What is Medicare?
Medicare is a United States federal health insurance scheme for people aged 65 and older. It also covers certain other eligible groups. Medicare is also the official name of Australia’s publicly funded universal health care insurance and an unofficial name for Canada’s publicly funded health care system. This article deals with the U.S. scheme.
Medicare helps U.S. seniors to manage and contain their medical costs as they get older. However, it does not cover all the costs of medical care.
To get the best out of Medicare, individuals need to know the rules on enrolment and coverage. A thorough assessment of needs and budgets will go far in helping to choose the right options. It is also important to review plans regularly.
This article is an indicative summary of Medicare. Much of the information here comes from the U.S. government’s Medicare and the AARP’s Medicare Made Easy websites. Readers should refer to these sites for more exhaustive information.
What is in Medicare?
There are several parts to Medicare: hospital care (Part A), medical care (Part B), Medicare Advantage (Part C), and prescription drugs (Part D).
When people enrol for Medicare, they need to decide between Original Medicare and Medicare Advantage. With Original Medicare, they sign up separately for different plans. With Medicare Advantage, they sign up for one-stop coverage with a private insurer.
There are pros and cons with both options, and they vary with individual circumstances.
Who is eligible?
The majority of those who qualify for Medicare are U.S. residents aged 65 and older. The scheme also covers younger people with disabilities, and those with end-stage renal disease and amyotrophic lateral sclerosis (ALS), or Lou Gehrig’s disease.
People in receipt of social security benefits when they turn 65 are automatically enrolled in Part A and Part B. If they want Part D as well, they will have to enrol themselves.
Those not in receipt of social security when they turn 65 have to sign up during a 7-month period around their 65th birthday. If they miss this window, they could be subject to penalties.
Medicare is a different program than Medicaid, which offers health and other services to eligible low-income people of all ages.
Part A – Hospital care
Part A covers most of the costs of hospital stays. It also includes care in a skilled nursing facility, such as rehabilitation after a stay in hospital due to a broken hip or stroke. In addition, it covers hospice care and certain types of healthcare for those who are homebound.
Most beneficiaries don’t have to pay insurance premiums for Part A because they have already paid through tax on their earnings for sufficient years.
However, this does not mean that there is nothing to pay. Each time a person goes into hospital, Medicare charges a deductible.
The Part A deductible covers a share of the costs for the first 60 days of inpatient care. After that period, there are additional daily payments called coinsurance.
Every year, the Centers for Medicare & Medicaid Services (CMS), set the amount that people have to pay for deductibles and premiums.
The Part A inpatient hospital deductible for 2020 is US$1,408.
People can buy additional cover called Medigap to insure themselves against Part A deductibles and certain other out-of-pocket Medicare costs.
Part B – Doctors, outpatient, preventive services
Part B of Medicare covers doctor visits and various outpatient services, including laboratory tests and ambulance transportation.
This part also covers preventive programs and durable medical equipment. Examples of preventive programs include annual wellness checks, vaccines, and screening for early disease signs. Durable medical equipment includes items such as walking frames and wheelchairs.
Part B involves more costs than Part A. Some working seniors with insurance cover through their job – or from a spouse’s health scheme – may prefer to put off joining Part B.
However, beneficiaries who don’t have another insurance plan and put off Part B when they first enroll in Medicare, are likely to have to pay higher monthly premium.
For 2020, the CMS have set the standard monthly premium for Medicare Part B at US$144.60. They have set the annual deductible at US$198. In addition, beneficiaries have to pay 20% of the bills for doctor visits and other types of outpatient services.
Part C – Medicare Advantage
Medicare Advantage is an all-in-one alternative to Original Medicare from a private health insurer.
The private insurer contracts with Medicare to provide all the Part A and Part B benefits. Most plans also include Part D coverage for prescription drugs. In this way, most Medicare services are covered through a Medicare Advantage plan.
The government requires that these plans include everything covered under Original Medicare. Some plans also cover services that Original Medicare does not, such as vision and dental care.
Health maintenance organization (HMO) plans and preferred provider organization (PPO) plans are among the most common types of Medicare Advantage plans.
It is important to read all the details when deciding on a Medicare Advantage plan.
For instance, there could be differences in the management of primary care and access to specialists.
Typically, with an HMO plan, you choose one physician for primary care and they will refer you to a specialist. A typical PPO plan offers access to a network of doctors and facilities and you most likely will not need a referral. The latter could be more suitable for someone who is not resident in one place.
Part D – Drug coverage
Part D covers prescription drugs. The plans are purchased from a private insurer. Each plan must cover at least a standard minimum level set by Medicare.
Plans can vary the prescription drugs that they cover. These are set out in a list called a formulary. Many plans – to keep the costs down – offer drugs in different tiers in their formularies. Different plans arrange their tiers differently and also cost them differently. In general, the higher the tier, the higher the cost of the drug.
For example, a Part D plan might arrange its prescription drug tiers as follows:
– Tier 1 (lowest copayment) covering most generic drugs
– Tier 2 (medium copayment) covering preferred branded drugs
– Tier 3 (highest copayment) covering non-preferred branded drugs
– Specialty tier (highest copayment) for very expensive drugs
Each Part D plan generally incurs some premiums. They typically also have out-of-pocket costs: some plans charge them as a flat copayment per drug or as a percentage of the cost. They may also incur an annual deductible.
Until 2020, drug plans had a coverage gap, also known as the doughnut hole. However, in 2020, there will be no more doughnut holes and beneficiaries will likely pay no more than 25% of the cost of their prescription drugs.
People with very big prescription drug bills may qualify for catastrophic coverage.
Because the formularies, or lists of drugs covered, change every year, it is important that people check them regularly to ensure they have the right plan.
Video – Medicare terminology
The following short video from AARP explains some of the common terms in Medicare’s vocabulary.