Breaking Down the Basics
Medicare is a federal health insurance program for individuals age 65 and older. It also covers people younger than 65 with certain disabilities and individuals of all ages with end-stage renal failure or permanent kidney failure. It has four different parts: A, B, C and D. (Parts A and B make up what is called “original” Medicare.)
Medicare Part A
Part A covers hospital expenses, including inpatient care, skilled nursing, blood transfusions (after the first three pints), home health and hospice care. Part A’s inpatient services benefit period deductible is $1,364 for 2019. After the deductible is met, Medicare will cover:
- 100% for the first 60 days
- All but $341 / day for days 61 – 90
- All but $682 / day for days 91 – 150
- $0 for days 151 and beyond
To receive skilled nursing care benefits, a patient must:
- Spend at least three days in the hospital;
- Enter a skilled nursing facility within 30 days of hospital departure; and
- Require skilled nursing care seven days a week or skilled therapy services five days a week
After these requirements are met, Medicare pays:
- 100% for days 1 – 20
- All but $170.50 for days 21 – 100
- $0 after 100 days
Part A also covers 100% of hospice care for eligible patients, but there may be a small copay for prescription medications and products for pain relief / symptom control while at home. In rare cases when a medication isn’t covered, the patient’s Medicare drug plan may provide coverage. Patients may also need to pay 5% of the Medicare-approved inpatient respite care. Medicare does not cover room and board costs when hospice is received at home or another facility where the patient lives (i.e., a nursing home).
Part A is premium-free if an individual (or their spouse) has worked at least 10 years (40 quarters) and has paid Medicare tax. This tax is typically 2.9% and is shared between the employer and employee.
Medicare Part B
Part B is health insurance. It covers inpatient and outpatient doctor services, preventive services, surgical services and supplies, lab tests, durable medical equipment and more. The 2019 deductible is $185. After that is met, Medicare will cover:
- 80% of eligible covered charges
- 100% of covered clinical laboratory services
- Varying amounts for covered preventive services
- $0 for any charges in excess of the Medicare-approved amount
Part B has a monthly premium based on a two-year lookback of adjusted gross income (see chart). Premiums can be deducted from Social Security checks or paid directly by personal check or credit card.
Medicare Part C
Fully understanding Medicare Parts A and B is helpful when considering Part C coverage. These plans are referred to as Medicare Advantage plans and are offered by Medicare-approved private insurance companies. They provide the same coverage as Parts A and B, as well as additional benefits including vision, dental, hearing and prescription drug. Once enrolled, participants are removed from original Medicare. Advantage plans come with network restrictions, copays, coinsurance and annual maximum out-of-pocket expenses of up to $6,700. Advantage plans can be attractive due to low (sometimes $0) monthly premiums. However, those who enroll in Medicare Advantage plans must still pay Part B premiums.
Medicare Part D
Part D (Prescription Drug Plans) are also offered by private insurance companies. They are approved by and under contract with Medicare. Plan costs vary depending on:
- The drugs used
- The plan chosen
- The pharmacy in a plan’s network
- Whether the drugs used are on a plan’s formulary
- Whether Extra Help (federal assistance) is used to pay for Medicare Part D costs
Consumers should review the drug plans available in their areas and consider total potential spending before deciding on one.
How to Enroll in Medicare
Individuals are automatically enrolled in Part A when they turn 65 and receive Social Security benefits. Any 65-year-olds who do not take Social Security need to sign up for Part A by contacting their local Social Security office or by visiting www.ssa.gov. It is okay to enroll in Part A and remain on an employer group health plan (GHP), but the size of the group matters. Generally, Medicare is the primary payer for groups with less than 20 employees and the secondary payer for groups with 20 or more.
Enrolling in Part B is similar to Part A. Individuals are automatically enrolled in Part B when they turn 65 and receive Social Security benefits. Delaying enrollment in Part B is common because many continue to work past 65 and remain on a GHP until retirement. Medicare guidelines allow a “Special Enrollment Period” so that employees over 65 can come off “creditable” medical / drug coverage and enroll in Part B without a late enrollment penalty.
Medicare and Health Savings Accounts (HSAs)
A common misconception is that once a person turns 65 they can no longer participate in an HSA. However, if someone elects not to use Medicare, they can continue their HSA participation. Those who are active in any part of Medicare can’t contribute to an HSA, but they can use HSA funds to pay for Part B and Part D premiums, as well as other out-of-pocket medical expenses. Anyone who works past age 65, remains on a GHP and continues HSA contributions (employee and employer) must stop six months prior to leaving the GHP because Medicare Part A is retro-dated six months.
Medicare supplements, known as Medigap Policies, are created by Medicare and sold by private insurance companies. These plans are designed to fill in Medicare Part A and Part B gaps. Depending on the policy (there are currently 10), Medicare supplements will range in individual out-of-pocket expenses from $0 – $2,300 annually.
Know the Options
Understanding Medicare should be a top priority for anyone approaching age 65. Medicare does not mean retirement, nor does it mean Social Security benefits. It’s simply another coverage option. In an environment of rising deductibles, Medicare is often more favorable when compared to the premiums and out-of-pocket costs of a GHP. To better prepare for retiree healthcare decisions, contact our team of health benefit experts.
This article originally appeared in the 2018 | ISSUE THREE of the SilverLink magazine, under the title “Understanding Medicare | Preparing for Age 65” To receive a complimentary subscription to the SilverLink magazine, sign up here.