Most people in the US are aware that a system called “Medicare” is available that covers health care for older people, but that is usually the full extent of their knowledge until they become eligible for Medicare and find themselves needing to enroll in it. If you’re used to being covered by private insurance rather than a policy through the federal government, then it’s understandable that you might find Medicare to be a little overwhelming. Understanding a little more about what Medicare is and how Medicare works can help you make the most of this coverage, though, once you become one of the many Medicare beneficiaries in the United States.
What is Medicare & When Did It Start?
Medicare was created after efforts to introduce a national health insurance scheme, originally proposed in 1915, kept failing to gain traction. At the same time, retired individuals in the US were struggling; after they retired, their employer-sponsored health insurance was terminated. At least half of all retired American seniors were living below the poverty line and could not afford any type of health care during the period of their life when they most needed it. The politicians fighting for a national universal health care system decided to simply focus on getting health insurance for the elderly.
Medicare first came into existence in 1965, originally only covering health care for seniors. In 1972, Medicare coverage was expanded to people with permanent disabilities and end-stage renal disease. Medicaid started in 1965 as well and originally only covered people receiving government income assistance but now covers people with low incomes, pregnant women, and disabled people, although Medicaid programs vary a lot by state.
Originally Medicare only had Part A, which covered hospitalization, and Part B, which covered general medical care (original Medicare), but Part D was added in 2006 and certain private plans sometimes referred to as Medicare Part C (Medicare Advantage plans) were added in 2003.
What Does Medicare Part A cover?
Medicare Part A, which is hospital insurance, covers hospital care, skilled nursing home care, hospice care, care in a skilled nursing facility and some home health care. Most people are eligible for premium-free Part A coverage, including:
- Anyone receiving or eligible for Social Security retirement benefits
- Anyone receiving or eligible for Railroad Retirement benefits
- You or your spouse paid Medicare taxes for at least 40 quarters while working
- You or your spouse had government employment that provided Medicare
- You have received Social Security or Railroad Board disability benefits for at least 24 months
- You have end-stage renal disease
People who are not eligible for premium-free Medicare Part A have to pay a standard monthly premium of $437 if they did not pay Medicare taxes for at least 30 quarters while working; the premium drops to $240 per month if you paid Medicare taxes for 30 to 40 quarters while working. You are also required to be enrolled in Part B in order to be eligible for Part A.
If you need to use your Medicare Part A benefits you are expected to pay out of pocket:
- A $1,364 deductible
- No additional costs for up to 60 days of hospitalization
- $341 per day from days 61 to 90 of hospitalization
- $682 per day from day 91 until you hit your “lifetime benefit”
- Full costs after exceeding your “lifetime benefit”
What Does Medicare Part B cover?
Medicare Part B is the part of the federal health insurance program for seniors that covers general healthcare costs, such as doctor visits, outpatient care, and X-rays. This is more like the health coverage that you might have had as a working person before you signed up for the Medicare program.
There is a monthly premium for this coverage. The Medicare Part B premium is based on income; individuals with an income of $85,000 and couples with an income of $170,000 pay $135 a month, and it goes up with income, finally reaching a maximum of $460 per month for individuals with an income of $500,000 or more. The premium is automatically deducted from benefits from programs such as:
- Social Security
- Railroad Retirement Board
- Office of Personnel Management
The yearly deductible for Medicare Part B is $185 and after that, the patient is required to pay 20% of costs from services such as:
- Doctor services
- Outpatient services
- Purchases of durable medical equipment
What Does Medicare Part D Cover?
Medicare Part D covers prescription drugs. Many seniors and disabled individuals require medications to treat their health conditions and drugs can be costly. There are two options in Medicare to get coverage of prescription drugs. One is to enroll in a private Medicare Advantage Plan (sometimes called Part C). These plans package Part A and B together with some type of prescription drug plan. Some Medicare Supplement Insurance (Medigap) policies also cover prescription drugs. Alternatively, Medicare Part D is available from Medicare to cover prescription drugs.
Monthly Medicare Part D premiums vary by plan, as do yearly deductibles; some plans have no deductibles. The average monthly premium is around $33. The maximum yearly deductible allowed for a Part D plan is $415. In addition, most plans have both co-pays and co-insurance. Typical co-pays per drug per month may be:
- $5 for a generic
- $25 for a “preferred” brand-name drug
- $40 for a “non-preferred” brand name drug
For very expensive “non-preferred” brand name drugs, the plan usually charges a co-insurance of say 20% of the cost of the drug per month, thus a $400 drug would cost $80 out of pocket per month.
For individuals who cannot afford essential medications, Medicare offers financial help to enrollees that limits the cost of each drug to $3.40 per generic per month or $8.50 per brand name drug per month.
Why Sign Up for Additional Medicare Health Plans?
In addition to potential enjoying prescription drug coverage through Medicare Advantage, you may also enjoy dental care, vision care, and hearing care. Additionally, with one of these HMOs, PPOs or other options, you can avoid some of the copayments and other costs that you would otherwise have to pay.
What is the Overall Cost of Medicare Per Month?
The overall cost of Medicare per month will vary considerably depending on whether the individual opts for a Part C plan, does not opt for a Part C plan and pays for Parts A, B, and D separately, or opts to add a Medigap policy in addition to paying for Parts A, B, and D separately. However, for most people who qualify for premium-free part A, their combined monthly premium for Parts A, B, and D will be around $168 per month.
Monthly deductibles and other costs vary by how much health care each individual needs. A person who does not need to be hospitalized and is generally healthy and only visits their doctor a few times a year may end up over time only paying their deductible and some doctor’s fees at around $400 a year, or $33 per month.
Prescription drug costs can really drive up the costs of Medicare on a monthly basis. The average senior takes five different prescription medications every day. Even if all five are generics fully covered by Part D, the co-pays per month can add up to $25 a month. If one of them is an expensive co-insurance drug, the drug could cost over $100 out of pocket every single month.
In summary, a healthy senior with premium-free Part A who enrolls in Part B and D, who only visits their doctor for checkups, and only takes five generic covered drugs, can expect to pay around $226 per month. This, however, is a best-case scenario and actual costs are likely to be higher. Those who have kidney failure (ESRD), Lou Gehrig’s disease or another condition that requires inpatient care and inpatient hospital stays will have to pay more for their care, for example.
When is The Medicare Open Enrollment Period?
The initial open enrollment period for Medicare lasts 7 months. It starts 3 months before the month in which the person turns 65, includes that month, and ends 4 months after that. During this period, most people should enroll in part A, particularly if they qualify for premium-free Part A. Most people should also at least consider enrolling in part B, because if enrollment in part B is delayed beyond this period there may be a fee applied. However, individuals who are still covered by an employer may find that it is cost-effective to delay enrollment in part B.
During the enrollment period, individuals also need to decide if they want to enroll in a “Part C” plan, namely a Medical Advantage Plan, or to enroll in Part A, B, and D separately. It may also be wise to purchase Medigap coverage at this time. After enrollment, individuals will receive their Medicare card in the mail.
Some individuals are automatically enrolled in Part A and Part B and will simply receive a Medicare card in the mail a few months before their coverage starts. Such individuals include:
- People under the age of 65 receiving Social Security retirement benefits
- Individuals on permanent disability
- Individuals with end-stage renal disease
These people still need to consider whether they want Part D and/or Medigap coverage.
Once an individual has enrolled in Medicare, it is not necessary to re-enroll every year. However, there are specific times every year when individuals can review and change their Medicare plans and then receive a new card:
- Part B, January 1 through March 31
- Part D, April 1 through June 30
- Part C, October 15 through December 5
- Part C, January 1 through March 31
The two-Part C enrollment periods can be confusing. During the one in the fall, individuals can switch between Medicare Advantage plans, can switch from original Medicare to a Medicare Advantage plan, or can switch from a Medicare Advantage plan to original Medicare. During the period in the early spring, you can do all of these things except switch from original Medicare to a Medicare Advantage plan.
What are Medicare Special Enrollment Periods?
Medicare special enrollment periods do not occur at any set point in time or have specific lengths; instead, they are triggered when special circumstances occur that make it essential for someone to alter their plans. Such circumstances may include:
- Moving to a new location
- Moving into assisted living
- Losing some other coverage, such as Medicaid
- Offered coverage through an employer
- Medicare terminates your plan
There are many other special situations where Medicare allows for special enrollment.
Is Medicare Worth It?
Thus, Medicare is a very important program whereby retired individuals can obtain affordable, high quality, and comprehensive health care services. After retirement, most seniors lose any health insurance offered through employers and their income tends to drop. Purchasing private health insurance can be prohibitively expensive. It is also extremely unwise for seniors to try to go without health insurance since the senior years are when most health issues occur. Modern health care can be beyond the means of even a very wealthy individual to pay for out of pocket; for example, heart bypass surgery costs over $200,000, and an ICU stay can cost over $10,000 per day. Assisted living facilities are also expensive, costing several thousands of dollars per month. Even basic preventive services can be expensive.
Medicare is a very important means by which the US ensures the elderly are taken care of. It is not an entitlement or a hand-out; workers pay into it throughout their working lives through a special Medicare tax, very similar to the Social Security retirement program. They benefit people to earn throughout their lives to allow them to enjoy their retirement.
If you’d like to learn more about the different parts of Medicare, the Medicare benefits that you can enjoy as a beneficiary and more, these resource links can be very helpful for Medicare help:
Additionally, we are here to help you make the most out of your Medicare coverage without having to pay more in out-of-pocket costs than is necessary. We can help you learn about insurance plans through private insurance companies that can help you reduce your Medicare costs, such as Medigap plans or Medicare Advantage. Use our website to shop for your options for medical insurance, or give us a call to talk to one of our licensed insurance agents about your options.