There are plenty of resources online to get tons of tiny details about Medicare. This isn’t that…
But this short article should be everyone’s first read about the Medicare system. It’s course 001.
After hundreds of conversations with people new to Medicare, I’ve found a summary structure that works. From there, the individual decisions are much easier. An enrollee can dive back into the weeds for that…but at exactly the right place!
The Medicare System – And your spot within it
Original Medicare (OM) goes back to 1965; it consists of hospitalization coverage (Part A) and medical coverage (Part B). “Medical” means doctor visits, tests, and other outpatient services. Part A is completely paid for by your taxes over the years. Part B requires a premium. In 2022, that premium is $170.10/month. It will be more if you’re high income. If you have employer or union coverage that’s a better value, keep it and put off Part B. Don’t let an agent make you think you have to enroll in Medicare at age 65.
Under OM, the patient is responsible for 20% of the costs. In 2021, most of us are very afraid of that 20%. We need cost protection, and there are two general strategies for it: 1) Medicare Advantage (Part C) or 2) Medicare Supplement plans (aka Medigap). Both are optional, but choosing one is highly recommended.
Financial assistance is available to help with premiums and co-pays. There are a few programs at the national level through Medicare. More common is to go through your state’s Medicaid program for assistance.
Medicare Advantage (aka Part C)
These plans are offered by private insurance companies. They come in different flavors—the most popular are Health Maintenance Organizations (HMO) and Preferred Provider Organization (PPO). These plans require you to stick with a network of providers. HMOs have stricter provider network rules than PPOs. With an HMO, you’ll pay a bit less out of pocket with deductibles, copays and coinsurance vs a PPO.
Other Medicare Advantage plan styles are less popular, but one that is interesting is Medical Savings Account (MSA). These are similar to Health Savings Accounts (HSA). With an MSA, you have a high deductible plan and the plan deposits money ($2,000 is typical) into an account for you to pay your expenses. In many cases, you can take this money and do what you want (including invest it). If your medical expenses exceed your deposit, you must go out of pocket to make up the difference. Very importantly, you’re protected with an annual maximum. Typical member responsibility maxes out at $3,000 or $5,000 in a year. Also, you’re not limited to a network of providers. MSAs can be a good idea for very healthy people who travel a lot and who have financial resources to withstand the maximum out of pocket in a year.
Many Medicare Advantage plans (HMOs, PPOs, MSAs), especially in Nevada, have $0 premiums. That’s not a typo. Most of them also include your required prescription coverage (see below). They all set an annual out-of-pocket maximum which ranges from $1,000 to $7,500. For these reasons, Medicare Advantage is the more popular cost protection strategy. All MSAs are $0 premiums by law and none of them include prescription coverage.
Medicare Supplements (aka Medigap)
These plans are also offered by private insurance companies. During your initial enrollment period around your 65th birthday, you’re guaranteed acceptance. After that, your application is analyzed (underwritten) by the insurance company and they can set higher rates or deny you completely, based on your health.
These plans are standardized and identified by letters A-N. The coverage is standard, but the prices vary by insurance company! Plan G is easily the most popular for people new to Medicare. Plan F was the most popular but isn’t offered to anyone not eligible before January 1, 2020. Plan G pays for all your hospitalization and medical costs, except your Part B premium ($158.50 per month) and your Part B deductible ($217 per year). You don’t need to stick to any network of providers. For a 65-year-old, Medicare Supplements (Plan G) will cost you $170 – $200 per month more than Medicare Advantage. If that’s not a significant amount of money for you, or you insist on maximum provider options, this may be the better choice.
And Finally – Prescriptions (Part D)
Part D prescription coverage was born in 2003. You must have prescription coverage at Medicare age or face penalties. If you have other “creditable” coverage through employer or union, that’s fine. Most Medicare Advantage plans include Part D. Medicare Supplements and MSAs don’t, so you’ll have to purchase a standalone Prescription Drug Plan (PDP). In Nevada, these plans range from under $10 per month up to almost $100.
That’s it! After reading that, you probably have a very good idea of where you fit, and that’s the point. Now you can dive back into the weeds, with the help of a good broker and narrow down your choices based on your doctors and your ongoing need for meds.