This week’s post is a shout-out to some of my older readers who’ve begged me to dig into this topic. But even if you’re decades from turning 65, I encourage you to keep reading. Knowing the basics of Medicare can help you better understand your parents’ and grandparents’ health plans, as well as issues that might surface in the upcoming 2020 election.
You may wonder why a financial educator would cover the topic of Medicare — doesn’t that fall into the health care arena? It does, but health care is also a financial concern, especially when you’re nearing retirement age. When I lead retirement seminars, the two biggest questions that come up are: Do I have enough money to retire? and How will health care work and how much will it cost? Let’s take a look at that second question here.
Medicare is the federal health insurance program for three different groups of people: those who are age 65+, those who have end-stage renal disease (also known as kidney failure), and certain younger people with disabilities. If you’re working, you likely have money taken out of your paycheck for Social Security and Medicare. These taxes help cover the cost of these programs now and into the future. Paying them also helps you gain access to this benefit when you become eligible. You (or your spouse) need to pay in for at least 40 quarters (in other words, ten years, but they don’t have to be consecutive) to have access to this coverage.
There are two ways you can receive your Medicare coverage: Original Medicare or Medicare Advantage. No matter which option you choose, you are still a part of the Medicare program. With Original Medicare (sometimes called Traditional Medicare) your claims are processed and paid for by Medicare through its partnerships. With Medicare Advantage, your claims are processed and paid for through a private health insurance company. The government reimburses this private health insurance company for offering you coverage.
Let’s take a closer look at each of these options:
With Original Medicare, there are two primary parts as well as two other types of coverage that are optional, but designed to pair with it:
· Part A: Part A is designed to cover hospital expenses. For most people, Part A is premium-free. If you (or your spouse), haven’t paid Medicare taxes for 40 quarters you can purchase this coverage, but it can be expensive (approximately $400/month depending on how many quarters you worked).
· Part B: Part B is designed to cover doctor and medical expenses. Part B has a monthly base premium of $135.50, though your premium may be higher depending on your income.
· Part D: While not a part of the Original Medicare program, Part D is designed to pair with Parts A & B. Part D is offered by private health insurance companies and covers prescription drug costs. There are a variety of different plans available with varying premiums (generally $0-100/month), copays, coinsurance, deductibles, and/or out-of-pocket maximums.
· Medicare Supplement (Medigap) coverage: Original Medicare is designed to cover 80% of senior hospital and medical expenses. While that may sound like a significant amount, it still leaves you responsible for the other 20%. So while on a $100 doctor’s visit bill you’d only owe $20 out of your own pocket, on a $20,000 bill you’d owe $4,000. And keep in mind that Original Medicare does not have an out-of-pocket maximum built in, so, there’s no maximum on the amount you could pay for health care in a year. Medicare Supplement, also known as Medigap, plans are offered through private health insurance companies. They’re designed to fill in some or all of the gap between what you owe and what Original Medicare Parts A & B cover, as well as give you an out-of-pocket limit. These plans sometimes include additional benefits like vision, dental, or hearing coverage that Original Medicare doesn’t include. They may also include a Part D benefit. Just like Part D plans, there are a variety of plans available in the marketplace, all with varying benefits and cost.
Medicare Advantage (also known as Medicare Part C) is designed to give you all (or most) of the coverage you need in one convenient package. Like I said earlier, Medicare Advantage is offered by private health insurance companies and regulated by the government. They are required to offer you equivalent coverage to Parts A & B but may also include additional benefits like prescription drug coverage (if your plan doesn’t include it, you can purchase a Part D plan), vision, dental, hearing coverage, and other wellness benefits. The government also requires these plans to include an out-of-pocket maximum.
You may wonder: What’s the catch? Why wouldn’t everyone want to get all of their coverage from just one place? It’s important to note that some Medicare Advantage plans, particularly those you can buy on the individual marketplace, may come with some potential drawbacks. First, some Medicare Advantage plans have a limited provider network. With Original Medicare, you can see any doctor nationwide who accepts Medicare, which is a very broad network. With Medicare Advantage, your provider network may be limited to certain providers in your state or region of the country. If you don’t leave your area, this may work for you, but if you anticipate traveling or spending significant time in another area of the country, this could be an issue. Regardless, be sure to check into the plan’s network before you commit. [Note that group Medicare Advantage plans (like an employer-sponsored plan) tend to include a larger provider network.] Another potential drawback is that you may have to get a referral to see a specialist.
This being said, there are many advantages of Medicare Advantage: you get all of your benefits from one company, you may receive more benefits than you can get through the Original Medicare program, and the costs are generally lower.
And, on Thursday, April 4, I’ll be releasing a video on Facebook and IGTV delving into the questions I receive most often about Medicare. Check out these videos and submit your questions in the comments!