How Does Medicare Work?

Medicare is a federal health insurance program in the United States that provides coverage to individuals aged 65 and older, as well as certain younger individuals with disabilities or specific medical conditions. If you're nearing retirement age or simply curious about how Medicare works, this article will serve as your comprehensive guide to understanding the basics of this vital program. Read on to discover the different parts of Medicare, enrollment requirements, coverage options, and more.

What is Medicare?

Medicare is a government-sponsored health insurance program established in 1965 under the Social Security Act. Its primary purpose is to provide medical coverage and financial protection to eligible individuals, including elderly citizens and individuals with disabilities. Medicare aims to ensure that people have access to necessary healthcare services, promoting their overall well-being and quality of life.

The Different Parts of Medicare

Medicare consists of several parts, each addressing specific healthcare needs:

• Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home healthcare services.

• Part B (Medical Insurance): Covers outpatient services such as doctor visits, outpatient care, preventive services and screenings, ambulance trips and durable medical equipment. Beneficiaries typically pay a monthly premium for Part B and collectively Part A and B are known as ‘Original Medicare’.

Part C (Medicare Advantage): Offered by private insurance companies who are contracted with and approved by Medicare to deliver you Medicare services. Medicare Advantage plans (Part C) are a private alternative to Original Medicare and cover the same benefits as Parts A and B in one bundled plan.  These plans often include prescription drug coverage (Part D) and you will usually need to see doctors within a ‘network’. These plans may offer additional benefits such as dental, vision, and fitness programs.

Part D (Prescription Drug Coverage): Provides coverage for prescription medications. Part D plans are offered by private insurance companies approved by Medicare.  You can get Part D coverage by buying a standalone plan or simply through enrolling in a Medicare Advantage (Part C) that already includes drug coverage.

Eligibility and Enrollment

To be eligible for Medicare, you must meet one or more of the following criteria:

• You are 65 years or older and are a U.S. citizen or a legal permanent resident who has lived in the country for at least five years.
• You are under 65 but have received Social Security Disability Insurance (SSDI) for at least 24 months.
• You have end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS), regardless of age.

For most Americans, enrollment in Medicare generally begins three months before your 65th birthday and ends three months after (this is called your ‘Initial Enrollment Period’). You can enroll through the Social Security Administration website, by phone, or in person at a local Social Security office.

Costs and Financing

While some Medicare services are free, others involve costs. Here are the key factors to consider:

• Part A: If you have already paid Medicare taxes during your working years you do not need to pay a premium for Part A. However, there are deductibles and coinsurance for certain services.  The most important cost to know is that there is a $1,600 (2023) flat fee deductible that you pay to cover the first 60 days of each hospital stay
• Part B: Beneficiaries pay a monthly premium for Part B, which starts at $164.90 (2023) and may be higher based on income. There is also a deductible and coinsurances.  The most important cost to know is that you are typically responsible for 20% of the cost of health services while Medicare pays the remaining 80%.
• Part C: Medicare Advantage plans may have monthly premiums, in addition to the Part B premium. Costs can vary depending on the plan and each plan can dictate the copays and coinsurances for different hospital and medical services.  These copays/coinsurances override your cost obligations under Original Medicare (Part A and B).
• Part D: Prescription drug plans have monthly premiums, deductibles, and copayments or coinsurance for medications. Plans typically have a list (or ‘formulary’) of drugs they cover and a tiering system. You typically pay a fixed copay/coinsurance depending on the ‘tier’ your drug falls under each plan’s formulary when you collect your prescriptions.''

Compare Medicare Plans

Additional Coverage and Assistance Programs

In addition to the primary parts of Medicare, there are other coverage options and assistance programs available:

• Medicare Supplement (Medigap): These plans are private insurance plans that you can purchase to help cover the ‘gaps’ or out of pocket costs you owe under Original Medicare.  Medigap is often considered ‘cadillac’ coverage.  In return for paying an additional premium to the private insurance company your insurer helps you:
• Pay for your out-of-pocket costs such as the 20% coinsurance for outpatient services you would owe under Part B; and
• Retain the biggest benefit of staying in the Original Medicare program which is the ability to see any doctor in the country that accepts Medicare

People who purchase a Medigap plan, often choose to do so instead of enrolling in a Medicare Advantage plan.  You cannot purchase a Medigap plan if you enroll in Medicare Advantage.

• Medicare Savings Programs: These state-run programs help individuals with limited income and resources pay for premiums, deductibles, and coinsurance for Medicare Part A and B.  If you have Medicaid, you will automatically receive similar benefits to the Medicare Savings Programs.

• Extra Help (Low-Income Subsidy): This program assists individuals with limited income and resources in paying for prescription drugs.  If you are eligible for Medicaid or Medicare Savings Programs, you are automatically eligible for Extra Help.

Exploring these programs can help individuals customize their coverage and reduce out-of-pocket costs.

Frequently Asked Questions

Conclusion

Understanding how Medicare works is crucial for individuals approaching retirement age and those looking to make informed healthcare decisions. By exploring the different parts, eligibility requirements, coverage options, and costs associated with Medicare, individuals can confidently plan for their future healthcare needs. Whether you're just beginning to explore Medicare or have already enrolled, this comprehensive guide will serve as a valuable resource, providing the knowledge necessary to make informed decisions about your healthcare coverage.