MONEY TALKS - Medicare, for obvious reasons, is known as the alphabet soup of retirement benefits. Keeping track of the differences in coverage between Parts A, B, C, and D can be a daunting task. Here is a quick outline of what is covered and any cost associated with the coverage.
What is Medicare? - Medicare is a public health insurance plan for people who are age 65 or older. The program was designed to help defray the cost of healthcare. However, it was never intended to cover all medical expenses, most notably long-term care, so other arrangements should be made to fill any voids in coverage.
Am I Eligible? - Most people who are United States citizens or permanent residents are eligible for Medicare when they turn 65 assuming they paid Medicare taxes while working. If you are eligible or already collecting Social Security or Railroad Retirement benefits, you are automatically qualified. Likewise, government employees not covered by Social Security who paid the Medicare tax are also qualified. Furthermore, a spouse (including a widowed or divorced spouse) may also be eligible based on their husband or wife’s record. Individuals under the age of 65 who have certain disabilities or diseases can also qualify and should visit medicare.gov for a list of specific qualifying conditions.
What is covered in parts A, B, C, & D and how much does it cost?
Hospital Insurance (Part A)
- Coverage – Hospital Insurance helps pay for inpatient hospital care, inpatient care in a skilled nursing facility (not custodial or long-term care), hospice care, home health care, and inpatient care in a religious non-medical health care institution.
- Costs - You usually don’t pay a monthly premium for Part A coverage if you or your spouse paid Medicare taxes while working. If you are not eligible for premium free Part A, you may purchase Part A coverage, although the monthly premium may be as high as $407 per month. In either case, if an inpatient hospital claim is made there is a $1,260 deductible per benefit period and coinsurance premiums that range as high as $630/day depending on the length of stay.
Medical Insurance (Part B)
- Coverage – Medical Insurance helps pay for doctors’ services, outpatient hospital care, home health services, durable medical equipment, and other medical and preventative services.
- Costs – Medical Insurance is an optional program however if you choose to enroll there are costs involved. There is an annual deductible of $147. There is also a monthly premium of $104.90 for most individuals, but this can change based on your income. In fact, highly compensated individuals could have a monthly premium as high as $335.70.
Medicare Advantage Plans (Part C)
- Coverage – Medicare Advantage Plans are run by private companies and function like a traditional HMO or PPO plan. These companies contract with Medicare to provide the vast majority of the benefits included under Parts A, B, and often D. The advantage of these plans is that they may cover services such as vision, hearing, dental, and wellness programs that are not included under Parts A and B.
- Costs – These plans are optional and vary in price depending on the services provided. Medicare pays a fixed amount for your coverage each month to the companies offering Medicare Advantage Plans. Nonetheless, due to the extra benefits that Medicare Advantage Plans offer, you often have to pay a monthly premium for a plan.
Prescription Drug Coverage (Part D)
- Coverage – Prescription Drug Coverage Plans are available through private companies under contract with Medicare and are designed to subsidize the cost of doctor prescribed medications.
- Costs – Prescription Drug Coverage is completely optional however it should be noted that there is a late enrollment penalty if you decide to enroll after your initial enrollment period. The yearly deductible for 2015 is $320. In addition, there are monthly premiums that are dependent on the specific plan you choose and your income level. Most Medicare Prescription Drug Plans have a “donut hole” or gap in coverage. This means, once you and your plan have spent $2,960 on covered drugs, you'll pay 45% of the plan's cost for covered brand-name prescription drugs or 65% for generic drugs until you have spent a total of $4,700 out of pocket. At that point you are out of the donut hole and you’ll only pay a small copayment or coinsurance for the remainder of the year.
While Medicare does provide an excellent foundation for retirees in need of health insurance, there are some significant gaps in coverage. There are Medicare Supplemental Insurance policies, sometimes referred to as Medigap policies, which cover many of the costs that Medicare doesn’t cover such as deductibles, copayments, and coinsurance. It would be prudent to evaluate all of your options and the costs associated with each before choosing which plan or plans are best for you. Please visit Medicare.gov for more information.