What is Medicare? Understanding your options

Enrolling at the right time, as well as reviewing your plan annually, can save you substantial money and give you the best coverage.

Tags: Healthcare, Insurance, Planning, Be prepared
Published: June 18, 2020

What is Medicare?

Medicare is a federal health insurance program, primarily for people who are 65 years and older. It has four parts, plus some alternatives, each of which has a different purpose:

  • Medicare Part A: Covers hospital stays, care in a skilled nursing facility, hospice care and some home health.
  • Medicare Part B: Covers certain doctors’ services, outpatient care, medical supplies and preventive services.
  • Medigap: Supplemental coverage for Parts A and B provided by private insurers that in most cases eliminates all copayments, coinsurance and deductibles.
  • Medicare Part C (also known as Medicare Advantage): Supplemental coverage provided by private insurers that often reduces copayments and coinsurance and may include dental, vision and prescription coverage. 
  • Medicare Part D: Supplemental plans for Parts A and B that cover prescription drugs costs.

 

Medicare Part A and B: enrolling basics

All Medicare policies are individual, so you and your spouse will sign up separately.

Medicare Part A and B are often referred to as “Traditional” or “Original” Medicare. For most seniors and situations, the cost is standardized:

  • Part A is free, as long as you have paid Medicare taxes for at least 40 quarters (or about 10 years)
  • Part B is $144.60 or higher per month, depending on your income

You need to enroll in both Part A and Part B in order to have access to other Medicare options, such as Part D and Medicare Supplement Insurance (Medigap).

 

Medicare Part A and B: eligibility and timing basics

You’re eligible to enroll in Medicare during a seven-month window:

  • Three months before your 65th birthday month
  • Your 65th birthday month
  • Three months after your 65th birthday month

If you’re enrolled in Social Security before age 65, you’ll be enrolled in Parts A and B automatically.

Late enrollment incurs penalties and permanently higher premiums.

If you’re still working, you have the option to enroll as you turn 65, and you’ll also have another eight-month enrollment window after you stop working.

 

Medicare C or Medigap: what are the differences? 

You can’t purchase both Medicare Part C and Medigap. You’ll need to choose the option that best fits your needs. Here’s how they compare:

Medicare C (aka Medicare Advantage)

  • Lower premiums
  • Higher out-of-pocket costs that vary by plan; each plan has an out-of-pocket maximum
  • HMO or PPO option: possible limited in-network doctor selection or out-of-network rules
  • Referral to see specialist often required
  • Usually only local or regional coverage
  • Usually includes Medicare Part D as part of the premium
  • Some include extra coverage for vision, dental and hearing aids
  • Rule of thumb: Those who seldom see the doctor often opt for the lower premiums of Medicare Part C

Medigap (aka Medicare Supplement Insurance)

  • Higher premiums (can be up to 2 or 3 times that of Medicare C)
  • Usually $0 on out-of-pocket costs
  • Accepted everywhere that accepts Medicare
  • Usually referrals are not required to see a specialist
  • Generally accepted in every state or U.S. territory and some plans may be accepted internationally when traveling
  • Medicare Part D must be purchased separately
  • Coverage for extras must be added through additional plans
  • Rule of thumb: Those who need frequent medical care often choose Medigap to keep their total medical costs flat

If you sign up for Medicare Part C, review your coverage annually

Coverage, benefits and costs of Medicare Part C plans change each year. Reviewing your plan could save you money, help you find a better coverage fit — or both.

When enrolled in Medigap, it may not be advantageous to switch plans

During the initial enrollment period for Medigap, you’ll receive guaranteed issue:

  • One standard rate regardless of your health status
  • No denial of coverage based on your health status

In most instances, if you later switch, you’ll no longer receive this protection, meaning that changing Medigap plans could cost you money.

 

Medicare D

Medicare Part A and Part B do not provide coverage for prescription drugs. To add coverage, many people join a prescription drug plan (PDP) or enroll in a Medicare Part C plan that includes Part D (MA-PD). 

  • Medicare Part D charges a late enrollment penalty if you don’t sign up when you’re first eligible.
  • PDPs add coverage for prescription drugs to Medicare. However, separate plans cover separate drugs. Review each plan carefully to select the right coverage.
  • Premiums, copayments and coinsurance for prescription drug plans differ based on factors like your drugs or your provider network. Review your options carefully to find the best option.

 

Factoring in healthcare costs is only one part of your retirement plan. Read more in this retirement planning checklist