Along with Social Security, Medicare plays a powerful role in protecting the health and welfare of seniors in the United States. While Social Security provides vital retirement income, Medicare ensures that citizens aged 65 and older receive a reasonable standard of health insurance coverage. Participants in both Social Security and Medicare have earned these benefits by paying into the respective systems through a lifetime of payroll deductions. The purpose of this article is to help you better understand – and optimize – the Medicare benefits to which you are entitled.
Medicare has four basic parts:
- Part A (Hospital insurance) - Covers patient’s hospital care, nursing facility, hospice care and certain home health needs. Premium-free if you or your spouse paid Medicare taxes while working.
- Part B (Medical Insurance) - Covers services from doctors, outpatient care, some durable medical equipment, some preventative services, and certain home health needs. The premium in 2013 was $104.90/month with a sliding scale of higher premiums for higher incomes.
- Part C (Medicare Advantage) - Combines parts A and B; administered by private, Medicare-approved insurance companies. Typically includes Medicare part D.
- Part D (Prescription drug coverage) - Supplements the cost of prescription drugs; also administered by private companies. Premiums vary with income, but a typical plan cost is $40/month.
Some preventative services are covered without copays and deductibles under any Medicare plan.
Standard Medicare (A and B) can carry significant deductibles and co-insurance. Medicare does not have a limit on out-of pocket expenses, so chronic and costly conditions can add up quickly. To avoid this situation you have three options:
- A retiree plan through your (or your spouse's) employer, if available, that can be combined with some Medicare coverage.
- Medicare Advantage, which includes a limit on out-of-pocket expenses. These plans are generally a HMO or PPO, with varying costs, coverage, and restrictions on out-of-network providers.
- Medigap, which acts as a secondary insurer after Medicaid benefits are spent. These are generally presented as a series of scaled benefit packages from which to choose. You must be enrolled in Part B to qualify for Medigap.
You can purchase Medicare Advantage or Medigap, but not both. Purchase of Medicare Advantage may void a retiree plan, so check before buying. When looking through the options, be sure to check all costs — premiums, co-pays/co-insurance, deductibles, caps, etc.
Medigap pricing comes in three formats:
- Community-rated: Everyone pays the same premium, regardless of age. More expensive in the beginning but a better deal long-term.
- Issue-age-rated: Premiums only rise for inflation, and are based on your age at purchase.
- Attained-age-rated: Low initial premiums, increasing as you age — could be prohibitively expensive in your later years.
The initial enrollment period is the month of your 65th birthday and a six-month period around it (three before, three after). Medicare will contact you if you are already drawing Social Security (or Railroad Retirement) benefits. If not, you will need to enroll online or at a Social Security Office. Should you miss this window, your next opportunity to sign up is during a General Enrollment Period, in January through March, with your coverage starting on July 1st.
Medigap timing is different — you have a one-time six-month window to buy Medigap once you are enrolled in Part B. After that, you can only purchase Medigap under a few exceptions.
Most people sign up for Part A since it is free, but you may sign up later without penalty. Part D is a matter of preference. Part B is trickiest, due to penalties for signing up at the wrong time (permanent 10% premium increase for every incorrect year). Generally, you should sign up when you turn 65, or when you or your spouse retires, but if you have certain benefits such as veteran's benefits, a retiree plan (or you are still working), it may make sense for you to delay the registration. Check the Medicare website for details on plan B signup.
Review your cost and coverage each year for changes. You can switch your coverage during the open enrollment period (2013 dates were October 1st-15th for early review and October 15th-December 7th for changes.) New coverage begins each January 1st.
For up-to-date Medicare information, consult http://www.medicare.gov/