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While some Medicare terms may be confusing or seem interchangeable, understanding even just a few of the more common words and phrases can be the difference between making an educated decision and taking a best guess. For the sake of clarity, here are some straightforward explanations of the three basic tenets of any Medicare plan.
This is perhaps the term most associated with insurance (health and otherwise). As such, it is important to know precisely what it means, what it entails and, most importantly, what it does not entail. Coverage refers to any and all care (products, services, procedures, facility usage, etc.) associated with a plan. Examples might include hospital stays, outpatient tests (such as an MRI scan), routine check-ups, specialized care, prescriptions, psychotherapy, durable medical equipment, (from wheelchairs to oxygen tanks) and so on.
While it is implied that having an item covered by a plan will save money, it is important to recognize that at no point is money discussed within the terms of coverage. Coverage describes what is covered, but it does not describe to what extent it is covered. This fact is the keystone to understanding the basic principles of insurance. If you have a high copayment or deductible, simply having coverage for a product or service may not prevent out-of-pocket expenses.
Once you understand which items are covered by your plan, you can look into how much each of these items will actually cost you. This is the vital next step to understanding your plan, and where Medicare beneficiaries are most likely to see alterations on their Annual Notice of Change.
The five terms to understand in order to calculate potential cost are premium, coinsurance, copayment, deductible, and out-of-pocket limit.
Premium is the most straightforward of these four items, and it simply refers to the monthly payment associated with your plan. For instance, a Medicare Plan B premium costs $148.50 per month for any individual whose annual income is beneath $88,000.
Coinsurance refers to the percentage of covered care that a beneficiary has to pay after they’ve reached their plan’s deductible limit.
Copayment refers to any fixed fee beneficiaries must pay for any form of care received through a plan. This fee is paid to the healthcare provider (for example, a doctor or pharmacist) at the moment care is received, and it can be an actual figure or a percentage. For instance, if the actual cost of a doctor’s visit is $100, and your plan states that you must pay 20% of the cost of doctor’s visits, then your copayment will be $20. If, however, your copayment is a fixed fee (say, $25), then your copayment will simply be $25, no matter the actual (pre-insurance) cost of the doctor’s visit.
Deductible refers to the amount paid before insurance steps in and pays for the rest. For instance, if your plan’s deductible for a necessary surgery is $1,000, then you must pay that full $1,000 before your plan will pay any money toward the procedure. Assuming there is no deductible limit (also known as an aggregate limit) on your plan, every cent beyond this first $1,000 will be paid by your provider.
Out-of-pocket limit refers to the point at which a beneficiary is no longer responsible for paying toward any medical expenses incurred for a specific benefit period. While Medicare Parts A and B have no out-of-pocket limit, the Medicare Advantage (Part C) limit is set at $7,550 for 2021.
As defined by Medicare.gov, a service area is the “geographic area where a health insurance plan accepts members if it limits membership based on where people live. For plans that limit which doctors and hospitals you may use, it’s also generally the area where you can get routine (non-emergency) services.”
Your service area is defined by your legal residence. If you move, it is extremely important to update this information with your provider, as the doctors, facilities, and services to which you have access through your plan are entirely contingent upon your place of legal residence.
Information adapted from the Centers for Medicare & Medicaid Services
Additional data and cost information adapted from Investopedia
Aggregate Limit, 2018. Investopedia.
Coinsurance, 2020. Investopedia.