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How Medicare Works: The nuts and bolts

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Knowing how Medicare works is crucial to getting the right coverage and using it properly. It involves knowing what it is, the different parts, who is eligible to receive it, and how and when to obtain it. 

What is Medicare insurance?  

Medicare insurance is the federal health insurance program for elderly people and younger how medicare workspeople who meet other eligibility requirements. Original Medicare consists of Part A and Part B. There is also Medicare Parts C and D which are provisions of private insurance companies.

Who is eligible for Medicare?

The age for Medicare eligibility is 65.  Younger people with disabilities and persons with end-stage kidney disease are also eligible; the kidney disease must require dialysis or kidney transplant though.

What is Medicare Part A?    

Medicare Part A is the part of the original insurance plan that covers a portion of your medical expenses for inpatient treatment and other types of care distinct from outpatient treatment. Inpatient treatment is care provided in a hospital.

Medicare Part A coverage

In addition to care provided in a hospital, Part A also covers the following:

  • treatment in a skilled care nursing facility
  • treatment in a nursing home (as long as custodial care is not the only care needed)
  • hospice care
  • home healthcare

Part A does not cover deductibles and copayments though. The current Medicare deductible for 2018 is $ 1,316. Coinsurance is the dollar amount a patient is required to pay for each hospital day exceeding a specified limit during a hospital benefit period.   

For 2018 Medicare Part A covers all hospital expenses for days 1 through 60 of a hospital benefit period.  For hospital stays between 60 and 90 days within a hospital benefit period it covers all of the hospital expenses except for $329 per day. For stays exceeding 90 days it covers all of the expenses except for $658 a day until a person has used up all of his or her lifetime reserve days. 

All Medicare beneficiaries have 60 reserve days in their lifetime that they can utilize during any hospitalization to limit their coinsurance requirement. Once they use up those 60 days no more are available in their lifetime.    

Once you have used up all of your allotted 60 lifetime reserve days you are responsible for all of the daily hospital charges during a hospital benefit period unless you have Medigap coverage.

What is the cost of Medicare Part A?

There is no monthly premium for most people who have paid into the Medicare system during their working years. Those who haven’t though, have to purchase it and pay a monthly premium.  It might cost up to $413 per month.

What is Medicare Part B?  

Medicare Part B is the part of the original Medicare plan that covers a portion of your expenses for many forms of outpatient treatment and other services. Outpatient treatment is care provided outside of a hospital.

Medicare Part B coverage

Some of the more common services and items that Part B covers are the following:

  • Day surgery (same-day surgery) (outpatient surgery)
  • Doctor office visits
  • Lab tests
  • X-rays
  • Preventive healthcare like cancer screening and vaccines
  • Supplies such as blood sugar test strips, canes, wheelchairs, therapeutic shoes, etc.   

Much like part A, Part B has a deductible and coinsurance requirement. The deductible for 2018 is $183. Part B coinsurance is 20%. This is the percentage of the cost of the care you receive that you are responsible for paying after meeting your deductible.  Medicare part B covers 80% of the Medicare approved amount of most doctor services (including those provided in the hospital); outpatient treatment; and durable medical equipment.

What is the cost of Medicare Part B?

The standard monthly Part B premium is $134, but might be higher depending on your income. Most people who receive Social Security benefits will pay less than this amount however.  On the average it is around $109 per month.

What is a Medicare supplement plan?    

Medicare supplemental insurance is coverage offered by a private company that meets out-of-pocket expenses that original Medicare does not. Medigap is another name for it. It works with Original Medicare, but not Medicare Part C.   

There are 10 plans standardized by federal law. They are plans A, B, C, D, F, G, K, L, M, and N, of which there are some differences in benefits between plans.  The benefits each plan provides are the same, regardless of the company offering it. The cost of each plan varies from one insurance company to another though.

How do Original Medicare and Medigap work together?

Depending on the plan you choose Medigap may cover all or a portion of your deductible and/or coinsurance for basic Medicare Part A and/or Part B health care. Some other things it might cover are services which original Medicare does not. The following are some examples:  

  • Acupuncture
  • Cosmetic care
  • Dental care and dentures
  • Eyeglasses and related exams
  • Hearing aids and related exams
  • Long-term (custodial) care
  • Routine foot care by a podiatrist

The difference between Medicare and Medicaid

Medicaid can be a person’s primary insurance.  But it might also be the person’s secondary insurance if he or she has Original Medicare.  In the case of the latter it would serve a very similar function to Medigap.

What’s Medicare Advantage insurance?    how medicare works

Medicare Advantage plans and Medicare Part C are interchangeable terms. It is optional Medicare coverage through private insurance companies rather than through Original Medicare. Medicare pays the private plan a fixed amount monthly. Members also pay the plan a monthly premium over and above the regular Medicare Part B premium in order to obtain coverage for items that Medicare parts A and B don’t cover. Most of the plans are HMO or PPO managed care plans.  In general, Advantage Plans offer drug coverage. Therefore, by choosing the right Advantage Plan you can obtain Part A, Part B, the equivalent of Medigap and Part D coverage under one policy and through one company.

What is Medicare Part D?  

Medicare Part D is a prescription drug plan that a private insurance company provides. To be eligible you must have Medicare Part A or Part B. Each drug plan has its own formulary. The cost of comparable coverage varies between insurance companies. Many of the plans place the drugs in different tiers based on their cost. A drug in a lower tier will typically cost you less than one in a higher tier.

It is not necessary to purchase Part D coverage if you have prescription drug coverage through an Advantage Plan.  In fact, it is illegal for a company to sell you Part D coverage if you have prescription drug coverage through an Advantage Plan.

When is enrollment for Medicare?

Medicare insurance goes into effect automatically with a disability. But such is not the case whenhow medicare works you turn 65. You must enroll. There are different types of enrollments depending on the type of Medicare you are applying for and what you want to accomplish.

Medicare initial enrollment is for persons signing up for Parts A and B benefits for the first time. If you are about to turn 65 it is the six-month period beginning three months before the month of your 65th birthday and ending three months after it. You also have the option of adding Part D coverage or choosing a Part C plan during this same timeframe. If you enroll during the three months before your birthday coverage typically starts on the first day of the month of your birthday. If your birthday is on the first day of a month though, coverage begins the first day of the prior month. If you enroll during the first, second, or third month after your birthday coverage starts 3, 5, and 6 months after your birthday respectively.   

If you miss the initial enrollment period you can sign up during the Medicare general enrollment which is between January 1 and March 31 of each year; but your coverage will not begin until July of that year. Also a late penalty might apply.   

Medicare open enrollment is a period of time when people can reevaluate and make changes to their Medicare coverage. It is from October 15 through December 7 of each year. Changes that can be made are the following:

  • Switch from Parts A & B to a Part C plan
  • Switch from a Part C plan back to Parts A & B
  • Switch from one Part C plan to a different one
  • Add, drop, or switch a Part D prescription drug plan

The changes take effect on January 1 of the following year. Medicare open enrollment 2018 is from October 15, 2017 through December 7, 2017.

You cannot enroll in Medicare for the first time during open enrollment. You have to do so during initial or general enrollment.  

Medigap open enrollment is the 6-month period of time that you can sign up for Medicare supplemental insurance.  The period begins automatically the month you turn 65 or older and have enrolled in Medicare Part B. Sign up during this period will exempt you from any pre-existing illness coverage exclusions. There is no guarantee that an insurance company will sell you Medigap coverage at all if you apply beyond this period though. Moreover, if you are able to purchase coverage beyond this time it might cost you more in the form of a higher premium.

Medicare sign up

There are four options regarding original Medicare signup. They are in person at a local Social Security office, over the telephone, online, or by mail. The number to call to sign-up by telephone is 1-800-772-1213.  The easiest way to apply is online.  

You don’t visit the Medicare official website to complete a Medicare application online. Instead, you do so by clicking the Apply for Medicare Only link on the Social Security website.  You can complete the application online in the comfort of your home. By saving the information you do not have to complete the application in one sitting even though it is a fairly short process.   

Application for the other parts of Medicare must be through the private insurance companies offering the coverage you want. The ways to apply depend on the company, but for most, it is the same four ways you can apply for Original Medicare.

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