October 6, 2016
In general, Medicare beneficiaries can receive their health coverage in one of two ways: through Original Medicare (with or without a Medicare Supplement plan and/or a stand-alone Medicare Part D Prescription Drug Plan; or through Medicare plan options through private health insurance companies.
Original Medicare is the traditional, federally administered Medicare program that has been in effect since 1966. It is made up of two parts: Medicare Part A (hospital insurance) and Part B (medical insurance). Part A generally covers inpatient services, including hospital and hospice care, and limited skilled nursing facility and home health care. Part B may cover outpatient medical care, including (but not limited to) doctor visits, preventive services, and durable medical equipment (DME). Original Medicare doesn’t cover prescription drugs, except in certain situations. For example, Medicare may cover prescription drugs administered by a physician in a clinic setting under Medicare Part B, or during an inpatient hospital stay under Part A.
Original Medicare costs might typically include, but are not limited to, the following:
- Part A inpatient deductible
- Part A coinsurance for hospital stays beyond 60 days and up to 90 days plus each life-time reserve day per benefit period up to 60 days in a lifetime
- Part B premium
- Part B deductible
- Part B coinsurance, generally 20 percent of the Medicare-approved amount for medical services, outpatient therapy, and durable medical equipment
If you’re already receiving retirement benefits from Social Security or the Railroad Retirement Board before age 65, you’ll generally be automatically enrolled in Part A and Part B the month of your 65th birthday. If not, you may need to enroll manually in Part A and Part B during your seven-month Initial Enrollment Period, which begins three months before you turn age 65, includes the month you turn age 65, and ends three months after your birthday month. Most people don’t pay a premium for Part A if they (or their spouses) have worked at least 10 years and paid Medicare taxes, but most people do pay a premium for Part B.
If you don’t enroll in Medicare during your Initial Enrollment Period, you can do so during the Medicare General Enrollment Period (GEP), which runs from January 1 to March 31 of each year. The effective date for your Medicare coverage will be July 1 of the year of your enrollment. You may have to pay a late enrollment penalty for not signing up for Part B when you were first eligible. If you delayed Part B enrollment because you were covered under an employer group plan (either your own or through your spouse’s work), you can sign up for Part B through a Special Enrollment Period (SEP) without paying a penalty.
You may be eligible for Medicare before age 65 if you are receiving disability benefits from the Social Security Administration or the Railroad Retirement Board for 24 consecutive months, or have Lou Gehrig’s disease or end-stage renal disease (ESRD).
Medicare plan options
Once you are eligible for Medicare Part A and B you may choose to receive your Medicare benefits from a Medicare-approved private insurer by enrolling in a Medicare Advantage plan. To do so, you will need to enroll manually. Alternatively, you may decide to receive your Medicare Part A and Part B benefits from the federally-administered Medicare program and optionally enroll in a stand-alone Medicare Part D Prescription Drug Plan and/or supplemental coverage (known as Medicare Supplement or Medigap plans) to complement your Original Medicare coverage.
Medicare Advantage is an alternative way to receive your Original Medicare benefits. Private health insurance companies contract with the Medicare program to provide Part A and Part B coverage. All Medicare Advantage plans are required to have at least the same level of coverage as Original Medicare (except hospice care, which is still covered under Part A), but may offer additional benefits, such as prescription drug coverage, routine vision, dental, or hearing exams and hearing aid coverage.
If you have a Medicare Advantage plan, you’re still in the Medicare program. You will need to continue paying your Part B premium. Many Medicare Advantage plans are offered with premiums as low as $0. Whether or not the Medicare Advantage plan has a premium associated with the plan, you will also have to continue paying the Medicare Part B premium. Cost-sharing expenses (such as copayments and deductibles) are typically different from Original Medicare and will vary by plan.
If you are eligible for Medicare, you can enroll in a Medicare Advantage plan if you meet all applicable enrollment requirements (such as residing in the plan’s service area) during your Medicare Initial Enrollment Period. Otherwise, you can sign up with a Medicare Advantage plan, with or without prescription drug coverage, during the Annual Election Period (AEP), also known as the Fall Open Enrollment Period that takes place from October 15 to December 7 every year. During the AEP, you can switch from Original Medicare to Medicare Advantage (and vice versa).
If you want to disenroll from a Medicare Advantage plan and return to Original Medicare, you can do so during the Medicare Advantage Disenrollment Period from January 1 to February 14 of every year.
Medicare prescription drug coverage
Medicare Part D is optional prescription drug coverage. You can get Medicare prescription drug coverage from either a stand-alone Medicare Prescription Drug Plan or a Medicare Advantage Prescription Drug plan (also known as an MAPD plan).
- If you have Original Medicare (Part A and/or Part B) and want prescription drug coverage to go alongside your Medicare coverage, you can enroll in a stand-alone Medicare Part D Prescription Drug Plan. These plans are available from private, Medicare-approved insurance companies.
- If you have a Medicare Advantage Prescription Drug plan, prescription drug coverage is provided through your plan. You can’t be enrolled in both a Medicare Advantage Prescription Drug plan and a stand-alone Medicare Part D plan. (If you have drug coverage through a Medicare Advantage Prescription Drug plan and enroll in a stand-alone Part D plan, you’ll be automatically disenrolled from Medicare Advantage and returned to Original Medicare.) However, you may be able to enroll in a stand-alone Medicare Part D Prescription Drug plan if you sign up for a Medicare Advantage plan that does not include prescription drug coverage, a Medical Savings Account or a Fee-for-Service Medicare Advantage plan offered by a Medicare-approved private insurance company.
Your out-of-pocket costs associated with Medicare Part D (prescription drug coverage) vary in accordance with the plan you select. Out-of-pocket expenses may include a monthly premium and deductible, as well as copayments and/or coinsurance for covered services and prescription drugs. In addition, you may have out-of-pocket costs related to the coverage gap (also known as the Part D “donut hole“). The coverage gap is the temporary coverage limit that applies after you and your plan have spent a certain amount of money on medications during the benefit year.
You can sign up for Medicare prescription drug coverage during your Medicare Initial Enrollment Period or during the Annual Election Period, described above. During the AEP, you can make changes to your prescription drug coverage, including:
- Enrolling in or disenrolling from a Medicare Part D plan.
- Switching from one stand-alone Medicare Part D Prescription Drug Plan to another one.
- Switching from a Medicare Advantage plan that has drug coverage to one that doesn’t, and vice versa.
- Dropping your Medicare Advantage coverage and returning to Original Medicare.
Keep in mind that if you don’t enroll in Part D when you’re first eligible, and if you go 63 or more consecutive days without other creditable prescription drug coverage, you could face a late enrollment penalty if you sign up for this coverage later. Creditable prescription drug coverage is coverage that’s expected to pay, on average, at least as much as standard Part D coverage.
Medicare Supplement plans
If you decide to stay with Original Medicare (Part A and Part B), another option you may have is to sign up for a Medicare Supplement (Medigap) plan to help pay for Original Medicare’s out-of-pocket costs. Different Medigap plans pay for different amounts of those costs, such as copayments, coinsurance, and deductibles. You must be enrolled in both Medicare Part A and Part B to sign up for a Medicare Supplement plan. Medicare Supplement plan benefits can’t be used to pay for Medicare Advantage coverage, and it’s illegal for someone to offer you a Medicare Supplement plan if he or she knows you have Medicare Advantage.
Medicare Supplement plans may help pay for the out-of-pocket costs of Original Medicare, such as the Part B copayment and/or coinsurance, Part A deductible, and skilled nursing facility (SNF) coinsurance. Some plans include additional benefits not included in Original Medicare, such as limited overseas travel coverage.
There are various Medicare Supplement plan types, standardized in most states, with each plan type identified by a letter (for example, Medicare Supplement Plan F). Coverage is standardized, meaning that the minimum required benefits will be the same for plans of the same name, no matter in what state you receive covered care (except for Massachusetts, Minnesota, and Wisconsin) or which insurance company provides your Medicare Supplement plan. Some companies may offer additional innovative benefits. However, private health insurance companies may charge different premiums, so it may be a good idea to shop and compare plans and prices. You pay a separate premium for your Medicare Supplement plan, along with the Medicare Part B premium.
The best time to purchase a Medicare Supplement plan is generally during the Medigap Open Enrollment Period, which is the six-month period that starts when you are both at least age 65 and have Medicare Part B. During this period, you have “guaranteed issue rights” to enroll in a Medicare Supplement plan. This means that private health insurance companies can’t reject you or charge you more because of a pre-existing condition. However, there may be a waiting period before your Medigap plan begins your coverage.
After the Medigap Open Enrollment Period is over, in most cases insurers can deny you coverage or require medical underwriting. You may have to pay a higher premium if you have a health condition or disability if you enroll outside the Medigap Open Enrollment Period.
Original Medicare vs. Medicare plan options
You may want to compare cost and coverage differences between the various Medicare coverage options that may be available to you, particularly because election periods may be limited to certain times of the year.
Some factors to think about as you consider your choices include:
- Flexibility: If you value flexibility, you may prefer Original Medicare, which extends Part A and Part B benefits when you receive covered services from any health-care provider who accepts Medicare assignment. Medicare Advantage plans, in contrast, often have networks of participating health-care providers from whom you usually must see to receive the full benefits of the plan. Original Medicare affords you the flexibility of adding other coverage, such as a Medicare Supplement plan and/or a stand-alone Medicare Part D Prescription Drug Plan. Medicare Advantage Prescription Drug plans, on the other hand, offer you the convenience of receiving all of your Medicare benefits from a single plan.
- Cost: Medicare Advantage plans sometimes have lower out-of-pocket costs than Original Medicare. However, if you have Original Medicare, you may be able to add a Medicare Supplement plan to help pay for some of those costs.
- Prescription drug coverage: Whether you have Original Medicare and a stand-alone Medicare Part D Prescription Drug Plan, or a Medicare Advantage Prescription Drug plan, you may want to make sure your plan covers the medications you take.
- Availability: Original Medicare pays for covered services you receive anywhere in the United States, while Medicare health plans such as Medicare Advantage plans generally only cover services you receive in the plan’s service area.
To a large extent, the right choice for you will depend on your health needs, preferences, and the Medicare plans that are available in your area.
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