ABC’s of Medicare

Medicare is a federal government health insurance program for:

• People who are 65 or older
• People younger than 65 who have received disability benefits form Social Security for at least 24 months
• People with End-Stage Renal Disease (ESRD) with permanent kidney failure requiring dialysis or a transplant.
• People with Amyotrophic Lateral Sclerosis (ALS), aka Lou Gehrig’s disease

You qualify for full Medicare benefits if:

• You are a U.S. citizen or a permanent legal resident who has lived in the United States for at least five years and
• You are receiving Social Security or railroad retirement benefits or have worked long enough to be eligible for those benefits but are not yet collecting them.
• You or your spouse is a government employee or retiree who has not paid into Social Security but has paid Medicare payroll taxes while working 10+ years.
• Most people who have worked and paid Medicare taxes for at least 10 years (40 quarters) qualify for premium-free Part A (Hospital). NOTE: If you haven’t worked and paid Medicare taxes long enough to qualify for premium-free Part A, you can purchase it. (Click HERE for Part A costs).
• If you don’t qualify for premium-free Part A, you can choose NOT to purchase Part A and can still purchase Part B (as long as you are over 65 and a U.S. citizen who has lived in the U.S. for at least five years).
• In most cases, if you choose to purchase Part A (Hospital), you must also have Part B (Medical), whereby paying monthly premiums for BOTH Part A and Part B.

**Click HERE to see important article on “What if I haven’t worked long enough to qualify for Medicare”?

The main parts of Medicare (Part A, B, C and D):

Part A – Hospital Insurance – Inpatient Care, skilled nursing facility, hospice care, certain home health care (not custodial care).

Part B – Medical Insurance – Medically necessary “outpatient” services or supplies needed to diagnose and treat your medical condition and preventative services. Also includes durable medical equipment (DME), which includes blood sugar meters, canes, walkers, wheelchairs & scooters, oxygen equipment and more.

*NOTE: Medicare Part A and Part B are generally referred to as Original Medicare.

Part C – Medicare Advantage Plans – This is when your Medicare benefits are completely managed by a private insurance company (i.e. Aetna, Humana, Cigna, etc.) rather than the government being your primary insurance provider.

Part D – Prescription Drug Plans – Original Medicare and Medicare Supplements (Medigap) do NOT include prescription drug coverage, therefore, you will need to enroll/purchase a Part D prescription drug plan from private insurance company to go along with your Original Medicare and Medicare Supplement. (Note: Most Medicare Advantage plans include prescription drug coverage).

Part A – Hospital Insurance is usually “premium-free” (if you or your spouse paid Medicare taxes for at least 10 years). If you don’t qualify for premium-free Part A, you can purchase it for for a monthly premium. (See Medicare costs).

Part B – Medical Insurance has a monthly premium that everyone has to pay – even people who choose a Medicare Advantage plan. (Exception to paying Part B premium are people who qualify for certain levels of Medicaid). Most people pay the standard Part B premium of $170.10/mo. (in 2022, if they earned less than $91,000 filing single or less than $182,000 filing jointly). Medicare determines the standard Part B premium by doing a two-year look back at your adjusted gross income. Below is the Income Related Monthly Adjustment Amount (IRMAA) for 2022.

If you collecting Social Security benefits prior to age 65, your Part B premium will automatically be deducted from your Social Security benefits (direct deposit) when you turn 65 and enroll in Medicare. If you are going to delay your Social Security benefits past age 65 because you want to work longer, but you want Medicare benefits when you become eligible at 65, Medicare will bill you quarterly for your Part B premium (since they can’t deduct it from your Social Security benefits). Part A is usually premium-free (for people who worked and paid Medicare taxes for 10+ years). We recommend everybody sign up for Part A (Hospital) during their Initial Enrollment Period (IEP) when they turn 65, even if they’re not ready to sign up for Part B (Medical). Might as well get Part A out of the way since it is premium-free. You will receive a Red, White and Blue Medicare card with your new Medicare number. Part A will be listed only. Later, after you enroll in Part B, Medicare will send you a new card with Part B listed. **NOTE: It is important to also enroll in Medicare Part B during your Initial Enrollment Period (IEP) – the 7 month window around your 65th birthday. If you “delay” your Part B enrollment, you must show that you had continuous “creditable” coverage from another source (i.e. Employer group health insurance), or you will be charged a Part B Late Enrollment penalty for life. *Note: COBRA does not count as creditable insurance.

*IMPORTANT* regarding Medicare Part A. You can NOT be enrolled in Medicare Part A and still contribute to an HSA plan. So if you have a high-deductible group health plan with your employer and you contribute to an HSA and plan on working there past 65 while delaying your Medicare Part B enrollment, you need to STOP contributing to the HSA at least 6 months prior to signing up for Part A. Medicare always makes your “effective date” for Part A 6 months prior to your sign-up date.

In addition to the required Part B monthly premium, Part B also has an annual deductible of $233 (in 2022). Anyone on Original Medicare or Original Medicare with a Supplement (Most plans – see Medicare Supplements), has to meet this Part B annual deductible of $233 before Medicare (or your Supplement) will pay any bills. While Original Medicare Parts A and B is very good insurance, bear in mind everyone on Original Medicare or Original Medicare with a Supplement (aka Medigap) usually pay these two costs:

1.) Part B monthly premium ($170.10 for most people – in 2022)
2.) Part B annual deductible of $233 (in 2022).

As good as Original Medicare insurance is, there are still “gaps” in coverage that leave you exposed financially. Here are the most common examples of financial exposure associated with Original Medicare Part A and Part B:

Under Original Medicare Part A (Hospital insurance) YOU pay $1,556 deductible for each benefit period. This $1,556 deductible can be charged multiple times a year if you return to the hospital after 60 days of being discharged. In addition, YOUR costs for inpatient stays at a hospital under Original Medicare are: Days 1-60 = $0 coinsurance. Days 61-90 = $389 per day coinsurance. Days 91 and beyond = $778 per day coinsurance. (See Medicare costs).

Under Original Medicare Part B (Medical insurance) Generally Medicare Part B covers 80% of the costs for most out patience care and services and YOU pay the remaining 20%. This remaining 20% for on Original Part B Medicare is “uncapped” and can get very expensive!

Due to the gaps associated with Part A and Part B, there are two great options available to mitigate this financial risk with Original Medicare Parts A and B. These options are: Medicare Supplement (aka Medigap) plans OR Medicare Advantage plans.

Medicare Supplement (aka Medigap) is a “secondary” policy from a private insurance company (Aetna, Humana, Cigna, etc.) in addition to having Original Medicare Parts A and B – you would have TWO insurance policies (three if you count your Stand-alone Prescription Drug plan). The federal government would be your primary insurance provider for Parts A and B and your Medicare Supplement (Medigap) company would be your secondary provider. Generally Original Medicare Part B would pay 80% of your medical expenses and your Medigap plan would pay the remaining 20%, usually leaving you with nothing out of pocket (most plans) other than your Part B annual deductible ($233 in 2022). Your Medicare Supplement (Medigap) would also pay the $1,556 per benefit deductible under Part A (Hospital), as well as pay for most of the inpatient days at the hospital. Please see more by clicking Medicare Supplements.

Medicare Advantage is a plan where a private insurance company (Aetna, Humana, Cigna, etc.) takes over your Original Medicare Part A & B and “replaces” it with an “All-in-One” HMO or PPO plan (similar to what you may have had with employer group health insurance), which usually includes prescription drug coverage. With a Medicare Advantage plan, the private insurance company becomes your “primary” insurance provider and you no longer have Original Medicare as your health insurance. (Exception- Hospice care is always covered by Medicare Part A). Medicare Advantage Plans are regulated by the government and must cover all of the services that Original Medicare covers. Medicare Advantage plans have out of pocket expenses in the form of copays and coinsurance. Unlike a Medigap plan where you pay a higher premium each month, Medicare Advantage plans are more of a “pay as you go” plan with a maximum out-of-pocket limit each year. To learn more about Medicare Advantage plans, click HERE.

Part D Prescription Drug Plans: Drug plans are NOT administered by Original Medicare the way Medicare Part A and Part B is. Part D prescription drug plans are sold and administered by private insurance companies (Aetna, Humana, Cigna, etc.). You can only enroll in a Part D prescription drug plan, either Stand Alone Prescription Drug Plan (PDP) or a drug plan bundled with a Medicare Advantage plan (MAPD) during “specific enrollment periods”. Here are the 3 enrollment periods for Part D drug plans: Initial Enrollment Period (IEP) – 7 month window around your 65th birthday, Fall Annual Enrollment Period (Oct. 15 – Dec. 7), or a Special Enrollment Period (special circumstance – i.e. you moved out of the plan’s area). If you don’t enroll in a Part D Prescription Drug plan when you first become Medicare eligible during your IEP, (perhaps you delayed Part D enrollment because you were still working past 65 and getting employer health insurance with drug coverage), later after you retire and go to get a prescription drug plan, you will need to show proof that the drug coverage you had with your employer (while you delayed Part D enrollment) was “creditable” coverage, or you may be charged a Part D Late Enrollment Penalty, that will stay with you for the rest of your life.

** COMMON TERMS **

Premium: the amount you pay for your Medicare plan each month in addition to your Medicare Part B premium.

Deductible: The amount you must satisfy before any insurance plan begins to pay. Most deductibles are one-time calendar year deductibles that reset on January 1st.

Copayment (aka Copay): This is generally a small “fixed dollar amount” that you may pay (depending on your plan) on each visit to the doctor or hospital. Example: $20 office copay for a doctor’s visit.

Co-insurance: This is the amount your plan says is your share for certain medical expenses – it is usually expressed as a “percentage”. Example: You may have a 80/20 co-insurance on a certain procedure. That means the plan will pay 80% and you will pay 20%. If the bill was $100, your plan would pay $80 and you would be responsible for $20.

Excess Charge: The difference between what a healthcare provider is permitted to charge and the Medicare-approved amount. (The excess charge a provider is allowed to charge is up to 15% more than the Medicare-approved amount).

Underwriting: This is when the insurance company can ask you health questions on the plan application to determine if you qualify for an insurance policy.

* Exception to Medigap underwriting is when you receive a Special Enrollment Period (SEP) for a special circumstance. (Click HERE for more information on Special Enrollment Periods)

Below are the main enrollment periods for all types of enrollments:

Initial Enrollment Period (IEP) – 7 month period around your 65th birthday (4th month being your birthday month). This refers to the opportunity to “first sign up” for Original Medicare Part A and Part B when turning 65, as well as the initial period to sign up for a Medicare Advantage plan and/or sign up for a Part D Prescription Drug Plan, if you choose. (For more information on IEP, please click HERE).

General Enrollment Period (GEP) – January 1st to March 31st each year, if you missed your deadline to enroll in Medicare Part A and/or Part B during your IEP. Under the General Enrollment Period (GEP), your Medicare enrollment will not be effective until July 1st of the same year. **IMPORTANT** Having to wait for a Part B effective date of July 1st not only may cause you to have a gap in health coverage, but it will also affect how soon you can add other insurance products like a Medicare Supplement (Medigap) or Medicare Advantage plan. Both of these products are sold by private insurance companies and can only be offered AFTER you have a Medicare Part B effective date.

** JUST AS IMPORTANT ** and VERY understated! – The Part B Late Enrollment Penalty. It’s important to know when the “clock starts ticking” and counting the number of months that you didn’t have Part B when you should have. Social Security officials explain that the penalty clock starts ticking at the beginning of the month after your 7-month Initial Enrollment Period (IEP) expires, and shuts off on the final day (March 31) of the annual General Enrollment Period (GEP) in which you sign up for Part B. (Medicare doesn’t impose a penalty until you have gone 12 full months without Part B coverage. The penalty is 10% for “every full 12 months” of no coverage. Examples: 10 months would be no penalty, 13 months would be 10% penalty, 25 months would be 20% penalty, 36 months would be 30% penalty, etc.

Example:
Birthday May 15
IEP period: February 1 – August 31st (7-month period)
You fail to enroll in Part B by the end of your IEP (August 31st)
The next time you can sign up is during the next GEP (January 1 – March 31st)
You sign up in February (of the first available GEP).
The penalty clock started ticking from September 1 through March 31 = 7 months, which mean NO penalty.
NOTE: The effective date of Part B coverage is not until July 1st, however, effective date is not relevant when calculating late enrollment penalty. The ticking penalty clock starts the month after your IEP ends and doesn’t stop until the end of the GEP you sign up during.

*NOTE: Depending on your situation, it may be perfectly acceptable to delay Part B after your IEP and get a Special Enrollment Period (SEP) to enroll later (without a penalty) as long as you meet certain conditions like having creditable health insurance during the time you delayed Part B. Click HERE for more information on delaying Part B without a penalty.

Special Enrollment Period (SEP) – This is when you may qualify for a Special Enrollment opportunity due to a circumstance where you involuntarily lost your health or prescription drug coverage. (Example: you moved out of the plan’s area).

Annual Enrollment Period (AEP) – Every fall from October 15th through December 7th, when you can switch from Original Medicare to a Medicare Advantage, switch from Medicare Advantage back to Original Medicare, switch from one Medicare Advantage plan to another Medicare Advantage plan, switch from a Medicare Advantage plan that includes prescription drug coverage to one that does not, switch from a Medicare Advantage plan that doesn’t include prescription drug coverage to one that does, join, switch, or drop a Part D prescription drug plan. For more information on Medicare Advantage and Drug Plan Enrollment periods, please click HERE.

Medicare Advantage Open Enrollment Period (MA-OEP) – This period takes place every year from January 1st through March 31st. It allows individuals enrolled in a Medicare Advantage plan to make a one-time election to go to either another Medicare Advantage plan or Original Medicare. In either case, your new coverage will start on the first day of the month following the month you make a change. **IMPORTANT** If you leave Medicare Advantage to go to Original Medicare because you want to get a Medigap plan, you will most likely need to “medically health qualify” for the Medigap plan. Make sure you can qualify for the Medigap plan BEFORE you leave your Medicare Advantage plan.

Click HERE to estimate your Medicare eligibility and monthly premium

Click HERE for a great document on Medicare from SSA.gov.

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