A Brief Overview of Medicare

Introduction

Medicare is health insurance offered to those 65+ years of age or with a disability. It is comprised of four parts:

• Part A (Hospital Insurance)
• Part B (Medical Insurance)
• Part C (Medicare Advantage, includes Part A, Part B, & usually Part D)
• Part D (Drug Coverage)

Parts A & B are offered to everyone on Medicare and comprise what is known as Original Medicare. However, Original Medicare has a 20% Part B coinsurance on care, so enrollees typically fill this gap with additional coverage. Part C (Medicare Advantage) is one option that often includes Drug Coverage, and technically replaces Part A & B (more on that below). Medicare Supplement Insurance (Medigap) is the other option, which does not include Drug Coverage. Those choosing a Medigap plan must pick a Part D plan to cover their prescriptions.

Part A (Hospital Insurance)

Part A covers the following services:

• Inpatient care in hospitals
• Skilled nursing facility care
• Hospice care
• Home health care

In addition, Part A is free as long as you have 40 retirement credits (these are the same as for Social Security, which means if you’re eligible for Social Security, you’ll get Part A for free). Part A does have a $1,600 deductible per hospital event in 2023.

Part B (Medical Insurance)

Part B covers the following services:

• Services from doctors / other healthcare providers
• Outpatient care
• Home health care
• Durable medical equipment (wheelchairs, walkers, hospital beds, etc.)
• Many preventative screenings (screenings, shots & vaccines, “Wellness” visits, etc.)

The 2023 Part B deductible is $226 for the calendar year. After that, Part B covers 80% of all approved charges, leaving you with a 20% coinsurance with no out-of-pocket max. The monthly premium for 2023 is $164.90. However, if your income from 2 tax years ago was above a certain threshold, you must pay extra due to IRMAA (Income-Related Monthly Adjustment Amount). The 2023 IRMAA brackets are shown below:

Some providers who accept Medicare do not accept it as the full payment. This is known as “not accepting assignment.” This allows the provider to bill up to 15% extra on top of the Medicare-approved amount to the patient. This is known as an Excess Charge. Although Medicare will still pay the original 80%, the enrollee must pay both the 20% coinsurance and a potential 15% excess charge for a total of 35%. However, most providers who accept Medicare do not bill excess charges. A 2011 KFF study shows that only 4% of doctors who accept Medicare charges bill excess charges. In addition, some states outright ban excess charges or have limitations on them.

• Connecticut: Bans excess charges for only those who are Qualified Medicare Beneficiary
• New York: Limits excess charges to 5%
• Ohio: Outright bans all excess charges
• For other states, please contact your state’s Department of Aging to see if there are any limitations.

Part C (Medicare Advantage)

Part C offers Medicare-approved plans by private companies. It replaces Original Medicare, meaning your Medicare Advantage insurance will cover your care instead of Part A & B. You can only see doctors and providers within your insurance network. Most plans will include a Part D plan, meaning you will not have to enroll in a separate drug plan. Furthermore, Medicare Advantage may cover a few additional benefits that Original Medicare doesn’t:

• Dental
• Vision
• Hearing
• Fitness Programs

Medicare Advantage plans have an out-of-pocket maximum limit and allow you to switch plans every year. Typically, they will not cover health care outside of the USA. In most cases, you will still have to pay your Part B premium on top of a Part C premium. However, some Part C plans have a $0 premium and may cover part or all of your Part B premium.

Medicare Supplement Insurance (Medigap)

Medigap is an alternative to Medicare Advantage and supplements Original Medicare. It is run by private companies but must follow strict guidelines Medicare sets on the benefits they provide. All Medigap plans are labeled from A-N, and will provide the same coverage based on the plan letter. Medigap may cover health care during foreign travel, depending on the plan. Unlike Medicare Advantage, Medigap doesn’t supply a Part D plan and must be bought separately. Finally, it is harder to switch plans every year, and you may require medical underwriting to rejoin or switch to a Medigap plan.

Note: Plan C & Plan F aren’t available if you turned 65 on or after January 1, 2020. However, you might be able to get these plans if you were eligible for Medicare before January 1, 2020, but not yet enrolled.

*: Plans F & G offer a high deductible plan in some states.

**: Plans K & L show how much they’ll pay for approved services before you meet your out-of-pocket yearly limit & Part B deductible. After you meet them, the plan will pay 100% for approved services.

***: Plan N pays 100% of the costs of Part B services, except for copayments for some office visits & some emergency room visits.

Part D (Drug Coverage)

Part D is pharmacy insurance run by private insurance companies that follow rules set by Medicare. You can change your plan every year. There are four parts to Plan D coverage.

• Deductible: You will pay for the full negotiated price for your covered prescription drugs until your deductible is met. This can be a maximum of $505 in 2023.
• Copayment / Coinsurance: After you meet your deductible, you will pay a copayment or coinsurance up to around $4,660 (varies depending on the plan).
• Coverage Gap: After your copayment/coinsurance, there is a gap where you must pay 25% for your drugs.
• Catastrophic Coverage: Once you reach $7,400 in total out-of-pocket costs, you will pay only 5% for each drug or a small copayment.

The insurance company sets the Part D premium, but similar to Part B, there is also an IRMAA surcharge depending on your income from 2 tax years ago.

Enrollment Periods

There are various enrollment periods that allow you to enroll in the many parts of Medicare. They are listed below.

Initial Enrollment Period

• A 7-month period that starts 3 months before you get Medicare, the month you get Medicare, and 3 months after you get Medicare (for most, this is when you turn 65).
• Allows you to join any plan.

Open Enrollment Period

• October 15 – December 7.
• Allows you to join, drop, or switch a Medicare Advantage plan.
• Allows you to join, drop, or switch a Part D plan.

Medicare Advantage Open Enrollment Period

• January 1 – March 31 (& within the first 3 months you get Medicare).
• Allows you to drop or switch to another Medicare Advantage plan.
• Allows you to join a Part D plan.

Medigap Enrollment Period

• 6 months starting in the first month you have Medicare Part B & are 65+.
• You can join any Medigap plan without medical underwriting.

Special Enrollment Period

There are various special enrollment periods due to circumstances in life that allow you to join a particular part of Medicare outside of the above enrollment periods. You may find a full list here: https://www.medicare.gov/basics/get-started-with-medicare/get-more-coverage/joining-a-plan/special-enrollment-periods

Enrollment Penalties

Applying for Medicare (particularly part B) is important when first eligible. There is a late penalty of 10% of your Part B premium every year you are eligible for Part B but don’t apply for it. The Part B penalty lasts double the years you were late. The Part D penalty is 12% per year for a lifetime.

For example, say you waited until 67 to apply for Part B & Part D. You would have an increase of premiums of 20% for Part B for 4 years and an increase of 24% for Part B for a lifetime.

You can also avoid this penalty by signing up during a special enrollment period (such as losing your eligible health coverage from a job).

Where Can I Apply?

Parts A & B generally can be applied for by the Social Security Administration. If you’re applying for Parts A & B or just Part A, you can do that online at ssa.gov. In certain situations (like a special enrollment period), you must mail your application to Medicare. You can refer to the SSA Medicare sign-up link here: https://www.ssa.gov/medicare/sign-up

For Part C, Medigap, and Part D, the Medicare website provides an online tool that lets you shop for plans based on your zip code. Furthermore, it lets you enter all your drugs to determine the best Plan D plan to cover you. You can find this tool at this link here: https://www.medicare.gov/plan-compare

Sources

• Medicare Handbook
• Part B & D IRMAA
• Medigap Chart
• KFF Excess Charge
• CT Excess Charge
• NY Excess Charge
• Ohio Excess Charge
• Part D Coverage Periods
• Enrollment Periods
• Special Enrollment Periods
• Enrollment Penalties

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