Table of Contents:

  1. Coverage
  2. Costs
  3. Changing Plans

As you approach Medicare eligibility, you’re hopefully conducting some research into the program and how it will help you cover healthcare costs throughout retirement. During your research, you may have noticed that Medicare works differently than an employer-sponsored plan.

Let’s take a closer look at how Medicare compares to private insurance, as well as how supplemental Medicare plans combine aspects of both.

Coverage

Original Medicare consists of two components that cover a broad range of healthcare services:

  • Medicare Part A (Hospital Insurance): Medicare Part A covers a variety of in-patient services including hospital visits and home health services.
  • Medicare Part B (Medical Insurance): Medicare Part B covers other medically-necessary services and procedures like x-rays and blood transfusions.

The vast majority of healthcare providers in the country accept Original Medicare. Part B beneficiaries have the option to fill in coverage for benefits not covered by Original Medicare.

Medicare Part A and Part B do not cover any of the following:

  • Routine eye care and glasses
  • Routine dental care and dentures
  • Routine hearing screenings and hearing aids
  • Foot care and orthopedic shoes
  • Prescription drugs
  • Most vaccinations
  • Long-term care

To stand out from the competition and serve the healthcare needs of large, diverse teams, many employers offer robust health insurance plans. Typically, these cover several commonly-used services that Original Medicare does not — most notably vision, dental, and outpatient prescription services.

Services like these often become increasingly important to Medicare enrollees as they age. As a result, more than 80% of Original Medicare beneficiaries have some type of additional coverage. 22% get this coverage through the federal government thanks to Medicaid. The rest rely on plans provided by private insurance companies. These include employer-sponsored plans (many employers offer retiree benefits), Medicare Advantage, and Medicare Part D.

Medicare Advantage plans offer another alternative to Original Medicare. Since most include prescription drug coverage, they are also a potential alternative to Medicare Part D. In addition to covering essential services, many Medicare Advantage plans dover additional benefits like nutritional counseling and transportation services. In this respect, many are comparable to employer-sponsored plans.

Like employer-sponsored plans, Medicare Advantage and Part D only provide access to a network of approved providers and/or a specific drug formulary.

Employer-sponsored insurance plans often offer coverage for the spouses and dependents of employees. While Medicare eligibility and pricing are often impacted by household income, all Medicare plans cover individuals alone.

Costs

Original Medicare (Part A and Part B)

Most Medicare beneficiaries receive premium-free inpatient care through Medicare Part A. Beneficiaries who have not paid Medicare taxes through their employer (or their spouse’s employer) for at least ten years will pay a monthly premium.

  • Beneficiaries who have paid (or whose spouse has paid) Medicare taxes for at least 7.5 years will pay $259/month for Part A coverage in 2021.
  • Beneficiaries who have paid (or whose spouse has paid) Medicare taxes for fewer than 7.5 years will pay $471/month for Part A coverage in 2021.

Medicare Part A deductibles work differently than the deductibles for Medicare Part B or D. Instead of paying their deductible annually or monthly, Part A beneficiaries pay it each benefit period. A benefit period begins the day a beneficiary is admitted to an inpatient healthcare facility. It ends once they’ve gone 60 days without treatment. There is no limit to the number of benefit periods a beneficiary can accrue. In 2020, Part A beneficiaries will pay $1,484/benefit period.

The Medicare Part A deductible applies to the first 60 days of inpatient care in a hospital. After Day 60, beneficiaries who require additional inpatient care will pay daily coinsurance fees:

  • Beneficiaries will pay $371/day for days 61-90 of inpatient care.
  • After a beneficiary has been in the hospital for 90 days, Original Medicare will pay for the covered costs of 60 additional days of inpatient care except for a $742/day coinsurance fee. Beneficiaries can use these “lifetime reserve days” throughout their lifetime. After these days have been exhausted, beneficiaries may be responsible for paying all of their healthcare fees.
  • Beneficiaries will pay a $185.50/day coinsurance fee for Days 21-100 of inpatient care in a skilled nursing facility.

Original Medicare does not place a cap on out-of-pocket spending. Some beneficiaries select supplemental plans to help cover their copays, deductibles, and other costs.

Nearly all Medicare Part B beneficiaries pay a standard monthly premium for coverage. In 2021, this premium is set at $148.50/month. Individuals who earn more than $88,000/year and joint-filing married couples who earn more than $176,000/year pay a higher premium, between $207.90/month and $504.90/month.

Part D (Prescription Drug Plans)

In 2021, the average Medicare Part D Prescription Drug Plan (PDP) charges a $41/month premium. Deductibles and other out-of-pocket expenses will vary, but no provider can set a deductible of more than $445/year.

Beneficiaries who earn more than $88,000/year and joint-filing married couples who earn more than a combined $176,000/year will pay an additional premium. That additional fee ranges from $12.30 to $77.10/month.

Medicare Advantage

In addition to their Part B premiums, Medicare Advantage beneficiaries pay an additional monthly premium for their supplementary coverage. While costs vary greatly, the average monthly premium for a Medicare Advantage plan is $21/month in 2021.

Unlike Original Medicare, all Medicare Advantage plans include a cap on out-of-pocket expenses. This limit has been set at $6,700/year since 2011.

Employer-Sponsored Health Insurance

The Affordable Care Act (ACA)’s employer mandate not only requires large businesses (over 50 full-time employees) to offer group health insurance, but establishes rules regarding cost sharing and pricing. Employers must foot the bill for at least 60% of their organization’s total premium and they cannot require any employee to spend more than 9.86% of their household income on insurance. Companies that fail to meet these requirements are subject to a fine from the IRS.

According to the Kaiser Family Foundation, the average individual with employer-sponsored insurance paid a $1,243 premium toward their coverage and the average family paid a $5,588 premium in 2020. The average deductible for employer-sponsored health plans was $1,644. Many employers offer a range of plans with different deductibles, out-of-pocket costs, and spending limits.

Changing Plans

Choosing a health insurance plan doesn’t typically mean you’re stuck with it. That’s true for both federal and employer-sponsored insurance. Most beneficiaries have at least one opportunity each year to review and update their coverage.

Annual Enrollment Period (AEP)

The AEP runs from October 15th to December 7th each year. Throughout this period, Medicare beneficiaries have the option to review their coverage and make the following adjustments:

  • Switch from Original Medicare to a Medicare Advantage plan
  • Switch from a Medicare Advantage plan to Original Medicare
  • Switch from one PDP to another
  • Enroll in Medicare Part D (if they neglected to enroll during their first period of eligibility)

Beneficiaries can make as many changes as they like during this period. Any updates will go into effect on January 1st.

Medicare Advantage Open Enrollment Period

Medicare Advantage beneficiaries have access to an additional, exclusive open enrollment period each year from January 1st to March 31st. During this period, beneficiaries can make the following changes:

  • Switch from Medicare Advantage to Original Medicare (and Part D, if necessary)
  • Switch from one Medicare Advantage plan to another

Beneficiaries can only make one change during this time and they cannot switch from Original Medicare to Medicare Advantage. Any updates will go into effect on the 1st of the following month.

Medigap Open Enrollment

There are no federal enrollment periods or guaranteed-issue periods for Medigap. Opportunities to enroll and update coverage vary from state to state. Beneficiaries who are interested in Medigap are generally advised to enroll when they first become eligible.

Employer-Sponsored Open Enrollment

Open enrollment periods for employer-sponsored plans are determined by both the employer and the insurance provider. Typically, companies will schedule an open enrollment period so that it ends a few weeks before the necessary enrollment forms are due to the provider. Certain life-changing events may enable an employee to update their coverage outside of this window.

 

Information adapted from the Centers for Medicare & Medicaid Services

Additional data and cost information adapted from Kaiser Family Foundation and Society for Human Resource Management

2020 Employer Health Benefits, 2020. Kaiser Family Foundation.

Medicare Advantage 2021 Spotlight: First Look, 2020. Kaiser Family Foundation.

Open Enrollment Guide & Resources, 2020. Society for Human Resource Management.