Medicare is a valuable source of health insurance for people 65 and older and for some younger adults with permanent disabilities. Understanding Medicare enables you to make well-informed health care decisions and to avoid getting lost in the maze of the plan’s options.
Medicare includes four parts:
- Hospital insurance: Covers inpatient care in hospitals, skilled nursing facility care, hospice care, and home health care. Most individuals receive Part A automatically if they or their spouse paid Medicare taxes while working for ten years or more. Those who do not qualify may purchase the coverage by paying a pro-rated, monthly premium up to $407 (2015).
- Medical insurance: Covers services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and some preventive services.
- Medicare Advantage: Run by Medicare-approved private insurance companies, this coverage provides all benefits and services covered under Parts A and B and usually includes Medicare prescription drug coverage (Part D). It may also include extra benefits and services for an additional cost.
- Medicare prescription drug coverage: Offered through Medicare-approved private insurance companies, it helps cover the cost of prescription drugs. This coverage may lower your prescription drug costs and mitigate higher costs in the future.
Consider the following steps to personalize your own plan:
Step 1: Choose your plan.
Medicare offers two major options:
- Original Medicare includes Part A and Part B and provides the coverage directly. You can choose from doctors, hospitals and other providers that accept Medicare, and expect to pay deductibles and coinsurance. In most cases, there is no premium for Part A, if you or your spouse has paid Medicare taxes for at least ten years while employed. Part B requires enrollment and a monthly premium, and a late fee applies for late enrollment.
- Medicare Advantage is sold by private insurance companies and provides coverage through traditional channels, such as a Preferred Provider Organization (PP0). It usually offers broader services than Original Medicare with vision, dental, and hearing coverage. Many plans offer prescription drug coverage, which eliminates the need to purchase Part D. It does not require a Medicare Supplemental Policy (Medigap) as with Original Medicare. A monthly premium is required (in addition to the premium for Part B), with costs and coverage varying by plan.
Step 2: Determine if you should purchase prescription drug coverage (Part D).
If you choose Original Medicare and want prescription drug coverage, you must purchase Part D. The various plans are approved by Medicare but offered through private companies. Enrollment is required, and a delay may cause a premium increase. Costs and coverage vary by plan.
Step 3: Consider purchasing supplemental coverage.
Medigap polices help fill in the gaps of Original Medicare coverage. Private companies issue these policies with different levels of coverage and costs. It is generally best to purchase a Medigap policy during the open enrollment period which begins the month you turn age 65 and enroll in Part B, and lasts for six months. While it is possible to buy a Medigap policy at a later date, those who purchase during the open enrollment get the benefit of the most cost-effective premium levels without undergoing underwriting, as mandated by federal law.
Choosing your Medicare options requires careful planning and timing. Consider planning well in advance before you turn age 65. Begin by visiting Medicare Plan Finder and use the Medicare and You as a resource. You can also contact a Medicare agent (1-800-663-4277) for assistance.
Make sure that you understand your enrollment periods to avoid late penalty fees. You can enroll three months before and three months after you turn age 65 during the Initial Enrollment Period. Other enrollment options may also be available. You may also consider taking advantage of free, personalized health insurance counseling, which is available through your State Health Insurance Program (SHIP). The phone numbers are available at Medicare.gov/contacts.
While on Medicare, review your plan annually with special attention to your “Annual Notice of Change” letter. Research indicates that individuals are prone to stick to their original plan and often miss opportunities for additional savings and newly provided services. During the Open Enrollment Period (October 15-December 7) you can change your Medicare health plan and prescription drug plan. If you have a Medicare Advantage Plan, you can even switch back to Original Medicare.
Finally, remember that Medicare does not provide complete coverage for health insurance and custodial care. As part of your financial plan, coordinate your coverage with your Medigap and long-term care policies.
Marty Reid is a Registered Representative of and Securities and Investment Advisory Services offered through Cetera Advisor Networks LLC, Registered Broker Dealer, Member FINRA/SIPC. Reid Financial and Cetera Advisor Networks are unaffiliated.