What Is Medicare, and How Does It Work?
Medicare is the federal insurance program designed to help older Americans afford healthcare. Medicare has been a part of the American healthcare system for 55 years and helps millions of Americans pay for their medical expenses.
Unfortunately, Medicare is fairly complex. There are a wide variety of options and plans, and choosing the right plan can have an important impact on both your physical and financial health. It’s important to choose the plan that works best for you, so that you can live comfortably as you age. Helping you make the right choice is what Retirement Safety Zone is all about.
What Is Medicare?
As mentioned above, Medicare is a federally-funded health insurance program designed for seniors and those with specific disabilities. There are essentially three different “parts,” each covering different aspects of healthcare. There is also Medicare Advantage, also designated as Part C, which is designed to be an all-in-one comprehensive program. Follow our blog series on Medicare for specific details.How Does Original Medicare Work?
Medicare works similarly to other health insurance plans in that you pay monthly premiums (depending on which program you enroll in), deductibles, and copays. You pay all out-of-pocket expenses until your deductible is met, at which time Medicare kicks in and covers a portion of the costs and you pay a copay. You can go to any doctor, hospital, medical facility, or other healthcare provider, as long as they’re certified by Medicare and are accepting new Medicare patients. You don’t need to choose a primary doctor, and you don’t need referrals to go to specialists as long as they’re approved by Medicare.How Does Medicare Advantage work?
Medicare Part C, also known as Medicare Advantage, works much like a group insurance plan. You pay copays and coinsurance and your annual out of pocket costs (how much you pay before they cover all approved medical costs) are capped. The Centers for Medicare & Medicaid Services (CMS) regulate these plans along with all the Medicare-related private insurance plans like Medigap and Prescription Drug Plans. All Advantage plans must offer at least the minimum benefits requirements and no more than the maximum annual out of pocket. They typically include some benefits that Original Medicare doesn’t cover like some basic dental, vision, transportation and a variety of health related bonuses.
Most Medicare Advantage plans are HMOs Health Maintenance Organizations) or PPOs (Preferred Provider Organizations). HMOs require you select a primary care physician, obtain referrals for specialists and tests, and do not offer coverage outside their network (except for emergent or urgent care while out of network). PPOs are more relaxed. A specified primary care physician is not required nor are referrals. Copays and coinsurance are lower in network but out of network health providers are still covered under the plans – although at a higher copay/coinsurance rate. Maximum out of pocket is also higher (you pay more before they pay) when out of network providers are used.
We’ll discuss details of Medicare including what’s covered—and what’s not—in the next blog Medicare In Depth.
Do You Need Supplemental Insurance?
Medicare A and B do not cover prescription drugs. They both have deductibles and charge you copays. Both plans also charge coinsurance of 20% for many health expenses with no limit to your annual out of pocket. At the very least, you’ll want to include a prescription drug coverage to your list. Drugs plans can cost as little as $6 per month if you purchase one as soon as you qualify but if you don’t buy a plan you will end up with a lifetime late enrollment penalty that increases for every month you’re not enrolled.If you decide to choose to stay with original Medicare, it makes sense to enroll in Medicare Supplemental Insurance, also referred to as “Medigap. Depending upon the Medigap Plan you pick, it will cover a portion or nearly all of your copays, coinsurance and deductibles under Original Medicare. The premium cost for the plan varies between plan type and insurance company. Generally speaking, the more of your share the Medigap plan pays, the higher the premium. Medigap plans do not cover out-patient drugs so consider a stand-alone prescription drug plan.
If you decide you would prefer a Medicare Advantage plan, you would still pay your premiums for Medicare A and B but you would find many HMO and PPO plans that do not add a premium of their own. They typically include a prescription drug plan for no additional cost. However, you may have deductibles and will have copays and coinsurance. Since they limit your maximum out-of-pocket expenses and add some extra benefits like a small amount of coverage for vision, dental and hearing an Advantage plan can be a lot easier on your budget than Part A and B alone.
In our third blog of this series, How To Pick A Medicare Plan, you’ll learn about the differences between your Medicare options.