Understanding Medicare, Parts A – D, and Medigap Policies

by Glenn J. Downing, MBA, CFP®

Part A

Original Medicare is a creation of the Johnson administration in 1965.  Medicare is health insurance for those age 65+.  There is a premium associated with coverage, and this premium is deducted from the social security benefit.  As with any government program, there is nothing easy to understand about Medicare.  In this blog entry I’ll try to cover the highlights.

 

Please don’t confuse Medicare with Medicaid.  Medicare is health insurance; Medicaid is a state welfare benefit.  The Medicare beneficiary is age 65, or is someone who has been receiving social security disability for more than 2 years.  Coverage is for individuals; therefore, a retiree of age 65 cannot cover his spouse of 63 on the same policy.  The spouse will have to wait two more years to elect coverage.

 

Basically, Medicare Part A covers hospitalization, and Part B covers doctors.  For Part A the premium is on a sliding scale, from $0 to $411/month.  For part B, most pay $104.90 per month and a $166.00/year deductible.

 

In 2016 Medicare Part A pays hospitalization benefits for 150 days after one 3-day hospital stay.  There is a copay involved:  for the first 60 days, Medicare picks up the full tab, after a $1288 deductible.    Then for the next 30 days there is a copay of $322 per day, and for the final 60 days there is a deductible of $644 per day.  After 150 days there is no coverage – you’re on your own.

 

If you’ve been hospitalized for more than 3 days, then you are covered for post-hospital care in a skilled nursing facility for up to 100 days, as well as an unlimited number of post-hospital home health services.   Medicare Part A covers hospice care as well.

 

Part B

 

When you hear Medicare Part B, think doctors and tests.  Part B covers doctor’s services (including surgeries) at the doctor’s office or other institution (i.e. hospital, assisted living facility, or nursing home).  Also covered are diagnostic tests, radiology and pathology, drugs that cannot be self-administered, and limited treatment for mental illness.  Part B also covers outpatient services from a participating hospital for treatment of an illness or injury, and unlimited home health services (same as Part A).

 

Preventive care services are also covered under Medicare Part B.  These include mammograms and colorectal cancer screening, as well as an annual physical.  Depression screening, counseling for alcohol misuse and obesity are covered.  Medically necessary supplies, such as wheelchairs and walkers, are also covered under Part B, as are ambulance services.

 

After you’ve paid your annual deductible under Part B, you are responsible or 20% of approved charges – this is your out-of-pocket expense.

 

What’s excluded?  Neither Part A nor Part B covers any dental expense nor dentures, nor does it cover eye exams or hearing aids.  Although one flu shot per year is covered, most other immunizations are excluded.  Rx drugs are also not covered under Parts A and B.  You’re also on your own for that tummy tuck or eye lift.

 

Part C

 

Since there is Medicare Part A and B, and new relatively new Part D for prescription drugs (see later), then what is Part C?

 

Around 1/3 of Medicare beneficiaries choose to get their benefits from a Medicare Advantage Plan, aka Medicare private health plan, aka Part C.  Medicare Advantage Plans contract with the federal government and are paid a fixed amount per person to provide benefits.  These are typically HMOs (health maintenance organizations); PPOs (preferred provider organizations; and PFFs (private fee-for-service providers).

 

You must have Medicare Parts A and B to enroll in a Medicare Advantage plan.  There will be an additional premium for this coverage.  The benefits provided under Part C must generally be equal to or superior to those of original Medicare, with the exception of hospice care, which isn’t provided.  Medicare Advantage plans may offer additional coverages, such as vision, hearing, and dental, and/or health and wellness programs.  Most plans include Medicare Part D (prescription drug coverage).

 

Part D

 

Medicare Part D is a creature of the Bush administration.  It adds prescription drug coverage to original Medicare.  You cannot have drug coverage under both Part D and Medicare Advantage.  If you at some point add Medicare Part D and already have a Medicare Advantage plan, that plan will need to delete its Rx coverage.  There is no coverage anywhere in the Medicare program for over the counter drugs.

 

Medigap Policies

 

Clearly there are a lot of gaps in Medicare coverage.  Any sort of hospital stay that lasts past 2 months could run up a tab of thousands of dollars.  Medigap insurance can cover these out-of-pocket costs.

 

A Medicare Supplement Insurance policy, known as medigap, is designed to cover the deductibles and co-insurance amounts of Parts A and B.  These policies are sold by private insurance companies.  To be eligible you must have Parts A and B, but cannot have Part C or a MSA (medical savings account) – the are mutually exclusive.  They are sold to individuals, soa husband and wife need two policies.  They are guaranteed renewable, meaning the insurance company can’t drop you due to your claims history.

 

The coverage of medigap policies vary by plan chosen – plans A through N.  Please see the chart below.  There is not a way to get 100% coverage – the insured must choose the coverage that’s most important.

 

MedigapBenefits MedigapPlans
A B C D F* G K L M N
Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Part B coinsurance or copayment Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes***
Blood (first 3 pints) Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes
Part A hospice care coinsurance or copayment Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes
Skilled nursing facility care coinsurance No No Yes Yes Yes Yes 50% 75% Yes Yes
Part A deductible No Yes Yes Yes Yes Yes 50% 75% 50% Yes
Part B deductible No No Yes No Yes No No No No No
Part B excess charge No No No No Yes Yes No No No No
Foreign travel exchange (up to plan limits) No No 80% 80% 80% 80% No No 80% 80%
Out-of-pocket limit** N/A N/A N/A N/A N/A N/A  $4,960  $2,480 N/A

 

 

This article is by no means exhaustive.  It is meant to give a general overview of the Medicare program.  Health insurance coverage for someone who is planning retirement is a serious issue, and one which requires due diligence.  The largest risk a retiree faces to financial stability is a long and debilitating illness.  It is important to consider carefully the coverage to purchase, and the out-of-pocket costs associated with that coverage.

 

The rules for signing up for the various Medicare parts are complex (as is anything coming out of the federal government) and beyond the scope of this entry.  For more information, medicare.gov is a great resource.

 

I hope we’ve provided good information for you here.  If you have any questions, by all means get in touch:  info@cameron-downing.com.  Visit our website at www.cameron-downing.com, where you’ll see all of our blog entries and be able to book an appointment to come see us.

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