How Does Medicare Work: 2023
For most people turning 65 means becoming eligible for Medicare for the first time. With all the “Parts” and “Supplemental Plans”, options, regulations and other details it’s not surprising that many are left feeling overwhelmed and confused. Hopefully, after reading this article, you’ll feel more comfortable with Medicare.
As you’re probably aware, Medicare is available to those turning 65 years old who have paid into the Medicare system during their working years or are married to someone who has. But a less well-known reason to be eligible for Medicare is to receive at least 24 months of Supplemental Security Income (SSI). Everyone who is considering enrolling in Medicare may benefit from a general understanding how the system works.
Medicare is broken into “parts”, each part offering a different aspect of coverage. Additionally, there are Medicare Advantaged plans, which take a more all-in-one approach. Let’s take a look at each of the types of plans. Original Medicare consists of Part A and Part B, with additional coverage provided by a Medicare Supplemental Insurance Plan and/or a stand-alone Part D plan for prescriptions. Medicare Part C, also called Medicare Advantage, is an all-in-one plan which typically includes prescription drug coverage.
Medicare Part A – In Patient Coverage
Part A, which is provided by the Federal government, covers hospitalization, including:- In-patient care in a hospital
- Skilled nursing facilities
- Nursing home care (rehabilitation only)
- Hospice care
- Home healthcare (for treatment of illness or injury only)
Part A doesn’t have a premium cost for those who have paid into the plan for at least 10 years but it does have a deductible and coinsurance (what you pay). The deductible is charged for each “benefit period” in a year – which means that there can be more than one deductible charged in a year. After 60 days in a facility, the coinsurance charges kick in. You pay all costs for services that are not approved by Medicare.
Medicare Part B – Out Patient Coverage
Part B, which is also provided by the Federal government, covers both medically necessary services as well as preventative medicine. This includes things like:- Clinical testing
- Ambulance services
- Durable medical equipment
- In-patient and out-patient mental health treatment, as well as partial hospitalization
- A limited number of prescription drugs
This also includes regular doctor visits and annual flu shots. There is no copayment for preventative services approved by Medicare, as long as the provider accepts direct payment from Medicare. Part B does have a premium cost as well as a modest deductible and coinsurance of 20% of all treatments approved by Medicare. You pay all costs for treatments that are not approved.
Medicare Supplemental Insurance Plans – Plans That Pay Your Share of Original Medicare
Medicare Supplemental Insurance Plans (Medigap), are provided by private insurance companies but regulated by the Medicare program. These plans are designed to cover most or all of your coinsurance costs for Part A and Part B (Original Medicare) and cannot be combined with Part C Advantage Plans. You must be eligible for Part A and enrolled in Part B to buy one of these plans. Currently there are ten Medigap policy templates which insurance companies can choose to offer, none of which provide prescription drug coverage. You can add a Stand-Alone Part D plan to cover drug costs if you enroll in a Medigap plan.Medicare Part D – Prescription Drug Plans
Part D is private insurance designed specifically to cover prescription drugs. There are a number of different Part D plans, each with a specific “Formulary” (list of drugs covered), including both brand name and generic medications. Each plan must offer at least two drugs for each medical condition on Medicare’s list. This ensures that people with different medical needs can still get the medicine they require. In most cases, even if a drug you need isn’t covered, a similar one for the same ailment will be. Additionally, your doctor can apply for exceptions for medications not covered.The design of these plans is fairly complicated, but here’s the bird’s-eye-view: Medicare regulations for these plans require 3 stages of coverage and define maximum cost limits.
- Deductible Period
- Initial Coverage Period
- Catastrophic Coverage
Insurance companies are allowed to do better but not worse than the limits. Typically, a Part D plan will also include 4-5 tiers of coinsurance or copays.
Part D can be offered as a Stand-Alone plan with Original Medicare even if you have a Medigap plan. You must be eligible for Part A and/or enrolled in Part B to be able to buy Part D. However, if you enroll in a Part C (Advantage) plan that does not already include Part D coverage, you may NOT enroll in a stand-along prescription drug plan.
NEWS: In 2023 the next level of regulations for prescription drug costs take effect. For details check our blog “What Does the Inflation Reduction Act Do For Medicare Rx”.
Medicare Part C – Medicare Advantage
Medicare Advantage plans are offered by private insurance companies contracted with Medicare to provide all of Part A and Part B services. (You must have Part A and B to qualify for an Advantage plan). The idea is to provide a more one-stop-shop healthcare insurance, and many also include prescription drug coverage.Here are four common types of Medicare Advantage plans.
- Health Maintenance Organizations (HMOs)
- Preferred Provider Organizations (PPOs)
- Private Fee-for-Service (PFFS)
- Special Needs Plans (SNPs)
You can join or change plans at any time during appropriate enrollment periods, and you can switch to Medicare Original (Parts A and B) as well, but only at specific times throughout the year. Because most Medicare Advantage plans, like regular health insurance, have copays, deductibles, premiums, etc., you may want to consider obtaining a complementary insurance like a hospital indemnity plan. This is slightly different from Medicare Supplemental Insurance Plan (Medigap), which is solely for use with Original Medicare. You also cannot purchase a Stand-Alone prescription drug plan with most Part C plans even if the plan does NOT include prescription drugs in the plan.
The main difference between Original Medicare and Medicare Advantage is that, with Original Medicare, you’re essentially cost averaging medical expenses by paying roughly the same amount each year. Most people need more medical care as they age. With cost averaging, your bills stay about the same even when medical expenses increase. In comparison, Medicare Advantage is more of a pay-as-you-go model because you generally only pay for what medical care you need (most insurance companies offer at least one zero additional premium HMO and/or PPO Advantage option).
What’s Not Covered By Original Medicare
Coverages can vary from plan to plan, and it’s a good idea to familiarize yourself with what each plan covers so that you can make the most informed decision possible. If you want to check a specific service, test, or piece of equipment, visit https://www.medicare.gov/coverage or call customer service at your insurance company to see if it’s covered.Generally speaking, Parts A and B do not cover the following as part of the plan.
- Long-term care (Yes, it’s true! Medicare does NOT cover long term care.)
- Dental care
- Eye exams for prescription glasses
- Dentures
- Cosmetic surgery
- Acupuncture
- Hearing exams and hearing aids
- Routine foot care
Recently, Medigap plans have begun including discount clubs and other bonus benefits with their plans to help pay for some of these items. For many years, the most common Medicare Advantage plans have offered some benefits for many of these items, but coverage can vary from plan to plan. (NOTE: those ads on TV are talking about these extra benefits.)
This is one reason why choosing a Medicare plan can be so complicated. There are a lot of choices and pros and cons to each type of Medicare coverage.