My original title for this article was Medicare Made Easy. This sounds like an oxymoron but with a few basics, some history, and a few charts, I can have you up to speed in no time.
But first, I would like to start with a disclaimer and some words of wisdom. This information is for educational purposes only.
This system is regulated by our Government and changes each year. This information is current as of 2019, but the educational value and history will always be relevant. I am also not giving legal or financial advice.
This is a general overview and not meant to give you specific advice. Your financial and health situation is unique. BE WARY of anybody who gives you advice without knowing your complete picture.
There are a lot of scammers out there which I will cover later on. Please be guarded with your private information, until you are sure you are working with somebody who places your best interest ahead of yours!
Let’s begin with the basics.
There are three separate systems that you will be working with.
The first is Original Medicare. The second is Medigap which is also called a Medicare Supplement. They mean the same thing. The third is called Medicare Advantage. All three of these are part of The Medicare System.
Let’s start with Original Medicare.
On July 30, 1965, President Lyndon B. Johnson signed into law the Medicare and Medicaid laws. However, they didn’t go into effect until 1966. Ironically, President Truman and his wife, who had tried to get it passed into law 20 years earlier, became the first beneficiaries.
The original Medicare program included Part A (Hospital Insurance) and Part B (Medical Insurance). Today these 2 programs are referred to as “Original Medicare.” Over the years, Congress has made many changes to Medicare.
Medicaid was also created at this time to take care of people who were underprivileged and couldn’t afford to pay for their health insurance. Originally, Medicaid covered low income families, pregnant women, people with disabilities, and people in need of long term care. Medicaid is an entirely different entity and not the topic of this writing.
Original Medicare – Partners with Uncle Sam
Medicare is administered by the government and the government paid the claims. Here is how it works:
There are two parts. Part A is for Hospital Expenses. Part B is for Doctor Expenses. To be eligible for either part, you need to be age 65 or older AND have 40 quarters (ten years) of paying taxed in the workplace. You can also be eligible below 65 if you become disabled.
When you elect to take Part A and/or Part B, you get Part A for free and you get Part B for with a premium. This premium changes each year and typically increases each year. There is also a scale that determines how much your cost will be based on your income.
Using Original Medicare
When you get sick, you go to see your Doctor. Any Doctor who takes Original Medicare. You do NOT need a referral. The Doctor has already agreed to charge a specific rate for services as dictated by the government. You pay your deductible charges and the Doctor bills Medicare for their portion. Seem easy enough? I told you you could get this!
The Cost of Original Medicare
While we already covered the cost of Part B, which is paid monthly, there are some much higher costs you will pay in the form of co-pays and deductibles. Let’s take a look at some of these.
Let’s start with Part A. Hospital Benefits.
- First is the Part A Deductible: $1,340 per HOSPITAL BENEFIT PERIOD. This means you will pay the first $1,340 before your benefits begin to help out. Why did I highlight HOSPITAL BENEFIT PERIOD? Because it is very important and often not understood. It begins when you have been admitted to the hospital and ends 60 days after you have been released from the hospital. After that 60 day window, you will have to pay another $1,340 deductible.This can be a tremendous burdon for somebody living on a Social Security check.
- Second is the Part A Copay for days 61 through 90: $335 Per DAY. So you have paid your $1,340 and you start to relax. Your friends send you get well soon cards. You had better heed their advice, for after 61 days, you start paying $335 every day you remain in the hospital. This could ad ut to another $9,715 cost to you.
- Third, we have the Part A Copay for days 91 through 150: $670 Per DAY . Need a little more time? After 91 days you start paying $670 per day for a potential cost to you of $19,430.
- Next is the Part A Copay for days 151 on: $You pay it ALL.
- Fifth comes the Part A Skilled Nursing days 21 to 100: $164.50 per DAY. You are now looking at another potential $12,995.50 ON TOP OF your hospital co-pays listed above.
- Finally, we have the Part A Skilled Nursing 101 plus days: You pay it ALL.
Part B: Doctors Benefits
- First, comes the Part B Deductible: $183 Per YEAR. Not hard to handle as you only pay this once a year for all doctors costs.
- More important is the Part B Copay: 20% of the Medicare approved Amount. This is unlimited and 20% of infinity can be a life changing number.
As you can see, your health care costs could be huge. This is why Medigap or Medicare Supplements were invented.
Along Comes Medicare Supplements
Medicare Supplements, originally called Medigap was introduced under the President Carter administration.
This is important to understand! A Medigap policy is placed ON TOP of Original Medicare. It pays what Parts A and B don’t pay according to the Medigap plan you buy. It is like you have a Homeowners insurance policy AND an Umbrella policy. Your homeowners policy pays up to the limits of the policy, and then the umbrella policy kicks in to cover up to its limit.
While the government STILL pays for your Parts A and B, the Medigap policy starts paying all those other life changing costs listed above. This is a huge piece of mind and an amazing deal considering the average policy runs from around $100 to $400 per month on average. Furthermore, at the time of this writing, I am 60 and my individual health policy costs me just under $1,000 per month. With a $1,200 deductible!
This is also critical to know in order to understand this whole puzzle. Original Medicare is run by the government. Medigap policies are run by the insurance companies and only regulated by the government. Why is this critical to know? Because you now know why you have to pay your Part B premium AND your Medigap premium. You also now why the insurance companies have the right to deny you coverage due to medical underwriting. With a big exception.
You have a 13 month window, 6 month before, the month of, and 6 months after your 65th birthday. This is your Guaranteed Acceptance Period and the insurance companies can’t turn you down for coverage. You do NOT want to miss this window. You can enroll at anytime in the future with no open enrollment concerns, but you will need to be in good health.
There are hundreds of insurance companies that sell Medigap policies. there is a wide range in costs between these policies. Consequently, it is hard to decide which one to buy. I want to let you in on a little known secret. There is NO difference in the coverage these companies give. This is mandated by the government! The only difference is the service and the strength of these companies. This makes your best choice the lowest cost, highest rated carrier.
Medigap plans are sold by the letter. As plans are discontinued, the letters disappear. Here is a list of the plans available in 2019. Plan F is the most popular out there as it covers most everything. You can plan on having no health care costs other than your Plan B and Medigap premium costs.
Why then, are the other choices there? Budget and perception. Take plan F for example. The ONLY difference between it and Plan G is the once per year $183 Part B deductible. Plan F pays it while Plan G does not. Most agents selling Medigap only present Plan F. When you consider that the cost of Plan F is around $40 more per month than plan G, you are spending at least $480 to save $183 on the deductible. It makes no sense.
Insurance Death Spiral
As a matter of fact, Plan F is being discontinued. This means the premiums will likely go up faster as there is no new money coming into the pool to offset rising health care expenses. On top of this, only the healthy who can quality to go to another plan will leave for a lower cost plan, leaving the sick with high insurance claims. This is the insurance death spiral. If you are healthy, you may want to switch to Plan G if possible while you can.
Something Is Missing!
There is something missing from both Original Medicare AND Medigap policies. Have you figured out what this is? Prescription Drugs! As the price of drugs skyrocketed in the 1980’s the government decided to step in. Enter Medicare Choice (now called Advantage).
Along Comes Medicare Advantage
The Development of Medicare Advantage
In 1997, President Bush set into law the Balanced Budget Act. This act created a program called Medicare Choice. It was known as Part C. This was to layer on top of Original Medicare Parts A and B.
Then, in 2003, President Bush created Medicare Part D and Medicare Choice plans were renamed to Medicare Advantage plans. Prior to 2003, Medicare did not offer coverage on prescription drugs. This new addition allowed beneficiaries to get their health and prescription coverage through a single plan using one ID card.
Here is where it gets tricky
Medicare Advantage Part C is not layered on top of Original Medicare like a Medigap plan is. It is a REPLACEMENT for Parts A and B. It covers the same services as A and B, but is done through the insurance companies instead of the government. The Advantage plans are regulated to the minimum standards which are better than Original Medicare, but the insurance companies can deliver a higher standard than the regulated minimum. As a matter of fact, you can’t file claims with original medicare. They have to go through your insurance company if you choose Advantage.
Advantage Part D is also through the insurance companies and covers prescriptions. As Original Medicare and Medigap plans don’t cover drugs, it CAN be layered with either Original Medicare or Medigap plans.
By now, you are probably thinking Why do we even need Parts C and D. Well, Part D is easy to answer. Before part D came into play, we had no Prescription coverage. Part C is a little harder to answer, bur in a nutshell, it was for the following reasons:
- Cheaper Cost than Medigap
- The public wanted choices
- The government wanted out of the health management business
- Insurance companies could deliver lower cost, higher coverage than Original Medicare
- Several other less significant reasons.
Looking Behind the Advantage Curtain
In the State of Nevada, for instance, you can get a basic Advantage (Part C and D) for FREE! How is this possible? Just follow the money:
- You pay into the medicare system over the course of your life.
- The government plans a benefit amount for you based on what you contribute. This is roughly $900 per month per person. I consider this an unfunded obligation as the money went into a general fund instead of a fund with your name on it.
- You hit retirement and turn on Original Medicare Parts A and B and start paying your Part B premium.
- You decide you want a Medicare Advantage plan and sign up for one.
- The government pays that $900 allocation (called a capitation rate) to the insurance company that you bought your Advantage Plan through.
- This Capitation (Cap) rate is enough to pay your expenses and allow the insurance company enough money to make a profit.
Hopefully, you were able to follow this.
Advantages of an Advantage Plan over Original Medicare
The biggest advantage by far is that by law, there is a cap on what you will have to pay for medical expenses if you use the plan correctly. This is called the Maximum Out Of Pocket or MOOP. It can range anywhere from $0 to $6,700. This is infinitely better than the unlimited Original Medicare.
This Cap is extremely important, but it does come with some big trade offs. First, Most Advantage (Part C) plans are HMO’s and you can only go to the Doctor in your home area. The exception is Emergency Room visits while traveling. Consequently, you are limited to see only the Doctors in the network of your home market. Original Medicare, on the other hand, lets you see ANY Doctor that accepts Medicare, anywhere in the country.
Next, you most likely will NOT be able to go to high end centers like The Mayo Clinic, Scripts, or Johns Hopkins. Advanced, cutting edge treatments will probably be off the table.
Medicare Advantage Versus Medigap
The table above compares Advantage Part C with Medigap plans in general. However, there are far too many small differences for the scope of this writing. In a nutshell, Medigap is the best way to go for those who can afford it, wish limit their medical expenses to only the premiums they pay, and want to get coverage from any Doctor, anywhere.
Medicare Advantage, on the other hand, is best for those looking for the lowest monthly insurance cost, and the easiest all in one plan.
While I introduced Part D, it is beyond the scope of this article. It is quite detailed and warrants a separate chapter. Watch for the Part D chapter coming at a later date.
Bringing it all Together
To sum it all up, you basically have three choices.
1: Stick with Original Medicare
2: Keep Original Medicare and add a Medigap plan
3: Sign up for Original Medicare and Enroll in a Medicare Advantage Plan
Of course, it is wise to add Part D to all of the above.
I hope this article gives you a better understanding of the Medicare System. There have been many books and volumes of articles written on it. I have purposely left out a lot of the details in order to make this easy to understand. For a deeper dive, please visit www.greatpast60.com and search for medicare. You will find information to take you as deep as you wish to go.
You can also email me at email@example.com or firstname.lastname@example.org with your questions. Please include your question, email address, name and phone number. I will either email or call, depending on the complexity of the question. Please share this with your friends.
I wish you peace and good health.