The question is often asked, “How does Medicare work?” Let’s start where it all began.
Medicare was passed into law July 30, 1965. The first beneficiaries were signed up July 1, 1966. At the time, the only persons eligible to enroll were those who were 65 and older. Now Medicare is available to those under the age of 65 who have been approved for disability benefits through the social security system and with certain medical conditions.
In its original form, Medicare had just two parts, A & B. Medicare part A is hospital coverage. It provides coverage only when a beneficiary is an in-patient in a hospital, skilled nursing care, home health care, and for hospice care. Upon turning 65 most US citizens are automatically enrolled in Medicare part A.
Medicare part B (medical insurance) covers all other medical expenses, not covered by part A. This includes doctor visits, medical tests, treatment, durable medical equipment, and preventive care.
What about Medicare premiums? Most Americans are not required to pay a monthly premium for part A, however, most are required to pay a premium for part B. In 2019, the standard premium is $135.50 per beneficiary. (If you’re married and both spouses are enrolled in Medicare, you both pay the part B premium).
Over the years Medicare deductibles and copays have changed. Currently Medicare part A has a $1364 deductible, per benefit period. This deductible covers a beneficiary for up to 60 days in a hospital. If a hospital stay lasts longer than 60 days, a daily copay begins. For days 61 – 90 the copay is $341. Beginning on day 91 the daily copay increases to $682.
Medicare part B works much differently. Part B has an annual deductible of $185. Once the deductible is satisfied, then co-insurance of 20% is charged. The big challenge for many beneficiaries is the 20% co-insurance has no cap. This means if you experience $100,000 in medical bills covered by part B, your share is $20,000 (after the $185 deductible). These part A and part B deductibles and co-insurance are the reason most Medicare beneficiaries choose to add a Medicare supplement plan or enroll in a Medicare advantage plan (Covered in a different article).
For decades these were the only two parts of Medicare. In fact from 1965 until 2003, many Medicare beneficiaries didn’t have access to prescription drug coverage. Those who did usually received it from a former employer.
In 2003 George W. Bush signed into law, the Medicare Prescription Drug Improvement and Modernization Act. Among other things, it introduced Medicare part D, prescription drug plans. Medicare part D plans became available January 1, 2006. Part D plans are not provided by the government, like part A & B. Instead part D plans are offered by private insurance companies, with the plans being strictly regulated by Medicare.
Monthly premiums for drug plans range from about $11 per month to well over $100 per month. So why enroll in a higher premium plan? Well the plan that provides the lowest out-of-pocket costs for the prescriptions you take regularly is usually the right option. Higher premium plans often times offer much lower copays for expensive medications that more than offset the higher premium.
Medicare offers a very useful tool found at www.medicare.gov to help beneficiaries find the plan that works best for their situation.
Some who are enrolled in part D have become painfully aware of the “coverage gap”, also known as the donut hole. This came about as one side of the political isle argued for more comprehensive coverage for initial Rx expenses, as the other side argued for better coverage as the total price of drugs increased for a beneficiary. So the design was by committee and compromise, which often leads to a less than effective outcome.
The good news for those taking expensive drugs, Medicare has begun “closing” the coverage gap. The end result will be in 2020 and beyond, those who reach the coverage gap will pay 20% of the full cost of prescriptions, providing huge relief to many. Now, if we can just get the price of drugs lower.
But wait! We skipped over Medicare part C. What’s up with that?
Well I saved the discussion about Medicare part C for last, because it’s a little different animal. Medicare part C began January 2006, just like part D.
Some have referred to Medicare part C (Medicare advantage) plans as Medicare replacement. Well, that’s not exactly accurate. Here’s the real story! Enrolling in Medicare part C, means that you will be receiving your Medicare part A & B benefits from the plan (insurance company) you’re enrolled with, instead of getting those benefits directly from Medicare. In addition, if you want part D, drug coverage, most plans include it.
It’s also important to know that every part C plan has a unique benefit grid. While all part C plans must cover the same things as original Medicare, the copays and co-insurance for that coverage will vary from plan to plan. Also be aware, the part A and part B deductibles, etc. don’t apply when one is enrolled in part C.
Another important consideration: Part C plans are typically structured as HMOs or PPOs. Without getting into the distinction between the two, let’s talk about what they have in common. They both have a network of medical providers that you must use, to keep your out-of-pocket costs as low as possible. So, before enrolling in a Part C plan, it’s important to confirm your doctor(s) accept that plan. In addition, if prescription coverage is important to you, you will want to make sure your selected plan provides good coverage for the prescriptions you take.
So why would anyone want to enroll in part C. Well, in many cases, part C plans can reduce one’s out-of-pocket risk, when compared to original Medicare. Also, many plans offer coverage that Medicare doesn’t. Some examples: vision, dental, fitness club membership, and hearing.
In conclusion, when enrolling in Medicare and picking your plan options, there is a lot to consider and we can help!
Lonnie Thibodeaux is the owner of Sargent Insurance and Financial Services. He specializes in Medicare health plans and prescription drug plans.