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How Does Medicare Work and What Does It Cover?

Recent research indicates that nearly 63 million Americans are enrolled in the Medicare program.

Medicare covers over a thousand different types of services including hospitalizations and doctor’s visits as well as prescription drugs and surgeries. While it can be confusing to try to understand how Medicare works and what it will cover, taking a closer look at who is eligible and the types of care offered through the program can help you to understand what it covers.

For help understanding Medicare, keep reading to learn more about this health insurance plan.

What Is Medicare?

Medicare differs from typical health insurance as it is a federal program and is only available on an individual basis.

There are no Medicare plans for spouses or families, each person must qualify by being over 65 years of age or disabled. Individuals under the age of 65 who are disabled should make an appointment with a doctor to see if they may qualify for Medicare disability benefits.

How Does Medicare Work?

Medicare coverage is broken down into four different parts. Each of these provides a different type of coverage. Here is a breakdown:

  1. Part A covers hospital services
  2. Part B covers doctor visits and other outpatient medical care
  3. Part C is offered by private insurers and covers both hospital and outpatient care (Parts A and B)
  4. Part D covers prescriptions

Who Is Eligible for Medicare?

United States citizens who are age 65 or older are eligible for Medicare benefits. Permanent legal residents who have lived in the U.S. for at least five concurrent years are also able to apply.

People who qualify due to disability are generally eligible for Medicare after a two-year waiting period, however, there are exceptions to this rule. One exception is End-Stage Renal Disease (ESRD). Those diagnosed with ESRD are eligible for Medicare immediately if certain qualifications are met.

Medicare Costs

Each part of Medicare has different costs and coverage associated with it. Here is a breakdown of the current costs associated with Medicare coverage for each Part as of 2022:

Part A

Medicare Part A offers coverage for inpatient hospital stays and nursing home care. There is generally no monthly premium for those who qualify for premium-free status, however, depending on your financial situation, your premium may be as high as $499. The deductible for Medicare Part A is $1556.

Part B

Part B coverage is for outpatient medical care as well as any preventative care. Premiums for Medicare Part B are $170.10 in 2022. The deductible for Part B is $233.

Part C

For Medicare Part C coverage, insured parties pay a premium for Part B, but also pay a premium to a private insurer for the coverage provided by Medicare Parts A & B. Premiums vary based on coverage and insurance company chosen.

Part D

Medicare Part D coverage is for prescription drugs and is provided by private insurers. The national base monthly premium in 2022 is $33.37.

What Does Medicare Part A Cover?

Medicare Part A covers inpatient hospital treatment. Thankfully, most hospitals accept Medicare, although it is important to remember that many Veterans Affairs (VA) hospitals may only accept Tricare or other military insurance.

Inpatient hospital treatment covered under Medicare Part A can include:

  • Acute Care Hospital
  • Inpatient Rehabilitation Facility
  • Critical Access Hospital
  • Long Term Care Hospital
  • Inpatient Psychiatric Hospital

Medicare Part A will also cover care at a skilled nursing facility if it is on a short-term basis. Services covered as a part of your stay will include meals, a semiprivate room, your physical and occupational therapies, medications, social services, and other services. 

Hospice services are also a benefit covered by Part A under both Original Medicare and Medicare Advantage. These services include symptom management, pain medications, and other supportive services. Necessary medical team members are also covered under Medicare Part A. Another included benefit under hospice care is grief counseling for you and your family members. Respite care for the main caregiver is also provided.

Another service provided by Medicare Part A is home health care. Certain caveats must be accounted for, such as a doctor must request home health care for your condition. You must also use a Medicare-certified home health care agency. 

What Does Medicare Part B Cover?

Medicare Part B is responsible for covering doctor’s visits, labs, wellness exams, and medical equipment such as canes and walkers. Part B also covers vaccines and flu shots.

It will also cover outpatient mental health services and some prescription drugs that are administered by your doctor, such as chemotherapy. Medicare Part B also covers ambulance services should you need them.

What Does Medicare Part D Cover?

Medicare Part D covers prescription drugs, but what exactly does this mean? Each Part D plan covers both generic and brand-name drugs, and each plan must meet a standard coverage level set by Medicare. This means they have to carry drugs in each illness category, but which medications they cover is up to them.

Each Medicare Part D plan keeps a list, called a formulary, of the medications they cover. You can request this list to see if your prescriptions are covered. These change frequently and your insurance company should send you an updated formulary with each change.

If your medication is not covered, you may need to check with your physician to see if there is another medication on the list that can be substituted. If there is no alternative medication available on your plan’s formulary, you can request an exception. 

You can also request an exception if your Plan D discontinues coverage of your medication.

At times, you may also need prior authorization before a medication is prescribed. It might be worth your time to check with any Medicare Plan D insurers before choosing their plan to see if they place this type of restriction on any medications.

Each Medicare Part D plan also works with a specific network of pharmacies to keep costs to a minimum. Read carefully to be sure you know which pharmacy you will be required to use.

Should you become unhappy with your Medicare Plan D coverage at any time, you can change plans during open enrollment which runs from October 15th to December 7th each year.

What Is Original Medicare

Original Medicare consists of Medicare Part A and Part B. Part A covers inpatient care, such as hospital stays, hospice, and some types of home health care. Part B covers outpatient care, such as doctor’s visits, vaccinations, and preventative screenings. 

Original Medicare also covers prescription drugs that are part of a hospital stay covered under Part A, or that are part of an outpatient visit covered by Part B, but all other prescriptions must be covered by a Medicare Part D plan.

There are things Original Medicare does not cover, though. These include:

  • Dentures
  • Hearing aids
  • Vision care 
  • Dental care
  • Nursing home care

What Doctors Can I See Under Original Medicare?

There are no “in-network” providers under Original Medicare, so you are free to see any doctor you would like. However, there are a few things to know in order not to incur a large bill at your doctor’s office. 

First, your costs will be lowest with a provider who accepts Medicare and has agreed to Medicare’s approved rates. You can ask when you call to set your appointment if your provider is using these rates or if there will be additional charges above the Medicare-approved amount.

As with any health insurance company, Medicare will only cover their approved amount and any overage charged will be your responsibility. Knowing this ahead of time will allow you to plan ahead and budget for any expenses. 

You can also find tools online that allow you to compare providers and hospitals that accept Medicare. This will help you to locate a provider that is the best fit for you and also help you to make the best choice for your wallet.

What Is the Medicare Penalty?

If you decide not to sign up for Medicare Part B when you turn 65 and are not covered by another form of insurance, and you then decide to sign up for Medicare at a later time, there is a penalty. The penalty is 10% of the current standard premium for each year after you turned 65 that you waited to sign up.

You won’t incur this penalty, however, if you had health insurance when you were initially eligible to enroll in Medicare. Be aware, though, that you must sign up for Medicare within eight months of when your health insurance ends if you are 65, or the penalty will go into effect.

Can I Have Medicare and Other Insurance?

One of the great advantages of Medicare is that it will work in conjunction with your other insurance to help cover your medical bills. Medicare and your other health insurance company will coordinate to determine who will be the primary payer and who will follow up as the secondary payer. How these benefits play out and which insurance company pays in which order is dependent on many factors as well as your individual situation.

You can carry Medicare coverage alongside:

  • Retirement Benefits
  • Veteran’s Benefits

Can I Have Medicare and Medicaid?

Individuals can qualify for both Medicare and Medicaid based on financial need. When a person qualifies for both programs they are considered a Dual Eligible Beneficiary. 

When someone is dual eligible, their medical costs will be covered first by Medicare. Any remaining costs will be picked up by Medicaid. Medicaid will also cover some costs that Medicare does not such as nursing home charges.

What Is Medicaid?

Medicaid is a state and federal assistance program.  It aims to provide low-income residents health insurance and has no age or disability requirement. Medicaid eligibility is determined based on the modified adjusted gross income and other factors, such as qualifying as “medically needy.”

While Medicare requirements and benefits are the same nationwide, Medicaid differs from state to state.

What Is Medigap?

If you feel you may need additional insurance coverage, you may consider looking into Medigap. Medigap is supplemental insurance that offers added coverage to fill in the “gaps” of Original Medicare. It is only offered by private insurance companies and can only be purchased once you have both types of Medicare, Part A and Part B.

Medigap can also help pay for health care costs such as copays and deductibles. Some plans also add coverage for things such as health insurance for travel outside the United States. There are ten different Medigap plans to choose from in most states.

When you have a Medigap plan and have medical costs, Original Medicare pays its part and then your Medigap insurance coverage pays its portion. 

There are several key things to know about Medigap insurance coverage:

  • To add a Medigap plan, you must have both Medicare Part A and Part B.
  • You cannot purchase Medigap if you have Medicare Advantage.
  • A Medigap plan supplements your Medicare insurance plan, it does not add additional Medicare benefits (as Medicare Advantage does).
  • Medigap insurance is purchased through a private insurance company and premiums are paid to that company, in addition to any Medicare premiums.
  • If you and your spouse would both like Medigap coverage, you will both need to purchase your own Medigap plan. Medigap coverage is for one individual.
  • Your insurance company cannot cancel your Medigap policy due to health issues as long as you continue to pay your monthly premium.
  • Medigap policies no longer cover prescription drugs (after 2006).

How Are Medigap Plans Priced?

Medigap plans are priced using three different types of ratings. Here is how they differ:

  • Community-rated (also called “no age-rated”): These plans charge the same premium to everyone, no matter their age. When premiums go up, it is generally due to inflation or other factors, never due to age.
  • Issue-age-rated (also called “entry age-rated”): These plans charge you a premium based on the age you are when you purchase the policy. Based on this, premiums are lower for those who purchase policies at a younger age and do not change as you get older.
  • Attained-age-rated: These plans have rates based on your current age. Premiums start low but go up as you age.

It is also important to remember that insurance policy prices will differ from company to company based on discounts they may offer and the deductible you choose. 

What Is Medicare Advantage?

Medicare Part C is also known as Medicare Advantage. These plans are offered by private insurance companies and include Medicare Part A and Part B.

Individuals who choose a Medicare Advantage plan must continue to pay their Part B premium and they may also need to pay a premium to their private insurer as well. However, at times these plans are provided with no premium. 

Medicare Advantage plans often come with additional coverage as well, such as Medicare Part D (prescriptions), dental, vision, and hearing care.

Medicare Advantage differs from Original Medicare in that it offers an out-of-pocket limit on annual costs. Medicare Advantage plans are also limited to certain geographical areas, where Original Medicare plans are not. Medicare Advantage also requires pre-authorization and referrals for many types of care, another departure from Original Medicare.

What Is the Medicare Savings Program?

If you are concerned about how you will cover the costs of Medicare premiums you may want to check into the Medicare Savings Program. This program has four levels of assistance to help with premiums, copays, and deductibles. 

The Medicare Savings Programs are managed by each state’s Medicaid department. Participants’ eligibility is determined by financial need and other determining factors. You can contact the Medicaid department in your state to apply.

If you have Medicare Part D, you may also be eligible for the Extra-Help program. This program assists low-income individuals in affording necessary prescription drugs and helping with co-pays. This program is also available through your state’s Medicaid department.

How to Sign Up for Medicare

When you turn 65 you will be enrolled in Medicare benefits automatically if you are already received social security. This will include Medicare Part A and Part B. This means your inpatient hospital visits and outpatient doctor appointments will be covered. 

However, if you are not receiving social security at the time of your 65th birthday, you will need to sign up for Medicare coverage. You can sign up for Medicare Parts A and B up to three months before your birthday. 

If you want Medicare supplemental insurance or Medigap coverage, you will sign up through a private insurance company. There is a Medigap enrollment period that begins when you turn 65 and lasts for six months. During this six-month period, Medigap private insurance companies are required to sign you on for coverage. After this enrollment period ends, there is no guarantee you will be able to enroll for Medigap insurance.

Enrollment Periods for Medicare

If you are already drawing on Social Security, or if you qualify for disability benefits, you will be automatically enrolled in Medicare at age 65. Outside of this, you must know when you can enroll yourself in Medicare. Here are the enrollment timelines:

  • Initial Enrollment Period: If you are not automatically enrolled in Medicare, your initial enrollment period will last approximately seven months: three months before your birthday, your birthday month, and three months after your birthday. 
  • General Enrollment Period: If you do not sign up for Medicare during your initial enrollment period you must wait until a general enrollment period. This runs every year from January 1st to March 31st with coverage beginning on July 1st. Remember, depending on the conditions, if you wait there may be late penalties owed.
  • Special Enrollment Period: This type of enrollment period allows for individuals to enroll in Medicare based on life events that have occurred. These events may include moving to a new coverage area or leaving a job and needing insurance coverage.

Making Changes to Your Medicare Plan

Once you’re enrolled in Medicare you will also have the option to make changes to the plan you choose. The timeframe for making changes is dependent on your specific plan. Here is the breakdown:

  • Fall Open Enrollment: This enrollment period is for making changes to current Medicare plans. It runs from October 15th to December 7th each year. 
  • Medicare Advantage Open Enrollment: The period for changes to Advantage plans is January 1st to March 31st every year.

What Doesn’t Medicare Cover?

There are some needs that Medicare doesn’t cover and it can be important to know these to choose the plan and supplemental coverage that is best for you. Here are some of the most common costs not covered by Medicare:

  • Foot Care (unless specific to diabetes)
  • Eye Exams
  • Dental Exams
  • Cosmetic Surgery
  • Hearing Aids
  • Massage Therapy
  • Nursing Home Care

Is Mental Health Covered by Medicare?

Medicare will cover outpatient mental health counseling as long as you are seen by a licensed certified social worker (CSW).

If you are in need of inpatient treatment at a psychiatric facility, this will be covered by Medicare Part A, which covers hospital stays. You will be eligible for up to 190 days in your lifetime.

Are You Ready to Sign Up for Medicare?

If you’ve answered the question of “how does Medicare work” and you’re ready to get signed up, now may be the time.

There are multiple Medicare Plans available to meet your needs, at whatever stage of life you’re in. If you are wanting to start with the basics, try Medicare Original, Part A and Part B.

Or if you would like to go a bit bigger and include Medicare Part D, we are here to help. Contact us today for expert advice.

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