The Definitive Guide to Understanding Medicare

Any great relationship starts with a conversation, so let’s start there.

Enrolling into medicare is a time of life that we all must face sooner or later. This is a complex topic and should be taken seriously. However, if you’re not that type of person to read past this first paragraph, you should contact us and one of our professional and licensed insurance agents can assist you in getting on the right policy and help you understand the important parts affecting you.

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Table of Contents

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History of Medicare

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How & When to Enroll into Medicare

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Various Parts of Medicare

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Part A

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Part B

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Part C

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Part D

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Which Plan is Best for you?

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Medicare Advantage

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Medicare Supplement (aka medigap)

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Standalone Prescription Drug Plan (PDP)

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Election Periods (AEP, IEP, OEP, SEP)

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Medicare Extra Help (aka Low Income Subsidy)

History of Medicare

Medicare was established in 1965 during the passage of the Social Security Acts. Along with the creation of Medicare, was another supplemental insurance called Medicaid. Both Medicaid and Medicare were passed with the intention of becoming supplemental health plans for Americans.

Why do you need to know that? Well because, this course is on Medicare, which is supplemental health insurance covering seniors. And while sometimes people can have both Medicare & Medicaid, we won’t cover ‘how to apply for Medicaid’ in this course.

Medicaid for those of you viewing, is health insurance to supplement low-income individuals in America.

If you have Medicaid & Medicare, there are special plans available to you, which are not available to other Medicare beneficiaries.

Medicare has evolved over time to include prescription coverage, which surprisingly was not included in the original passage of Medicare.

As you know, a lot has changed since 1965, even the way we use healthcare. So, Medicare continues to evolve and include new guidelines that may not have been relevant in the previous year, let alone in 1965.

How & When to Enroll

When you begin approaching your 65th birthday, you’ll know that you qualify for Medicare simply because you’ll start to receive stacks and stacks of mail. Most of this mail will consist of fear-based marketing tactics or include conflicting messages about which plan would be best for you.

Generally, if you’re turning age 65, your Initial Election Period begins three months prior to your birth month and extends three months past.

For example, if you were born, April 17th, you would be able to enroll in Medicare as early as January 1st and as late as July 31st.

Let’s say you enrolled January 1st, well your Medicare benefit will not begin until the first day of your birth month, which in this example would be April 1st.

Now just because you can enroll, doesn’t mean you should. What do I mean by that?

Here are a few scenarios in which you may decide to delay your enrollment.

1. Your employer offers a Health Savings Account and also contributes an amount of money to it. Medicare guidelines state that if you enroll in Medicare, you are no longer able to contribute toward your HSA.

2. Let’s say that you work and your spouse stays at home. You are both covered by your employer plan. If you elect Medicare and drop your employer plan…well, your spouse will lose their coverage. So, you may elect to take Part A but withhold on Part B until you are both eligible for Medicare. Then drop your employer’s medical plan at that point.

3. Another example may be, if you are one of the few lucky people to have an incredibly rich and inexpensive employer medical plan, you will want to examine the cost and benefits of your employer’s health plan, and then compare it to Medicare to see if you may be better off financially to go to Medicare.

Timing your enrollment is extremely important because you do not want to have a gap in your coverage, and you also do not want to have a penalty for enrolling late. Yes, you can be penalized for enrolling in Medicare late. But that’s a whole other topic to discuss.

Automatic Enrollment

Some of you may not have to worry about applying for Medicare because it’ll be done for you.

There are a few cases in which you would be automatically enrolled in Medicare Parts A & B:

  1. If you opted to take your Social Security benefits before age 65
  2. If you have ALS (also called Lou Gehrig’s disease), you automatically get Part A and Part B the month your disability benefits begin.
  3. If you have End-Stage Renal Disease, different rules apply.

What is Medicare Part A?

Original Medicare consists of two parts: Medicare Part A (hospital insurance) and Medicare Part B (medical insurance). Medicare Part A covers Medicare inpatient care, including care received while in a hospital, a skilled nursing facility, and, in limited circumstances, at home.

Most people are automatically eligible for Medicare Part A at age 65 if they’re already collecting retirement benefits from the Social Security Administration or the Railroad Retirement Board. You may qualify for Medicare Part A before 65 if you have a disability, end-stage renal disease (ESRD), or amyotrophic lateral sclerosis (ALS). You must be either a United States citizen or a legal permanent resident of at least five continuous years.

Medicare Part A Coverage

In general, Part A covers:

  • Hospital care
  • Skilled nursing facility care
  • Nursing home care (as long as custodial care isn’t the only care you need)
  • Hospice
  • Home health services

It is important to note that Part A does NOT cover Long Term Care. We recommend that people who also want Long Term Care (LTC) coverage, research the various types of policies, which are separate from Medicare.

MEDICARE PART A ELIGIBILITY
You are eligible for Medicare Part A if:

  • You are age 65 or older and a U.S. citizen or permanent legal resident of at least five years in a row
  • You are already receiving retirement benefits
  • You are disabled and receiving disability benefits
  • You have end-stage renal disease (ESRD)
  • You have amyotrophic lateral sclerosis (Lou Gehrig’s disease or ALS)

Most beneficiaries do not pay a premium for Medicare Part A if they have worked at least 10 years (or 40 quarters) and paid Medicare taxes during that time. Individuals who aren’t eligible for premium-free Medicare Part A can still enroll in Part A and pay a premium. Beneficiaries who delay enrollment after they first become eligible for Medicare Part A may be subject to a late enrollment penalty once they sign up.

What is Medicare Part B?

Original Medicare consists of two parts: Medicare Part A (hospital insurance) and Medicare Part B (medical insurance). Medicare Part A covers Medicare inpatient care, including care received while in a hospital, a skilled nursing facility, and, in limited circumstances, at home.

Most people are automatically eligible for Medicare Part A at age 65 if they’re already collecting retirement benefits from the Social Security Administration or the Railroad Retirement Board. You may qualify for Medicare Part A before 65 if you have a disability, end-stage renal disease (ESRD), or amyotrophic lateral sclerosis (ALS). You must be either a United States citizen or a legal permanent resident of at least five continuous years.

What does Medicare Part B cover?

Medicare Part B helps pay for many common types of health care:

  • Doctors’ services.
  • Durable medical equipment (DME) if your doctor certifies you need it and you buy or rent it from a Medicare-certified supplier.
  • Ambulance services if your health requires ambulance transport and you are traveling to or from certain locations.
  • Many preventive care services.
  • Outpatient physical, speech, and occupational therapy services provided by a Medicare-certified physical, speech, or occupational therapist.
  • Chiropractic care when manipulation of the spine is medically necessary to fix a subluxation of the spine. A subluxation is when one or more of the bones of the spine move out of position.
  • Outpatient mental health services.
  • Home health services if you need skilled nursing or therapy services.
  • X-rays and lab tests.
  • Select prescription drugs, such as immunosuppressant drugs, some anti-cancer drugs, some anti-emetic drugs, some dialysis drugs, and physician-administered drugs that persons do not usually administer themselves.

It is important to note that Medicare does not cover all health care services.

Medicare Part B Eligibility

In general, you are eligible for Medicare Part B if:

  • You are age 65 or older and a U.S. citizen or permanent legal resident of at least five years in a row
  • You are already receiving retirement benefits
  • You are disabled and receiving disability benefits
  • You have end-stage renal disease (ESRD)
  • You have amyotrophic lateral sclerosis (Lou Gehrig’s disease or ALS)

Most beneficiaries pay a premium for Medicare Part B if they have worked at least 10 years (or 40 quarters) and paid Medicare taxes during that time. Beneficiaries who delay enrollment after they first become eligible for Medicare Part B may be subject to a late enrollment penalty once they sign up.

Medicare Part B Premium

One reason someone may hold off on not taking Part B initially is because of the monthly cost associated in accepting coverage. If someone is enrolled in employer group health coverage, it may not make sense to also pay a monthly premium to take Part B.

The premium is determined by what income you or your household receives. The more taxable income you receive, the more you will pay. In 2020 the monthly premium most people will pay is $144.60/month.

If you believe that you’re paying too much for Part B, check out this article to learn how to appeal your Part B premium.

What is Part D?

Prescription Drug Plans (PDPs) are offered by private insurance companies approved by Medicare. Your choices will vary depending on where you live.

You can get drug coverage with a standalone Part D plan or as part of a Medicare Advantage plan (Part C).

In order to enroll in a Part D plan, Medicare beneficiaries must be enrolled in Part B.

Two Ways to Get Part D

Option 1: You can get Medicare Part D coverage through a stand-alone Medicare Prescription Drug Plan if you’re enrolled in Original Medicare.

Option 2: If you’re enrolled in a Medicare Advantage plan, you can get this coverage through a plan that includes drug benefits, also known as a Medicare Advantage Prescription Drug Plan (MAPD).

Formularies & Drug Coverage

Every Medicare Prescription Drug Plan has a formulary — that is, a list of covered drugs. The formularies vary among plans.

Late Enrollment Penalty (LEP)

Medicare Part D coverage is optional, but if you don’t enroll in Part D as soon as you’re eligible, you might pay a late-enrollment penalty if you enroll later. You can use this calculator to estimate your Late Enrollment Penalty.

The cost of the late enrollment penalty depends on how long you went without Part D or creditable prescription drug coverage.

Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($30 in 2020) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.

The national base beneficiary premium may increase each year, so your penalty amount may also increase each year.

Goverage Gap

The coverage gap, commonly referred to ask “The Donut Hole” has several phases. The coverage gap is a temporary limit on what most Part D Prescription Drug Plans or Medicare Advantage Prescription Drug plans pay for prescription drug costs. While you’re in the coverage gap, you might pay higher costs for brand-name and generic drugs. Below we’ve described each phase:

Deductible phase: For most stand-alone Medicare Prescription Drug Plans and Medicare Advantage Prescription Drug plans, you’ll pay 100% for medication costs until you reach the yearly deductible amount (if your plan has one). The standard deductible for 2020 is $435.

Initial coverage phase: After you’ve reached the deductible, you’ll enter the initial coverage phase, where you will pay the plan’s cost share for covered medications. For example, if your plan benefit includes a 25% coinsurance in this phase and you’re taking a medication that costs $400 a month, your out-of-pocket-cost would be approximately $100 a month.

Coverage gap, also known as the “donut hole”: begins if you and your plan spend a combined $4,020 in 2020 as described above. While in the coverage gap, you’ll pay 25% of the plan’s cost for brand-name drugs and generic drugs. You’re out of the coverage gap once your yearly out-of-pocket drug costs reach $6,350 in 2020.

Catastrophic coverage phase: Begins if your out-of-pocket costs reach$6,350 in 2020. During the catastrophic coverage phase, you’ll only pay a small coinsurance or copayment for covered prescription drugs for the remainder of the year.

Election Periods

(Initial, Annual, Open, and Special Election Periods)

Initial Election Period

Earlier we discussed the initial election period. As a recap, it is basically the seven months surrounding your birthday month at your 65th birthday.

initial enrollment period calendar

Annual Election Period

Once you’re on Medicare, if you’d like to make plan changes, you can do so during the ‘annual enrollment period’, which takes place from October 15th through December 7th.

Any changes made during this period will go into effect January 1st.

Special Election Period

In addition to your initial and your annual election periods, you also have the right to an election period outside of these, called a ‘special election period’.

In order to use one of these, you will need to experience a ‘qualifying event’.

An example of a qualifying event could be one of the following:

  • You’re moving outside your current Medicare plan’s service area.
  • You’re moving within your current plan’s service area, but you have new plan options.
  • You’re moving into or out of an institution.
  • You’re leaving retiree, union or COBRA coverage.
  • You’re losing creditable drug coverage.
  • Your current Medicare plan stops servicing your area.

With these mentioned qualifying events, you generally have two months to elect coverage.

One exception that I will mention here that may affect some people, is that if you are on COBRA, and you are also eligible for Part A & B, you will need to elect both Parts. Medicare at this point will become primary to your COBRA insurance. It may be important that you keep COBRA so that your spouse and/or dependents keep their coverage.

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