Medicare Basics
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Medicare is a program of health insurance offered through the Federal government for those ages 65 and older. You earn coverage by paying into the system (or by being married to someone who has paid into the system) during your working years. Actually, you and your employer share the cost of paying into the system through payroll taxes. If you have paid into the system for more than 40 quarters (10 years) you are eligible for coverage. If you have not paid for the required period of time, you may still be covered by Medicare but have to buy coverage.
The ABCs and Ds of Medicare
Medicare consists of several parts. When we refer to being “covered” by Medicare we are actually talking about three parts: Part A, B and D (we’ll discuss Part C later). Parts A,B and C are what many refer to as original Medicare coverage.
What follows is a summary of original Medicare and the monthly premium, deductibles and co-insurance amounts that apply in 2008:
| Part | Health Expenses Covered | Monthly Premium | Deductible and Co-Insurance |
|---|---|---|---|
| A | Hospital Skilled Nursing Facility Hospice |
None for most beneficiaries. If beneficiary did not pay into the system for at least 40 quarters he or she may buy into Medicare Part A by paying a monthly premium. | For hospitalization coverage during the first 60 days, the deductible is $1,024. Medicare pays part of the cost from days 61 through 150. None of the costs after 150 days. After 150 days, beneficiaries may draw on up to 60 days of lifetime reserve days during which Medicare pays part of the cost. For skilled nursing, Medicare pays 100% of the cost for the first 20 days, only part of the cost for days 21 through 100; none of the costs after that. As long as doctor certified, all hospice costs are paid by Medicare with some limited exceptions for outpatient drugs and inpatient respite care. |
| B | Doctor bills
Other medical (Surgical, Physical/speech therapy, Diagnostic tests, Durable equipment, Other) Clinical lab Home health care Outpatient hospital treatment Blood |
In 2008 the monthly premium begins at $96.40 for individuals with income $82,000 or less and couples with income $164,000 or less; premium increases with household income to as much as $238.40 for individuals with yearly income above $205,000 and couples with income above $410,000. Waiting to enroll after initial eligibility at age 65 will result in an additional premium charge. |
$135 annual deductible. After the deductible is reached you pay 20% of approved amount. |
| D | Prescription Drugs | Varies by plan and area of the country you live in – generally in the $30 to $90 per month range. Some plans have no monthly premiums.
Waiting to enroll after initial eligibility at age 65 will result in an additional premium charge. |
Standard coverage requires you pay a monthly premium and the first $275 per year for your prescriptions drugs in 2008. After the deductible you pay 25% of the drug costs from $275 to $2,510 (your share of the cost would be $558.750). You pay the next $3,216.25 of drug costs (this is known as “the gap”). After that, you pay a coinsurance amount of 5% of costs or a small copayment. Note plans can offer more generous benefits than otherwise offered by the standard plan but benefits cannot be less. |
Note you can reject coverage under both Medicare Parts B and D. But if you do so (unless you receive coverage under a comparable plan) and elect coverage at a late date, you will pay a penalty.
When to enroll
First of all, unlike Social Security, you cannot elect to take Medicare benefits early. With Social Security you can elect to take a reduced benefit at age 62. Not so with Medicare. Coverage begins the month of your 65th birthday. If you receive Social Security (SS) benefits or benefits from the Railroad Retirement Board (RRB) you are automatically enrolled in Part A and Part B.
If you are not receiving SS or RRB benefits, you will need to sign up for Parts A and B. This Initial Enrollment Period (IEP) is 7 months long beginning the 3 months before the month of your 65th birthday, including the month of your birthday and extending to the three months following your birthday month.
If you miss the IEP, you will have another chance to enroll during the General Enrollment Period from January 1 through March 31 of each year or during the Special Enrollment Period (SEP). The SEP is available to Medicare enrollees who have not enrolled due to having coverage through an employer’s plan after age 65. If that coverage ends, you may enroll in Medicare Part B without penalty. See Medicare & You 2008 published by the Centers for Medicare & Medicaid Services (www.cms.gov).
Medicare Advantage
Parts A, B and D make up what is called original Medicare. It is a fee for service program – a beneficiary goes to a doctor or hospital or buys a prescription drug - the service - and Medicare pays the fee after the deductible and coinsurance amounts are taken into account. To offer beneficiaries more choices, Congress passed the Medicare Part C or “Medicare Advantage” (MA) plan. MA plans are run by private companies. Medicare beneficiaries may elect to participate in original Medicare or in a MA plan.
MA plans include Preferred Provider Organizations (PPOs); Health Maintenance Organizations (HMOs); Private Fee for Service (PFFS) Plans; Medical Savings Accounts (MSA) Plans and Special Needs Plans (SNPs).
We will discuss MA plans in detail in another article.
Summary
In this article you learned some of the basics of Medicare – its component parts and when to enroll. You also learned that you may elect coverage under original Medicare or under Medicare Advantage which was designed by Congress to provide beneficiaries with some choice.
In order to prepare for your health care in retirement it is important to understand what Medicare covers – but it is also important to understand what Medicare does not cover. In a separate article we’ll explain what Medicare fails to cover and how you can plan to fill in those gaps.