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All your options — simplified and organized
Medicare is a cornerstone of all US retirement plans. Simply put, it is your primary source of health care insurance from age 65 until your death. For many, the program can be complicated and hard to understand, and if you don’t follow the rules and enrollment dates promptly and accurately, you may pay for it for the rest of your life.
This article is a primer on the Medicare program and explains your options in a way that’s easy to understand. It’s essential to your future and you need to know how it works long before you turn 65.
What is Medicare?
Medicare is a sister of Social Security and Medicaid. It launched with President Dwight D. Eisenhower’s signature in 1956 with the noble directive to provide health insurance for members of the armed forces and their families. President Johnson expanded its scope in 1965 to cover all people age 65 and older, regardless of income and medical history. Just one year later, the program made a historical contribution to racial integration by making payments conditional on hospital and physician compliance with desegregation.
Since then, Medicare has undergone multiple changes. Those changes have expanded the scope of benefits and covered services, and at the same time increased complexity and confusion.
Medicare, Medicaid, and Social Security
Medicare, Medicaid, and Social Security are the three legs of the US government’s social support platform. You can read more about the Social Security leg here and the Medicaid leg here. Medicare and Medicaid are often confused with each other because they both provide healthcare insurance, share similar names, and have overlapping services. They are distinctly different services, but it is possible to have simultaneous coverage from both programs.
The following chart summarizes some of the key differences between the programs:
Initial Enrollment
Unless you or your spouse are actively working and have group health insurance from your employer, you must sign up for Medicare at age 65. There is a 7-month initial enrollment window from 3 months prior to your birthday month until 3 months after your birthday month.
If you’re already taking Social Security benefits, you will usually be automatically enrolled in Medicare Part A & B on the first day of the month you turn 65. Medicare Part B is technically optional, but most people elect to accept it.
You can also sign up for Part C and/or Part D during this initial enrollment period.
Warning: You may be subject to penalties if you miss your signup date.
It is your responsibility to make sure you’re enrolled during your signup window, regardless of your employment status, notifications, or circumstances. If you don’t sign up on time, lifelong penalties may apply. Go to www.medicare.gov to sign up. You can find further details here.
Like most healthcare services, there is an annual enrollment period where you can make changes to your Medicare, supplements, or private insurance choices and coverage.
Medicare program structure
Medicare is a family of policies (called ‘Parts’) that provide coverage for specific services. Part A is required and all others are optional.
Part A covers about 80% of all hospital costs, but only about 50% of an average person’s total healthcare costs. Almost everyone buys additional private or public coverage.
Part A: Hospital insurance
- Mandatory
- Covers inpatient hospital stays, rehabilitation, convalescence (limited), and hospice
- Premiums: None if you’ve paid Medicare taxes while working for at least 10 years
- Other charges: Deductibles and copays
Part B: Medical insurance
- Optional
- Covers outpatient services such as physician care, preventive services, tests, and equipment (wheelchairs, canes, scooters, prosthetics)
- Premiums: About $150 a month, more for higher incomes
- Other charges: Deductibles and copays
Part C — Medicare Advantage plans
- Optional
- Selecting one of these plans will effectively replace Parts A, B, and D and add coverage for vision, dental, and hearing. They are similar to an HMO or PPO, run by independent companies, and approved by Medicare. They vary by service coverage and costs and add annual out-of-pocket spend limits which Medicare doesn’t have.
- You must enroll in Parts A and B before signing up for Part C
- Premiums, deductibles, and copays depend upon the coverage selected
Part D — Prescription drug coverage
- Optional
- Covers prescription drugs that are administered by yourself (not in clinics and hospitals)
- Premiums: About $30 a month, more for higher incomes
- Other charges: Deductibles and copays
Medicare supplemental plans (aka “Medigap”)
Medigap supplemental plans are available through private insurers and provide coverage for the expense ‘gaps’ that Medicare coverage has — most notably the out-of-pocket costs that can be significant with Medicare Parts A and B.
They differ from Part C in that they’re not stand-alone medical policies. They only cover some or all of the out-of-pocket costs that Medicare doesn’t cover.
There are 10 standard supplement plans available through private health care insurers. These insurers are required to offer equivalent coverage for plans with the same name. Thus, “Plan K” coverage will be virtually the same regardless of which company you buy it from. Premiums and other costs may vary by company and location.
Be sure to sign up within 5 months of your 65th birthday because during that time insurers are required to accept you regardless of any medical conditions.
Wrap-up:
To summarize, you have three main choices.
- Basic Medicare, with Part A, B, and/or D. Those provide good coverage at a low cost. Downsides are high deductibles and copayments, as well a no out-of-pocket limits.
- Medicare Advantage (Part C) is a good alternative that provides you with broader coverage (such as vision and dental), lower deductibles and copays, and limits to your total out-of-pocket costs. Premiums are much higher, however, as you would expect.
- Medicare supplemental plans are often added to the basic medicare package to reduce deductibles and copays and add an annual limit to one’s out-of-pocket costs. These programs, however, don’t offer much in the way of expanded benefits (vision and dental).
The devil is in the details. Medicare has done an admirable job of standardizing coverage, but plans vary and you need to find the options that are best for your health profile and projected medical needs. Spend the time, do the research, and talk to them at 1–800-MEDICARE (1-800-633-4227)— they’ll be happy to help.
Additional resources:
- Centers for Medicare and Medicaid Services (CMS.gov)
- Health and Human Services: (hhs.gov)
- To sign up, go to medicare.gov
A final piece of advice:
Not all providers accept Medicare, and many who do will limit the number of patients. It’s a great idea to get established with a Medicare-friendly provider before you turn 65, so you’re “grandfathered” in (pun intended). Look for an internist who specializes in caring for mature patients.