The 10 most important things to know about Medicare


From Mark Miller Retirement Revised
Medicare plays a crucial role in providing retirement security – it makes health care expense predictable, and it covers a great deal of seniors’ needs.
Unfortunately, the program is complicated, and it doesn’t cover everything. Here’s my list of the ten most important things seniors should know about Medicare.
  1. You have two basic choices. First things first: when you enroll in Medicare, you can enroll in traditional, fee-for-service Medicare, or a Medicare Advantage plan. The traditional fee-for-service program allows you to see any health care provider who accepts Medicare, but you put together your plan from an a la carte menu of insurance choices (see No. 2, below); Advantage is a managed care option that rolls all the different parts of Medicare into an all-in-one option. Enrollees often save some money with Advantage, but there’s a trade-off: you must use the providers in the network assembled by the plan provider.
  2. There are four different parts. If you enroll in traditional Medicare, you’ll need to be aware of the “parts” that cover hospitalization (Part A), outpatient services (Part B) and prescription drugs (Part D). You pay no premium for Part A but you will pay a monthly premium for Part B ($104.90 in 2015) and for drug plans (premium prices vary). You may also  want to enroll in a Medigap plan, which plugs gaps in Medicare’s coverage (see No. 3, below). Most Medicare Advantage plans (Part C) include prescription drug coverage – sometimes with no additional premium. But it’s very important to evaluate the drug coverage to make sure it meets your individual needs. You’ll still pay your Part B premium, which the government passes along to your provider.
  3. You may also want a Medigap policy.  Medigap insurance policies are used to cap the out-of-pocket health care costs you can face in traditional Medicare, and to supplement Medicare’s basic coverage. Typical policies cover deductibles and co-insurance for long hospital stays and outpatient services. Medigap pricing varies by region and policyholder age, but the benefits are standardized nationally using alphabetical labels for plan types. It’s generally best to buy a Medigap policy in your open-enrollment period, which runs for six months and starts on the first day of the month in which you are 65 and enrolled in Medicare Part B (outpatient services). Insurance companies are required under the law to sell you a policy in open enrollment. They can’t exclude pre-existing conditions or charge a higher premium because of past health problems.All Medigap plans insure against the risk of high out-of-pocket Part A and Part B co-insurance costs. Beyond that basic coverage, Medigap plans provide escalating levels of coverage, and higher premiums, as you move through the alphabet of options. Generally, it’s best to buy the most comprehensive coverage that you can.Note: If you are enrolled in Medicare Advantage, you don’t need a Medigap policy, because Advantage plans have built-in production for deductibles, co-insurance and the like. In fact, it’s illegal for an insurer to sell a Medigap policy to an Advantage enrollee. If you are in an Advantage plan and drop out of it, you can add Medigap protection.
  4. If you’re rich you will pay more. High-income seniors pay surcharges on premiums for both Part B and D. The surcharges affect only about five percent of Medicare enrollees, because most retirees don’t have ordinary income high enough to trigger them. But for those who do, the extra costs are substantial. The surcharges affect individual tax filers with $85,000 or more in annual income, and joint filers with income over $170,000, and scale up from there. View a complete table of the income brackets and costs for 2016 here. 
  5. You’ll pay big penalties if you sign up late. Medicare filing errors can be costly. Eligibility begins at 65, and sign-up is automatic if you already receive Social Security benefits. If not, it’s important to sign up sometime in the three months before your 65th birthday up through the three months following, because failing to do so can lead to expensive premium penalties down the road. (Although signup can be done up until three months after the 65th birthday, but there’s a waiting period for people who don’t enroll by the end of the month that they turn 65.) Note: if you already have signed up for Social Security by age 65, Medicare enrollment is automatic.Monthly Part B premiums jump 10 percent for each full 12-month period that a senior could have had coverage but didn’t sign up. That can really add up: a senior who fails to enroll for five years ultimately would face a 50 percent Part B penalty–10 percent for each year. Penalties also are applied to Medicare Part D (prescription drugs) and Medicare Advantage plans (Part C) that include drug coverage.An important caveat here: If you are enrolled in a high-deductible health plan and have a Health Savings Account (HSA), you can no longer contribute to your HSA if you are enrolled in Part A or Part B.
  6. You should re-shop your coverage.  The annual enrollment period for Part D and Advantage programs runs from October 15 to December 7 each year. This is the opportunity for seniors already signed up for Medicare to re-shop their coverage – and you should do it annually. Insurance companies often change their offerings year-to-year in ways that can increase drug costs by thousands of dollars, or make it more difficult to get certain drugs. At the same time, your drug needs may have changed since the last plan selection period in ways that make a plan less beneficial for you. Check my guides to shopping prescription drug and Advantage plans for more details.
  7. The Affordable Care Act improved Medicare. The Affordable Care Act (ACA) isn’t primarily focused on Medicare. But despite what you’ve heard, the law improves Medicare, rather than harm it. The law shrinks the prescription drug program’s catastrophic-level coverage gap – known as the “donut hole” – and added a free annual preventative check-up. For retirees not yet 65 years old, the new insurance exchanges provides an important new guarantee that insurance coverage will be accessible – the law prohibits insurers from turning away applicants with pre-existing conditions. Insurers also can’t put lifetime limits on the dollar value of coverage or rescind coverage if you become ill.
  8. Don’t confuse Medicare and the ACA. Annual enrollment for Medicare and ACA marketplace exchanges overlap. Medicare prescription drug (Part D) and Advantage (Part C) enrollment runs from Oct. 15 to Dec. 7 each year; shopping for ACA exchange policies run from Nov. 15 to Feb. 15. Consumer assistance groups report that some Medicare enrollees mistakenly think they must also enroll in the ACA exchanges (they do not). And for people with ACA plans who are turning 65, the transition to Medicare can be tricky. Here’s my rundown of key red flag issues for seniors.
  9. Long-term care isn’t covered (much). Medicare does cover the first 100 days of care in skilled nursing facilities for patients who were first formally admitted to a hospital for three consecutive days. It also covers some home health services and hospice care. But Medicare doesn’t cover ongoing nursing home or assisted living charges. This page at the Medicare website details what is covered.
  10. Costs are accelerating. Medicare program costs (and premiums) moderated quite a bit during the recession, but are on an upward trajectory again. The Part B premium stayed at $104.90 for 2016 for most beneficiaries due to the way that Part B premium is calibrated with Social Security’s cost-of-living adjustment (COLA). Their Part B premium can’t be increased beyond a point that would yield a net reduction in Social Security benefits—the so-called “hold harmless” rule. But For those not held harmless, monthly premiums rose to $120.70, plus a $3 surcharge. All indications are that there will be upward pressure on premiums for the foreseeable future.