroll in Parts A and B when you turn 65.
Even if you are part of a group health plan, it’s not a bad idea to enroll in Part A when you turn 65 because it can provide extra coverage for hospital stays in addition to your group insurance.
If you’re planning to delay your Medicare enrollment and then get laid off from work, you will be eligible for an eight-month special enrollment period that starts the month after your employment or group health insurance ends, whichever comes first. But, you should be aware that you can’t delay enrolling in Part B due to COBRA coverage or retiree benefits. You can only delay Part B if you or your spouse is actively employed and part of a group health plan.
If you miss enrolling in Part B, there are stiff penalties, such as ongoing higher premiums.
How to Choose a Medicare Plan
Choosing a Medicare plan wisely involves gathering information and comparison shopping. While original Medicare offers a wider selection of provider choices, Medicare Advantage plans tend to offer more coverage for needs beyond basic medical care. Both have premiums, deductibles and copays, but the amounts of each will vary by plan.
A Medicare advisor can help you weigh your options, but remember they will have agreements to represent specific companies, so may not be totally impartial. Before asking for advice, take some time to look into what’s available to you. A good place to start your research is the plan comparison tool on Medicare.gov.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
