Table of Contents:
- A Brief History
- Medicare Plans
- Am I Eligible?
- How Much Will I Have to Pay?
- Enrolling in Medicare Parts A and B
- Enrolling in Medicare Advantage
- Enrolling in Part D
- Enrolling in Medigap
- Tips for Choosing a Plan
Medicare is a federal health insurance program covering more than 60 million Americans. It is so well-known that many lawmakers have employed the term “Medicare for All” in their proposals rather than more technical ones like “single-payer health insurance.” Paradoxically, introducing a universal health insurance program would effectively eliminate Medicare as we know it.
A Brief History
The idea for a national health insurance system first gained real momentum in the early days of the Harry Truman presidency. Just seven months into his first term, Truman called on Congress to create a national insurance fund that would cover all Americans. He was unsuccessful.
More than twenty years later, in 1965, President Lyndon Johnson signed legislation to create a health insurance program for Americans over 65. Former President Truman became one of the earliest beneficiaries and the first version of Medicare was born.
In 1972, President Richard Nixon made the first significant changes to Medicare by expanding its coverage. Americans under 65 with long-term disabilities or end-stage renal disease (ESRD) were now eligible for Medicare. More changes would come in 1997 with the addition of Medicare Advantage plans.
Today, Medicare enrollment is growing rapidly as more and more Baby Boomers turn 65.
While qualifying for Medicare is fairly simple, selecting a plan is more complicated than you might think. There is no one-size-fits-all plan. While Medicare entitles all Americans to a basic level of coverage, it leaves a number of gaps. Prescription drugs and vision care, for example, are not covered by Original Medicare. Filling in these gaps means picking and choosing from a variety of Medicare options.
Medicare Parts A and B
Since its inception, Medicare has included two separate parts:
- Part A: Sometimes called “hospital insurance,” Part A covers a range of in-patient healthcare services.
- Part B: Part B covers a number of medically-necessary and preventive services that Part A does not. These include visits to the doctor, ambulance services, flu shots, and the costs of some durable medical equipment like oxygen tanks and wheelchairs.
Combined, Part A and Part B are sometimes referred to as “Original Medicare,” especially when juxtaposed against Medicare Advantage. Original Medicare does not cover a number of healthcare items and services that beneficiaries may consider essential. Notably, neither component provides coverage for prescription drugs or services like vision and dental exams.
Medicare Advantage (Part C)
Medicare Part C blends government-provided healthcare with the private insurance industry. Individuals eligible for Medicare have six different types of Medicare Advantage plans to choose from.
- Medical Savings Account (MSA)
- Private Fee-for-Service (PFFS)
- Health Maintenance Organization (HMO)
- HMO Point of Service (HMOPOS)
- Preferred Provider Organization (PPO)
- Special Needs Plan (SNP)
Medicare Advantage plans fill in many of the gaps left by Parts A and B. Many of them cover emergency and urgent care services as well as dental, vision, and hearing care. In 2021, nearly 90% offer coverage for prescription drugs.
MSA and MFFS plans do not cover the cost of prescription drugs. Beneficiaries who have selected these plans will need to enroll in an additional Part D plan to receive coverage.
In addition to filling in coverage gaps in Original Medicare plan coverage, Medigap plans help to limit out-of-pocket expenses for Medicare beneficiaries. They’re offered by private insurance carriers in all 50 states. There are ten different types of plans: A, B, C, D, F, G, K, L, M, and N. The selection will vary from state to state. Pricing also varies, but each plan’s specific benefits are consistent. As of January 1st 2020, providers are not permitted to sell Medigap Plans C and F to new beneficiaries. Anyone who was enrolled in either plan prior to this date is eligible to keep their coverage.
Some states offer the option to enroll in Medicare SELECT. These plans require policyholders to visit specific hospitals or doctors. All ten types of Medigap plan can be designated as a SELECT plan. Since SELECT plans are somewhat restrictive, they tend to be less costly than traditional Medigap plans.
Medigap plans cover some of Medicare’s out-of-pocket expenses, but they do not cover long-term care, vision services, dental care, hearing aids, or prescription drugs. They are also incompatible with Medicare Advantage plans. Beneficiaries cannot be enrolled in both types of plan at the same time.
Am I Eligible?
Most Americans become eligible for Medicare when they turn 65. If you’re receiving Social Security or Railroad Retirement Board benefits, you will get a Medicare card in the mail three months before your 65th birthday. Others may qualify for Medicare due to amyotrophic lateral sclerosis (ALS), ESRD, or other, long-term disabilities.
Americans suffering from ALS can enroll once their disability benefits take effect. Those with ESRD become eligible upon their fourth month of dialysis.
How Much Will I Have to Pay?
Most Medicare-eligible Americans receive Medicare Part A’s benefits free of charge. You’re totally covered if you meet these criteria:
- You are 65 years old and you and/or your spouse have paid Medicare taxes for at least a decade.
- You are under 65 years old, disabled, and you and/or your spouse have paid Medicare taxes for at least a decade. You’ll become eligible for premium-free Medicare A after receiving two years of Social Security or Railroad Retirement Board benefits.
If neither you nor your spouse has paid Medicare taxes for ten years, you can still buy into Part A. In 2021, this costs $471/month if you’ve paid those taxes for fewer than 7.5 years and $259/month if you’ve paid them longer.
All Medicare Part B beneficiaries pay a monthly premium. In 2021, the standard premium is set at $148.50/month. Higher-income beneficiaries pay an adjusted rate. Individuals who earn more than $88,000/year and joint-filing married couples earning more than a combined $176,000/year will pay between $207.90 and $504.90 each month.
In 2021, the Part B deductible is $203. Once beneficiaries have reached this sum, they are responsible for paying a 20% coinsurance on eligible services and items.
The majority of Medicare Advantage plans will cost an additional premium. Across all plans, this averages out to $21/month in 2021. Each plan limits in-network, out-of-pocket expenses to $6700/year or less. Copayments can vary dramatically, however, from plan to plan. It’s important to compare and contract plans carefully. Medicare Advantage beneficiaries are still responsible for paying their monthly Part B premium.
Part D benefits and premiums will also vary. In 2021, stand-alone prescription drug plans cost an average of $41/month. Higher-income beneficiaries (individuals earning more than $88,000/year or joint-filing married couples earning more than $176,000 combined) will pay an additional premium. Ranging from an additional $12.30/month to $77.10/month, this is based on income tax returns from the two previous years. You are welcome to appeal this charge if a life-changing event has recently modified your financial situation.
The maximum permitted deductible for a Medicare Part D plan in 2021 is $445. After they’ve reached their deductible, a beneficiary’s out-of-pocket costs will not exceed 25% the cost of their prescriptions. After spending enough to reach the catastrophic coverage threshold ($6,550), they will pay even less. At this point, beneficiaries do not pay more than 5% of the cost of prescriptions or $9.25 for brand-name medications and $3.70 for generic options (whichever amount is greater).
Enrolling in Medicare Parts A and B
Enrolling in Medicare Parts A and B is as simple as can be. If you are already receiving Social Security and/or Railroad Retirement Board benefits, the government will enroll you in Parts A and B once you turn 65. You will get a Medicare card in the mail three months before your 65th birthday.
When they first become eligible, individuals have the opportunity to turn down Part B which incurs a monthly premium ($144.60/year for most enrollees). You will most likely choose to enroll unless you or your spouse is still taking advantage of an employer’s health insurance plan.
If you opt out of Part B, you can choose to enroll at a later date. Keep in mind, however, that you will have to pay a 10% premium for each year you waited to enroll. This does not apply to individuals who opted out because of employer coverage.
You will not be automatically enrolled if you are not yet drawing Social Security or Railroad Retirement benefits. Instead, you will need to enroll during the seven-month period beginning three months prior to your 65th birthday. For example, someone born on August 24th would have from May to November to enroll.
If you neglected to sign up for Parts A and B when you became eligible, you can reassess your coverage every year from January 1st to March 31st during the general open enrollment period. Changes in coverage will go into effect on July 1st. There is a penalty for waiting to enroll in Medicare Part A, but it only applies to eligible individuals who earn enough to pay Part A premiums.
Enrolling in Medicare Advantage
To sign up for Medicare Advantage, you must be eligible for (or enrolled in) Medicare Parts A and B and live in a part of the country where Medicare Advantage is currently available. While most Americans can access Medicare Advantage, some rural regions have yet to introduce these plans. In 2021, there are 82 counties where Medicare Advantage is not available.
Individuals eligible for Medicare can enroll in a Medicare Advantage plan when they first become eligible for Medicare. Anyone who receives Social Security Disability Insurance has a seven-month window to enroll. It begins in the 22nd month of their disability and continues through the 28th.
Medicare Advantage has a different open enrollment period than Parts A and B. You can switch from one Medicare Advantage plan to a different one (or transition away from traditional Medicare) from October 15th to December 7th during the Annual Enrollment Period. Once you’ve made the necessary changes, they’ll take effect on the first of the following month.
If you’re looking to switch back to traditional Medicare, you’ll need to wait until the Medicare Open Enrollment Period that runs from January 1st to March 31st each year. This period also provides Medicare Advantage beneficiaries with an opportunity to select new Medicare Advantage plans. Changes go into effect on the 1st of the following month.
Medicare Advantage policyholders will receive a card from their private insurance carrier. Most Medicare Advantage enrollees will still have to pay the Part B premium.
Enrolling in Part D
Not all Medicare Advantage plans cover the cost of prescription drugs. Some individuals with Medicare opt to supplement their Part A and B coverage with a stand-alone prescription drug plan, also known as Part D. As with other Medicare plans, eligibility begins three months prior to your 65th birthday and continues for the three months afterward. Those who neglect to enroll during this period could face a penalty if they choose to enroll later.
Disabled Americans can enroll in a Part D plan once they’ve received Social Security or Railroad Retirement Board benefits for 21 months. Their enrollment window remains open through the 27th month and coverage will start at the beginning of month 25.
Eligible individuals who use the Part B enrollment period (April 1st to June 30th) to join Part B can also join a Part D plan at this time. If necessary, they can switch to another Part D plan during the general open enrollment period that runs from October 15th to December 7th.
Typically, Plan D membership cards take around five weeks to arrive in the mail. If you require any medication during this period, most pharmacies will accept your enrollment confirmation number as a substitute.
Enrolling in Medigap
Signing up for Medigap is significantly more complex. It’s imperative that Medicare-eligible persons familiarize themselves with their options well before they apply. Your initial enrollment period begins the month you turn 65 and enroll in both Parts A and B. It continues for another five months. Many states have consumer protection laws in place that make it possible to sign on at a later date.
In Massachusetts, for example, residents can enroll every year between February 1st and March 31st. New Yorkers have even more protections. No matter when they enroll, New Yorkers can take advantage of Medigap without facing medical underwriting. Missouri applies an “anniversary rule.” During the 30-day period before their policy anniversary, Missourians can switch to a same letter Medigap plan from a different provider.
Disabled Americans are not covered in every state. While 32 states currently offer some level of coverage, many will charge an additional premium. Contact your State Health Insurance Assistance Program or State Department of Insurance to learn more about how your state approaches Medigap.
Tips for Choosing a Plan
As you can tell, selecting Medicare coverage is a complicated process. The choice between plans will ultimately come down to your healthcare needs, risk tolerance, and budget. A health insurance broker can help you assess these needs and select a best-fit policy. Keep these things in mind as you work with a broker:
- Depending on where you live, broker commissions could vary based on plan type. This may lead a broker to discuss certain plans at the expense of others.
- Medigap plans do not put a cap on broker commissions. Medicare Advantage and Part D plans do.
- The government has established fairly strict regulations for selling and marketing Medicare Advantage plans. These do not apply to Medigap plans. Unscrupulous brokers might use bait and switch tactics to push you from a Medigap plan toward an Advantage plan.
- A good broker will never make you feel pressured or coerced. They will work with you to understand your specific needs and carefully answer each of your questions.
Information adapted from the Centers for Medicare & Medicaid Services
Medicare Advantage 2021 Spotlight: First Look, 2020. KFF.