If you are going to be eligible for Medicare soon or you just want to understand how it works so that you can have an intelligent conversation about it, this article “Medicare in 10 min” will give you what you want. All numbers in this article are for the year 2020, so if you are reading this in any other year the numbers might be different.
Johnson signed the Social Security Amendments law on July 30, 1965, at the Harry S. Truman Presidential Library. Former President Harry S. Truman and his wife Lady Bess Truman became the first recipients of the program. Before Medicare was created, only approximately 60% of people over the age of 65 had health insurance.
Designed to provide health insurance for Americans aged 65 and older as well as younger citizens with specific medical conditions or disabilities, Medicare was originally divided into two categories named “Part A” and “Part B.”
Part A covers hospitalization and Part B covers outpatient services, medical tests and equipment, among other things. You will get to know Part A as “Hospital Insurance” and Part B as “Doctors Insurance“. So when you hear any of these terms you know what’s being talked about.
We will also go over Medicare Part C (Medicare Advantage) which was instituted during the Clinton administration in 1997 to allow beneficiaries to choose a health maintenance program (HMO) instead of Original Medicare.
In 2003, George W. Bush signed Medicare Part D into law (Part D became effective in 2006), which give beneficiaries the options to buy a Prescription Drug plan to help them cover the costs of drugs.
Today (2020), almost 60 million Americans enjoy the benefits of Medicare and by 2030, experts estimate that number will ballooning to over 70 million. Health economists project the cost to be more than $1 trillion a year to fund Medicare by 2022 and more every year after that as more people age into the program.
Who pays for Medicare?
Medicare is funded by the Social Security Administration. Which means it’s funded by taxpayers. We all pay 1.45% of our earnings into FICA – Federal Insurance Contributions Act – which go toward Medicare. Employers pay another 1.45%, bringing the total to 2.9%.
If you’re self-employed, you must cough up the entire 2.9%. The Medicare deduction on your paycheck might say FICA-HI.
Technically, Medicare funding comes from the Medicare Trust Funds. These are two separate funds — the Hospital Insurance (HI) Trust Fund which is the HI on your paycheck and the Supplementary Medical Insurance (SMI) Trust Fund.
- The Hospital Insurance (HI) Trust Fund pays for Part A of Medicare which is your hospital insurance. Most people don’t have a monthly premium for Part A when they become eligible because this tax is your premium and you have been paying for it your whole working life.
- The Supplemental Medical Insurance (SMI) trust fund finances Part B & Part D. Part B mainly covers physician services and medical supplies, and the Part D is the prescription drug program. SMI is funded by monthly premiums from Medicare Beneficiaries and not your taxes. Every person who has Medicare Part B pays $144.60 per month to fund SMI. Part B and D are optional and you can delay enrollment if you have credible coverage with an employer.
Parts of the money in the Medicare Trust Funds can come from a variety of sources:
- The Medicare tax, a payroll tax paid by employers and employees
- General federal tax revenue, as appropriated by Congress
- Income taxes paid on Social Security benefits
- Premiums paid by Medicare beneficiaries
- Interest earned on the trust fund investments
Who is Eligible For Medicare?
Medicare is available for people age 65 or older, younger people with disabilities and people with End Stage Renal Disease (permanent kidney failure requiring dialysis or transplant).
What Does Original Medicare Cover & Cost?
Medicare Part A covers inpatient hospital, skilled nursing facility, and some home health care services. About 99 percent of Medicare beneficiaries do not have a Part A premium since they have paid at least 10 years of Medicare Taxes.
The Medicare Part A inpatient hospital deductible that beneficiaries will pay when admitted to the hospital will be $1,408 in 2020. The Part A inpatient hospital deductible covers beneficiaries for a 60 day benefit period.
Example: That means if you go to the hospital on Jan 1st and you are admitted, you have to pay $1,408. It does not matter how many times you are released and re-admitted in the next 60 days for whatever reason, you will not have to pay that deductible again. On March 1st, which is 60 days after Jan 1st, you have to pay that deductible again if you go to the hospital. You can pay this deductible up to 6 times per year.
In general (but not limited to), Part A covers:
- Inpatient Hospital Care
- Skilled Nursing Facility Care
- Hospice Care
- Some Home Health Care
Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A. Each year the Medicare premiums, deductibles, and copayment rates are adjusted according to the Social Security Act.
The standard monthly premium for Medicare Part B enrollees is $144.60 in 2020. Everyone has to pay this premium.
Part B monthly premium is based on income. These income-related monthly adjustment amounts (IRMAA) affect roughly 7 percent of people with Medicare Part B. I’m not going to go into the details into that but if you income is below $87,000 per year for an individual or $174,000 for an couple, you don’t have to worry about this. If your income is higher, you will pay more.
Part B also has a one time yearly deducible of $197 in 2020. You only have to pay this once per year.
Medicare Part B covers 80% of your medically necessary services, you are responsible for the other 20%. Let’s look at an example…
Example: You go to the doctor, he does a bunch of test and the bill is $1,000. Once you have paid your year deducible and let’s say you already paid that. Medicare Part B will cover 80% of the $1,000. You will be responsible for 20% which is $200.
NOTE: Medicare does NOT have a maximum-out-of-pocket limit. That means you are responsible for the 20% if it’s $200 or $2 Million!
In general, Part B covers all medically necessary services like (but not limited to):
- Doctors Visits
- Preventive Services
- Ambulance Services
- ER Visits
- Medical Equipment
- Home Health Care
- Rehabilitative Services
This is how over 60% of people use their Original Medicare. To cover the gabs inside of Medicare, most people just buy a Medicare Supplement plan (known as Medigap). You have several options to choose from but this way you can go to any doctor anywhere in the United States. This is the preferred way to control your Health Care Costs.
Part D - Prescription Drugs
Original Medicare does NOT cover prescription drugs. Beginning in 2006, a prescription drug benefit called Medicare Part D was made available. Coverage is available only through private insurance companies who are contracted with Medicare. If you buy a stand-alone Part D plan you will have a monthly premium, deducible and co-payments.
Part D plans are actually very simple but it’s hard to explain how much you will pay because it all depends on which plan you choose and what drugs you are taking. Each plan has it’s own “Formulary“, this is a list of drugs that are put into “TIERS” which tells you how much they cost.
You have TIER 1, which is mostly your basic generic drugs, and it goes all the way up to TIER 5 where you find all your specialty drugs.
The whole part D plan and how much you will pay will look like something like this:
Part D is broken up into 4 stages to make it simple ans as you are reading it, please understand that most people will only use Stage 1 & 2. If you reach Stage 3 or 4, that means you are taking some expensive drugs.
Stage 1 : Deductible
Some plans have $0 Deductible and some have more. By law the maximum deducible a plan can have in 2020 is $435.
Stage 2 : Initial Coverage
Once you pay your deductible, you will have to pay a copay for each drug in each Tier.
Stage 3 : Gap (Donut Hole)
Once you and your plan together have spend $4,020, you will be required to pay 25% percent of your Drug Cost.
Stage 4 : Catastrophic
Once you and your plan together have spend $6,350, you will only have to pay $3.60 for Generics or $8.95 for Brand Name Drugs for the rest of the year.
Part D plans start on Jan 1 and end on Dec 31. Every year on Jan 1st the plan re-sents to the beginning.
Part C - Advantage Plans
President Bill Clinton signed Medicare+Choice into law in 1997. The name changed to Medicare Advantage (Part C) in 2003. This was done to give Medicare beneficiaries other options then just Original Medicare and to save money.
If you choose to sign up for an Advantage plan, you would no longer be using Original Medicare. Around 34% of people who are Medicare eligible, receive there benefits this way.
Let’s use Humana for an example here. Humana has a contract with Medicare to provide you with all your healthcare insurance services. In exchange the government pays Humana a fee.
Humana has to provide you with at least the same coverage as Original Medicare, except Hospices which is still covered by Original Medicare. This allows the government to save money because they can now budget there money because they know exactly how much you will cost them.
On the other hand, Humana wants as many people as possible to sign up with them, so they offer other perks like Dental, Vision, Hearing, Gym Memberships, Free Transportation, 24 hrs Nurse Hotlines and so on, which Original Medicare does not offer. The better perks they offer and the better there customer services is the more people will sign up with them and the more money they will get from the government.
To control there own cost, Humana and other Insurance companies use primarily HMO’s and PPO’s to control costs. Let’s take a quick look at each:
HMO stand for Health Maintenance Organization. If you sign up for an HMO, you are agreeing to use a network of providers who have signed up with the insurance company.
You have to pick a primary care provider (PCP) who will coordinate your care. That is your doctor who will do everything for you.
If you need to go to a specialist, your PCP has to write you a “Referral” and that specialist has to be also in the HMO’s network. If you go outside of your network and it’s not an emergency, then you will be responsible for the bill.
PPO stands for Preferred Provider Organization. A PPO is not much difference then a HMO, it just basically gives you the option to go outside of the main network. You also might not have to select a PCP but it is still recommended.
You have local and regional PPO’s. The general rule for PPO’s is that it give you more options. In my experience I can tell you that not too many people benefit from a PPO if a good HMO is available in the area.
Most people choose Medicare Advantage plans because a lot of plans have very low or even $0 monthly premiums. You still have to pay your Part B premium, that never goes away.
All Advantage plan have maximum-out-of-pocket limits, which means even if the worst happens you know you will only spend the maximum allowed. Some plans are as low as $1900 maximum out of pocket and some go up to $6,000. But no matter what it is you know there is a maximum dollar amount you will spend.
Co-pays for HMO's
In exchange for low or $0 monthly premiums, you will have to cover some co-pays as you use the services. Here are a few example:
- PCP Visit $0 – $20
- Specialist $0 – $60
- ER around $100
- X-rays $0 – $100
- Hospital Stay $50 – $200 per day for days 1-5
This is just an example to show you how it works. This will depened on the plan you choose. If you go with an PPO, these co-pays will be higher and you will also have a second list of higher co-pays when you go out of network.
HMO's & Part D
When Can You Enroll Or Change Plans
- Initial Enrollment Period
Congratulations, you’re turning 65! Now you can enroll in a Medicare plan. You have a seven-month window to join during this period — from three months before the month you turn 65, through your birthday month and three months after the month you turn 65.
During this time, you can:
- Enroll in Medicare – contact Social Security to learn more
- Enroll in a stand-alone prescription drug plan (Part D)
- Enroll in a Advantage plan (Part C)
If you don’t sign up for Part B or Part D when you’re first eligible, you could face penalties in the form of higher premiums.
- Medicare Supplement Open Enrollment Period
If you’re looking to supplement your Original Medicare coverage to help with additional costs, the best time to buy a Medicare Supplement plan is during the six-month enrollment period that starts the first day of the month you turn 65 — as long as you have signed up for Medicare Part B.
If you don’t sign up for a Medicare Supplement plan during this Open Enrollment Period, you may not be able to buy a Medicare Supplement plan. Unless you have a guaranteed issue right, you may be required to answer medical questions in order to qualify for coverage.
- General Enrollment Period
You can also sign up for Part A and/or Part B between January 1 and March 31 each year if both of these conditions apply:
- You didn’t sign up when you were first eligible.
- You aren’t eligible for a Special Enrollment Period (see below).
Your coverage will start July 1. And you may be subject to penalties.
- Annual Enrollment Period
Anyone can make changes to their coverage and enroll in a Medicare plan each year, from October 15 to December 7.
- If you’re in Original Medicare, you can switch to a Medicare Advantage plan — or vice versa.
- You can switch from a Medicare Advantage plan with drug coverage to one without — or vice versa.
- You can join or drop a Medicare prescription drug plan.
- You can also update your coverage by switching to a new plan from your current insurer or switching to a new insurer.
If you choose to make a change during the Annual Enrollment Period, your new coverage won’t begin until January 1.
If you’re happy with your current coverage, you’re not required to make a change. In most cases, your current Medicare plan will automatically renew on January 1.
- Medicare Advantage Open Enrollment Period
This period takes place from January 1 through March 31 annually. It allows individuals enrolled in a Medicare Advantage plan to make a one-time election to go to either another Medicare Advantage plan or Original Medicare.
In either case, your new coverage will start on the first day of the month following the month you make a change.
If you go back to Original Medicare, you can also add a Medicare Supplement plan. However, unless you’re still within the six-month Medicare Supplement Enrollment Period, the insurance companies are no longer required to accept your application.
- Special Enrollment Period
In situations like the ones below, you may be able to join, switch or drop a Medicare Advantage or prescription drug plan outside the basic enrollment periods. There is many more reasons but these are the most commonly used.
- Moving out of your plan’s service area.
- Losing your current health care or prescription drug coverage
- Join a 5 Star Plan
For example, you may lose your current coverage when you leave your job. You have two months after you lose your coverage to sign up for a new plan. Your coverage will begin the first day of the month after you sign up.
You make qualify for SEP, contact me today to find out… CLICK HERE.