An Overview of Medicare Eligibility and Benefits

Medicare is a federal program that provides health care to senior citizens and people with qualifying disabilities. Legal U.S. residents who meet age and/or disability requirements may also be eligible. The program meets the needs of more than 56 million Americans. With an estimated 10,000 baby boomers turning 65 years old every day through 2030, the number of people on Medicare continues to grow.

Signed into law by President Lyndon Johnson in 1965, Medicare initially only had two parts. Referred to as Original Medicare, Part A and Part B covered basic hospital care and outpatient costs respectively. Since that time, the program has expanded to include more "parts" and, with that, more benefits. Understanding Medicare's parts and how they work together will help you to sign up for Medicare in a way that will optimize the care you receive.

Medicare Part A: Hospital Coverage

Hospital stays can get expensive. In 2011, the average hospital stay cost $12,600 for people between the ages of 65 and 84 years old. Thanks to Medicare, the government paid $11,900 toward those stays.

Part A is your hospital insurance. It pays towards hospital expenses, hospice care, skilled nursing facility stays, rehabilitation facility stays, and even certain home health care services. Do not assume this means everything will be paid in the long haul. Medicare has strict rules that limit how long it will cover these services, if at all.

Medicare Part B: Medical Coverage

The bulk of health care you receive will be in the outpatient setting, meaning out of the hospital. This could be at a clinician's office, a laboratory, a radiology facility or any number of locations. Even if a service is technically provided at a hospital, like getting an X-ray at a hospital's radiology department, Medicare does not consider it hospital care unless you are admitted as an inpatient.

Part B is your medical insurance. It covers a variety of medical services including doctor's visits, ambulance rides, cancer and other preventive screenings, diabetic supplies, durable medical equipment, imaging studies, laboratory tests, limited medications, vaccines, wellness visits, and more.

Medicare Part C: Medicare Advantage

Medicare Advantage, formerly known as Medicare+Choice, is an alternative to Original Medicare that was added to the program in 1997. You can either choose Original Medicare (Parts A and B) or Part C. The government does not allow you to have both.

Medicare Advantage plans are offered by private insurance companies that have signed contracts with the federal government. These plans agree to cover everything Original Medicare does but may also offer additional services.

In 2016, more than 18 million Americans chose Medicare Advantage plans over Original Medicare to make sure they had extended coverage for the services they needed. Medicare Advantage plans come at an added cost to beneficiaries who usually pay higher monthly premiums than they would on Original Medicare.

Medicare Part D: Prescription Drug Coverage

The U.S. Census Bureau reported the average American filled 12.2 prescriptions in 2013. That number increased to 27.8 prescriptions per year for those over 65 years old. It is easy to see how quickly prescription drug costs can add up.

Part D is prescription drug coverage that was signed into law in 2003 under President George W. Bush but took effect in 2006. Similar to Medicare Advantage, these plans are run by private insurance companies but must meet standard guidelines set forth by the federal government. Each plan will have a different medication formulary and each Medicare beneficiary must decide which plan best fits their needs. No one plan covers all medications.

Medicare Supplement Plans: Medigap

For those who want extra coverage, a Medicare Supplement Plan, also known as a Medigap plan, may be something to consider. These plans are not an official part of the Medicare program, though the Centers for Medicare and Medicaid Services (CMS) standardizes what they cover. Medigap plans are the same across all states with the exceptions of Massachusetts, Minnesota, and Wisconsin.

Medigap plans don't actually add extra benefits to your Medicare coverage. What they do is help pay down costs that Medicare leaves on the table, like deductibles, coinsurance, and copayments. They may even add coverage when you travel overseas. These plans are offered by private insurers and can only be used in conjunction with Original Medicare, not Medicare Advantage plans.

When to Enroll in Medicare

The Initial Enrollment Period (IEP) for Medicare begins three months before and ends three months after your 65th birthday. People on Social Security Disability Insurance (SSDI) become eligible for Medicare in the 25th month of SSDI benefits and are automatically enrolled into the program by Social Security. Some people may be eligible for special enrollment periods based on their employment history or other health insurance coverage they have.

There is an open enrollment period every year for people who want to change their Medicare coverage. Do you want to change from Original Medicare to a Medicare Advantage plan or vice versa? Or do you want to change from one private Medicare plan to another? This is the time to do it. The open enrollment period happens every year from October 15 to December 7.

Not everyone has to sign up for every part of Medicare, but not signing up on time could cost a bundle in late fees if you choose to enroll later. The late fees for Part A could last years, but Part B and Part D late penalties could last as long as you have Medicare. For the record, choosing a Medicare Advantage plan instead of Original Medicare will not get you out of paying Part A and Part B penalties.

How Much Medicare Costs

Medicare is often referred to as socialized medicine, but it isn't free. Though it may be more affordable than some private insurance plans, many Americans struggle to afford health care. For those that meet certain asset and income requirements, there are Medicare savings programs that may help to keep costs down.

  • Part A: Monthly premiums for Part A are free for people who have worked more than 40 quarters (10 years) of Medicare-taxed employment. Their spouses, and sometimes their former spouses and widows, are also eligible for free premiums. Those who have worked less than that will pay hundreds of dollars every month. For 2016, that is as much as $226 per month for 30-39 quarters to $411 per month for less than 30 quarters of work. Additional Part A costs include a $1,288 deductible in 2016 for each hospital stay, copayments for hospital stays longer than 60 days, and copayments for skilled nursing facility stays longer than 20 days.
  • Part B: Everyone pays monthly premiums for Part B, and the more you earn the more you will pay. Medicare looks to your income tax returns from two years ago to determine the cost of your premiums. There is also a one-time deductible to pay every year before your benefits kick in ($166 in 2016). With the exception of preventive screening tests, the welcome to Medicare visit and annual wellness visits are free if your doctor agrees to Medicare's physician fee schedule. You should expect to pay a 20 percent coinsurance for any Part B services you receive.
  • Part C (Medicare Advantage) and Part D: Premiums, deductibles, and copayments for Medicare Advantage and Part D plans will vary based on the private insurance company that offers the plan. However, if your income exceeds a certain amount, CMS requires that you pay a fee known as the Income-Related Monthly Adjustment Amount (IRMAA) in addition to your monthly Part D premiums. This charge will also be added if you are on a Medicare Advantage plan that includes prescription drug coverage. The IRMAA is paid directly to the government, not to the private insurance company that hosts your plan.

Where to Find Help

Medicare is a complicated program with ever-changing rules and regulations. That said, it can get tricky to know how to proceed. You may want to enlist the help of your ​state health insurance assistance program if you have any questions or concerns about your Medicare coverage. These are volunteer run programs that receive funding from the federal government to guide you. Alternatively, you can hire private consultants to assist you with any issues you may have.

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