Maybe you’re getting close to 65 yourself or simply want to understand how Medicare works, so that you can help a family member or friend. Some people who sign up for Medicare are retired; others are still working. Wherever you fit, you become eligible for Medicare when you reach 65 and, in most cases, have to enroll. Currently, more than 47.5 million people are enrolled.
Medicare is the United States’ national health insurance program for citizens and some permanent legal residents. Generally, you qualify for Medicare when you turn 65, based on your employment record or that of your spouse. People under 65 with qualifying disabilities are also covered by Medicare; if you have a child with serious health issues who is about to turn 18, it is important to check whether he or she should register for Medicare (under the Affordable Care Act, you can also cover your child under your own policy until age 26).
Medicare has evolved over the years and now has four parts. Some are mandatory for all enrollees; others are optional.
Part A: Hospital Insurance
Part A covers the costs of being in a medical facility. When you enroll in Medicare, you receive Part A automatically. For most people, there is no cost to receive Part A.
Services covered under part A include inpatient care in hospitals and skilled nursing facilities, hospice care, home healthcare services and inpatient care in a religious nonmedical healthcare institution – a facility that provides medical services that align with certain religious beliefs.
This sounds straightforward, but it's not. For example, in-home hospice care is covered, but Part A doesn’t cover a patient’s stay in a hospice facility. Additionally, if you’re hospitalized, your Part A deductible is $1,216, as of 2014.
If you stay for more than 60 days, you have to pay a portion of each day’s expenses. If you’re admitted to the hospital multiple times during the year you may have to pay that $1,216 deductible each time.
After spending 60 days in the hospital, you must pay $304 per day in out-of-pocket costs; this increases to $608 per day after 90 days. Once coverage runs out, you will have to pay the full cost of the remainder of your hospital stay.
Part B: Doctors, Tests, Etc.
Part B covers anything done to you: doctor visits, tests, medical equipment and home healthcare are covered. Other examples of covered care include ambulance services, outpatient procedures, the purchase of blood, mammograms, cardiac rehab and cancer treatments.
You’re required to enroll in Part B if you don’t have “credible coverage” from another source – an employer or spouse, for example.
With Part B, you pay a monthly premium. If you don’t enroll and you don’t have credible coverage, you may have to pay a penalty. According to Medicare.gov, most people will pay $104.90 per month for Part B coverage and have a $147 deductible. Once you receive Social Security, the premium is deducted from your Social Security check.
Once you meet your deductible, you pay 20% of the Medicare-approved cost of the service, provided your healthcare provider accepts Medicare assignment.
But beware – there is no cap on your 20% out-of-pocket expense. If your medical bills for a certain year were $100,000, you would be responsible for $20,000 of those charges, plus charges incurred under the Part A and D umbrellas. There is no lifetime maximum.
On the other hand, you pay nothing for most preventive services, such as diabetes screenings and flu shots, if you receive those services from a healthcare provider who accepts Medicare payments.
What Parts A and B DON’T Cover
The largest and most important item that traditional Medicare doesn’t cover is long-term care. If you are diagnosed with a chronic condition that requires ongoing personal-care assistance, the kind that requires an assisted-living facility, Medicare will cover none of the cost. This includes help with everyday activities, such as bathing and dressing.
According to medicare.gov, at least 70% of people over 65 will need long-term care at some point. Consider long-term care insurance for this expense.
Other uncovered items include routine dental or eye care, dentures, cosmetic surgery, acupuncture and hearing aids.
Part C: Medicare Advantage
Also known as Medicare Advantage, Part C is an alternative to traditional Medicare coverage. Coverage normally includes all of Parts A and B, a prescription drug plan (Part D) and possibly other benefits. Part C is administered by private insurance companies that collect your Medicare payment from the federal government.
Depending on the plan, you may or may not need to pay an additional premium for Part C. You don’t have to enroll in an advantage plan – and they have limitations, such as possibly not covering healthcare if you're away from your home region – but for many people these plans can be a better deal than paying separately for Parts A, B and D. If you've been pleased by the coverage of an HMO, you might find these similar.
Part D: Prescription Drugs
Prescription drug coverage, known as Part D, is also administered by private insurance companies. Part D is required unless you have a prescription drug plan from another source, including a Medicare Advantage plan. The monthly premium depends on your income. You may pay no premium or up to $69.30 per month, as of 2014.
Depending on your plan, you may have to meet a yearly deductible before your plan begins covering your eligible drug costs.
Medicare plans have a coverage gap – a temporary limit on what the drug plan will cover. Often called the doughnut hole, this gap kicks in after you and your plan have spent $2,850 in combined costs, and it doesn’t close until you’ve spent $4,550 out-of-pocket. Once you have paid more than $4,550, you enter catastrophic coverage, under which you will pay a small co-payment for your prescription drugs.
While in the doughnut hole, however, you will be charged 47.5% of the cost of covered brand-name drugs and 72% of generics.
Each state has insurance options that will close the coverage gap, but these require paying an additional premium.
Medigap and Medicare Advantage
People who only have traditional Medicare – Parts A, B, and D – may incur sizable bills not covered by Medicare. To close these gaps, most recipients enroll in some form of Medigap insurance or in a Medicare Advantage plan (see Part C, above). One important thing to know about Medigap: It only supplements Medicare; it's not a stand-alone policy. If your doctor doesn't take Medicare, Medigap insurance will not pay for the procedure.
Medigap coverage is standardized by Medicare, but offered by private insurance companies. Learn more about Medigap coverage at medicare.gov. And see Medigap Vs. Medicare Advantage: Which One is Better? for more on both options.
The Bottom Line
Traditional Medicare coverage, defined as parts A, B and D, kicks in at age 65 – sooner, in the case of certain disabilities. Once you reach 65, you’re required to have health insurance coverage through Medicare or another insurance plan.
To learn more about how each of the four parts work, read “Medicare & You,” the official Medicare publication that explains the plan in further detail. Download or request a copy of the publication at medicare.gov.
RetirementShould seniors opt for the flexibility of Medicare or the often broader coverage or lower cost of Medicare Advantage programs through a private insurer? Consider the following.
Options & FuturesHaving trouble sorting through your prescription drug coverage options? We offer some solutions to the confusing process of selecting the right Medicare Part D coverage for you.
Options & FuturesOne program is for the poor; the other is for the elderly. Learn which is which.
InsuranceDon't assume you're insured. Find out what you can expect from this healthcare program.
InsuranceBasic Medicare is not a perfect fit for everyone - sometimes, extra policies are required to suit a person's needs.
RetirementThe best cruise lines plan everything for you – the food, the entertainment and the itinerary. But pick a line with a compatible program and people.
RetirementFor retirees on a budget, there are affordable timeshares located in charming towns that don't cost a fortune for vacation time.
RetirementLearn about some of Asheville, North Carolina's best retirement communities and discover why the area is such a popular retirement destination.
RetirementUnderstand how annuities work, and identify the benefits they provide for retirement, the most salient being a guaranteed income stream for life.
RetirementFind out how much monthly income you need to retire comfortably in Belize, a subtropical paradise with jungle landscapes, white beaches and crystal blue water.
Long-term care refers to a variety of care services (medical and non-medical) that helps meet the needs of people who have ... Read Full Answer >>
You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>