Medicare is the national health insurance program in the United States for those aged 65 and over. It also covers those younger than 65 if they have been receiving disability benefits from Social Security for two years or have end stage renal disease or ALS (Lou Gehrig’s disease).
Medicare consist of four parts: A,B,C and D. Part A and Part B are collectively referred to as “Original Medicare”. Part A is hospital insurance and Part B is medical insurance. Medicare Advantage, or Part C, is an optional all-in-one replacement of Original Medicare offered by private insurance companies. Medicare Part D is also optional and offers prescription drug coverage from a private insurance company.
Some basic insurance terms to review…
- Deductible – the amount of money you pay before Medicare starts to pay its share
- Coinsurance – the amount of the bill you’re responsible for after the deductible is paid, expressed as a percentage
- Copay – a fixed amount of money paid to a provider before receiving service
- Premium – the monthly amount of money paid to an insurance provider in exchange for insurance coverage
Part A – Hospital Insurance
- Inpatient – when you are formally admitted to a hospital floor under written orders from a doctor
- Skilled Nursing Facility – a facility staffed by medical professionals that provides skilled nursing and rehabilitative services on a temporary basis
- Benefit period – Medicare uses this to measure your use of a hospital or skilled nursing facility. It begins the day you enter a hospital or skilled nursing facility as an inpatient and ends when you haven’t received received inpatient hospital or skilled nursing facility care for 60 days in a row.
In general, Part A’s coverage begins when you become an inpatient in a hospital or skilled nursing facility. It pays your room and meal costs, along with the nursing and drugs you receive. It also pays for hospice care, generally at your home, and home health care when you’re physically unable to leave your home.
Part A is free for the majority of people. You pay no monthly premium for Part A if you, or your spouse, were employed for at least 10 years and paid the payroll tax for that period. If you don’t qualify, you can still get Part A. However, the premiums are steep, anywhere between $458 and $252 as of 2020.
Your Cost for Part A hospital insurance
Part A requires you to pay a deductible of $1,408 for each benefit period. After this deductible is met, Part A fully covers your first 60 days in the hospital. You’ll have to pay a daily coinsurance fee of $352 for days 61-90. This increases to $704 for days 91-150. After day 150, you are responsible for 100% of the costs. Note that the 60 days after day 90 are a considered your “lifetime reserve days”(you get up to 60 days over your lifetime).
|You pay||Time Period||Explanation|
|$1408 deductible||every benefit period||note: not an annual deductible|
|free (Medicare pays)||days 1-60||after you pay the deductible for each benefit period|
|$352 coinsurance||days 61-90||each benefit period|
|$704 coinsurance||days 91-150 *||these 60 days are one-time lifetime reserve days|
|all costs||beyond lifetime reserve days||no out-of-pocket maximum|
Your cost for Part A skilled nursing facility care
Your first 20 days in a skilled nursing facility are covered fully by Part A. If your stay in a skilled nursing facility extends beyond 20 days in a benefit period, you pay a $176 coinsurance fee per day up to day 100. If your stay goes beyond day 100, then you’re responsible for all of the costs, as Part A doesn’t cover long term, or custodial, care. Note that skilled nursing facility care is only available under Part A if you’ve spent a minimum of 3 days in a hospital for a related illness or injury.
Part B – Medical Insurance
- Outpatient – when you receive medical services without being admitted to a hospital or skilled nursing facility.
- Observation status – a type of outpatient status; when you stay overnight in a hospital in order for a doctor to properly diagnose your condition
Part B is the most commonly utilized part of Original Medicare. It covers all outpatient care, doctor’s services, durable medical equipment (oxygen equipment, wheelchairs, walkers and hospital beds) and many preventive services. It also covers emergency room visits when you aren’t admitted as an inpatient.
Unlike Part A, Part B has a monthly premium requirement. In 2020, the amount is anywhere between $144.60 and $491.60. A vast majority of people will pay the $144.60 premium. You qualify for the minimum premium if your adjusted gross income was below $87,000 two years ago. The higher your adjusted gross income, the higher your monthly premium. The Part B premium will come directly out your Social Security benefit payment.
You may not need to enroll in Medicare Part B if you or your spouse is still working and have health coverage through an employer. You will need to contact your employer’s benefit administrator to find out how your health coverage interacts with Medicare. Go to Medicare Enrollment for more on Part B enrollment options.
Your cost for Part B medical insurance
Part B has an annual deductible of $198 in 2020. After your deductible is met each year, Medicare then pays 80% of all costs and you pay the remaining 20%. There’s no yearly limit for what you pay out-of-pocket.
Part C – Medicare Advantage
- HMO – Health Maintenance Organization gives you access to certain medical providers within its network.
- PPO – Preferred Provider Organization, like an HMO, features a network of doctors and hospitals, but there are fewer restrictions on seeing non-network providers. Services provided inside the network will be offered at a discount to services provided outside of the network.
- MOOP – maximum out of pocket expenses in a calendar year
Part C, or Medicare Advantage, is an optional, all-in-one replacement, not a supplement, for Original Medicare. It is offered by insurance companies, not the federal government. The insurance companies are paid a set fee per enrollee by Medicare to provide the same services as Part A and Part B. It may also cover services that Original Medicare doesn’t, like vision, hearing and dental. It will often include a Part D drug plan.
You have to be enrolled in Original Medicare if you want a Medicare Advantage plan. You also need to live in the plan’s service area and you need to continue to pay your Part B premium.
Medicare Advantage plans require you to use certain providers. The plan contracts with doctors, hospitals and other healthcare providers in your area to form networks. These networks are called HMOs or PPOs.
You will receive a medical card from your Medicare Advantage plan that you will use for medical services. This card will replace your Original Medicare card.
Your Cost for a Medicare Advantage plan
Medicare Advantage plans can have monthly premiums as low as $0. However, you are exposed to a large maximum out-of-pocket expense (MOOP) each year. The MOOP is limited by law to $6,700 (in-network) or $10,000 (in-network and out-of-network combined) for 2020. Note this MOOP resets each year.
Medicare Advantage plans have copays, coinsurance and sometimes deductibles. All plans are different and are changed on a yearly basis, which means you’ll have to review your plan on an annual basis. They are not standardized like Medicare Supplement, or Medigap, plans.
Self-enroll in Part D and Medicare Advantage plans! (for Kansas and Missouri residents)
Part D – Medicare Prescription Drug Coverage
- Creditable prescription drug coverage – prescription drug coverage that is expected to pay on average as much as the standard Medicare prescription drug coverage (generally referring to your employer coverage)
- Formulary – a list of drugs a Part D prescription drug plan covers
Part D plans offers insurance coverage for your prescription drugs. It’s available to Medicare beneficiaries that are enrolled in Part A and Part B (note you do not have to be enrolled in Part C to get Part D). Like Part C, the Part D prescription drug plan is optional and is offered by insurance companies, not the federal government.
You can get Part D prescription drug coverage in two ways:
- Part D prescription drug plans – These are “stand alone” plans and often referred to as “PDPs”. Expect to pay a small monthly premium, a deductible, copays and coinsurance. You have to live in the service area of the plan. These plans are often paired with a Medicare Supplement plan to complete the coverage of Original Medicare.
- Medicare Advantage Plans (sometimes called “MA-PDs”) – About 90% of Medicare Advantage Plans offer prescription drug coverage. The monthly premium for the drug coverage is wrapped into the overall monthly premium. Expect to pay a deductible, copays and coinsurance. Like the PDP’s above, you have to live in the service area of the Medicare Advantage Plan.
Self-enroll in Part D and Medicare Advantage plans! (for Kansas and Missouri residents)