Understanding Medicare and all of its moving parts may seem difficult at first, but all it takes is a little bit of research to understand how to get the most out of it. As a U.S. government health insurance program, Medicare is divided into different plans that cover a variety of healthcare situations—some of which come at a cost to the insured person.
Medicare offers excellent health coverage you can customize to fit your health needs and budget. While this allows the program to provide consumers with multiple-choice options for costs and coverage, it also introduces complexity for those signing up. To alleviate confusion, we created this guide to help you through the process of enrolling in Medicare, including what the different plans are and who’s covered.
What Is Medicare
Medicare is the federal health insurance program that covers 61 million people nationwide and spends over $800 billion every year on healthcare. As the second-largest expenditure in the federal budget behind Social Security, Medicare funds almost a quarter of all healthcare spending in the United States and can be considered the single biggest “insurer” covering Americans. The basics of Medicare include both plans provided by the federal government and those available through private insurers. Different types of plans can cover other parts of your health care.
The plan covers people age 65 or older, younger people who meet specific eligibility criteria, and individuals with certain diseases. As the most common form of healthcare coverage for seniors, it’s divided into four programs: Medicare Part A, Part B, Part C (also known as Medicare Advantage), and Part D for prescription drugs. The program has been in existence since 1965 and provides a way for older Americans to have their health needs taken care of after they retire from the workforce.
Medicare Part A and Part B
When you become eligible for Medicare, you have to decide which plan is best for you. Original Medicare is provided through the federal government and includes Medicare Part A and Medicare Part B, which both handle different parts of your health care. It’s important to remember that Original Medicare doesn’t cover everything, such as vision and dental coverage.
Known as “Hospital Insurance,” Medicare Part A covers costs billed by hospitals or similar inpatient-like settings, such as skilled nursing facilities, hospice, and some home-based healthcare. This plan doesn’t cover long-term or custodial care. When you receive notification that you’re eligible for Medicare Part A, you’ll also be notified about your eligibility for Medicare Part B coverage, which is optional and has a premium for all enrolled members. Generally, Medicare Part B covers costs for outpatient care such as doctor visits, preventative services, ambulance services, certain medical equipment, and mental coverage. This plan also covers certain prescription drugs.
Medicare Advantage vs Medicare: What’s the Difference?
Budgeting for healthcare costs in retirement is tricky since there’s often no way of knowing whether your expenses each year will be minimal or massive, and Medicare isn’t a “one-size-fits-all” approach. There are specific differences between traditional Medicare and Medicare Advantage that are important for people to understand when they first become eligible for Medicare and during the Open Enrollment period.
Traditional Medicare is offered directly through the federal government, and you receive a red, white, and blue card to present to providers. The same level of coverage is available to all enrollees across the country with no pre-existing condition limitations or waiting periods. You can see any doctor, medical provider or visit any facility around the country that accepts Medicare. However, Medicare doesn’t cover long-term care, but it will cover short-term rehabilitation for the first 100 days. There are limits on your charges when you visit participating or non-participating providers as a Medicare beneficiary.
Medicare Advantage is part of the Medicare program offered to seniors and disabled adults who qualify through private plans that contract with the federal government to provide Medicare benefits. Also referred to as Medicare Part C, Medicare Advantage plans are offered through private insurance companies instead of the federal government. Medicare Advantage plans have fixed networks of doctors and hospitals, so your plan will have rules about whether or not you can get care outside of your network. Of course, you’ll pay more for any care you receive outside your network like any plan.
Medicare Advantage enrollment boils down to plan variety, choice, and costs, benefiting healthier people who use fewer services with lower costs. Enrollees are looking for the cost protection of an out-of-pocket limit and the variety of plan options with different premium, copay, and deductible schedules. A range of service options, such as dental, vision, pharmacy, and wellness benefits, are also available.
Choosing Between Medicare Advantage vs. Medicare
If you plan to travel or split your time residing between more than one state, you will want to enroll in Original Medicare, so you can access care providers anywhere. If you don’t plan to travel and prefer a “turn-key” Medicare experience, an Advantage Plan makes the most sense. You should make sure your desired care providers are part of the approved network before you enroll. Going out of the network for care will result in higher costs and possibly even denials. The current divide between enrollment in the two options is 2/3 Traditional and 1/3 Advantage Plans.
If you sign up for Original Medicare and later decide you would like to try a Medicare Advantage Plan—or vice versa—remember that there are specific enrollment periods when you’re allowed to make changes. You should also keep in mind that different areas have different Medicare Advantage Plans.
When Is Medicare Open Enrollment?
The annual Open Enrollment Period (OEP) for current Medicare recipients to change their coverage runs from October 15th-December 7th. You can change between traditional coverage and Medicare Advantage, switch Part D prescription plans, or move between Advantage Plans as your needs change. It’s also important to compare plans during each enrollment period, as coverage and plans available near you can change year to year.
Since Medicare covers everyone individually, this is also an important time for couples to make sure they are coordinating and re-calibrating coverage to find the best balance for their needs. For example, if one is covered by traditional Medicare and another by Medicare Advantage, and travel plans increase or decrease, should both move to one or the other together? Likewise, if certain drugs become necessary based on changing health conditions, every Part D plan needs a review to determine which plan will best fulfill those needs for the following year.
You can change your Medicare Advantage and Medicare prescription drug coverage for life events such as moving, losing existing employer-provided insurance coverage, or getting married. The opportunity to make changes are called Special Enrollment Periods (SEPs). Depending on your SEP type, you may have 60 days before or 60 days after the event to enroll in a plan.
Do You Have to Pay for Medicare?
It’s important to understand that Medicare does come with costs, and those costs will vary depending on whether you have enrolled in Original Medicare or an Advantage Plan. Medicare Part A is free for most individuals because of payments made through payroll taxes under the Federal Insurance Contributions Act (FICA). You can also qualify for free Medicare Part A due to your spouse’s work history.
Generally, the government will automatically enroll you in Medicare Part A at no cost when you reach 65, as long as you’re already collecting Social Security or Railroad Retirement Benefits. All you need to do is check your mail for your Medicare card, which should arrive about three months prior to your 65th birthday. Coverage is automatic for anyone who receives Social Security benefits, but for those who don’t, enrollment can be done through the SSA website. If you’re not eligible for premium-free Part A, you may be able to purchase the coverage up to $499 each month in 2022. Most people will pay the standard Medicare Part B premium amount, which is $170.10 for 2022.
Under Medicare coverage, you will pay a deductible for your health care before Medicare pays its share. These premiums and out-of-pocket costs will need to be included in your monthly budget. If you miss the correct windows to enroll in Medicare coverage, there may be delays in coverage, or you may get locked into the wrong or inadequate coverage as your care needs change. There is also the risk of financial penalties that will increase premiums, and depending on your annual income levels, you may also pay higher premiums.
Medicare was enacted over 50 years ago and has since become one of the most important, popular, and best-run government programs in U.S. history. However, to get the maximum value from the program, enrollees must make informed choices. Understanding enrollment, costs, services, and matching your lifestyle with the specifics of Original Medicare or Medicare Advantage will help you gain the most out of Medicare. In addition, talking with your financial advisor can help you decide which Medicare program is best suited for you and help answer any questions you have during the enrollment period, so contact the experts at Retirement Genius today.