What Is Medicare? Understanding the Types of Medicare and What Medicare.gov Has to Offer
Medicare can be confusing. The alphabet soup that is Medicare Part A, Part B, Part C, Part D, and so on can be overwhelming. Since Medicare is a frustrating topic for many people, we can provide you with the critical information you need to understand before enrolling in a Medicare program. That will help ensure you get the Medicare plan that best meets your needs.
The History of Medicare
Medicare is an entitlement program, like Social Security, that each citizen of the United States is entitled to benefit from. It’s funded by payroll tax deductions for a specified period. If you don’t’t meet the minimum working requirement or contribution level laid out by the federal government, you might still be eligible to receive these benefits, but you may be required to pay more for them.
Established by the federal government in 1965 under the Johnson administration, Medicare was created to provide medical assistance to people who are 65 years of age or older. The program was tied to the Social Security Act as a social safety net to ensure that older members of the population would have access to affordable health care. Over time, additional coverages were added by different administrations to help keep costs down for inpatient care and prescriptions (through the creation of Medicare Part D).
Medicare is managed by the Centers for Medicare and Medicaid Services (CMS), which falls under the Department of Health and Human Services. Although the program is primarily designed to support people over the age of 65, adults with certain health conditions such as end-stage renal disease (ESRD), Lou Gehrig’s disease, and permanent disabilities may be eligible for coverage under Medicare.
Medicare comes in four different parts:
Medicare Part A – Covers hospital charges
Medicare Part B – Covers physician services
Medicare Part C – Known as Medicare Advantage; handled by private insurance companies
Medicare Part D – Covers pharmacy-related items
We cover the different parts of Medicare in greater detail below.
What Is Medicare Part A?
Medicare Part A is considered part of “Original Medicare” and covers hospital/inpatient services. Medicare Part A has been expanded to include some home health services, hospice, and small amounts of time in a skilled nursing facility (SNF), as needed, but Medicare Part A’s primary use is for hospital-based needs.
As long as you have 40 quarters (10 years) of employment and have paid into Medicare via payroll taxes, you will most likely qualify for Medicare Part A without a premium. Otherwise, you will be responsible for paying a premium each month for Medicare coverage.
Medicare Part A works the same as many of the private health insurance policies on the market — the beneficiary (the person enrolled in Medicare) has additional financial responsibility beyond paying premiums. In most cases, you’ll be required to meet a deductible and pay coinsurance before Medicare will begin making full payments. At the time of this writing, the out-of-pocket costs that Medicare beneficiaries are obligated to pay, per Medicare.gov, are:
After the deductible is met, Medicare will cover 100% of approved inpatient care for up to 60 days. If you are in the hospital for more than 60 days, a coinsurance of $329 per day will apply. At day 91, you begin using your lifetime reserve days (60 total) at a coinsurance of $658 per day. Once you exhaust your lifetime reserve days, you are responsible for 100% of all charges.
What Is Medicare Part B?
Medicare Part B covers physician and associated medical services that aren’t hospital-based medical expenses. Medicare Part B covers:
- Diabetes-related care and supplies
- Office visits
- Lab work
- Outpatient care and services
Medicare Part B requires a monthly premium payment just like a private insurance plan does. At the time of this writing, the premium for this coverage is based on your current income and starts at $134 per month, with Social Security recipients paying an average of $109 per month. If your current household income meets established low-income criteria, Medicaid and Medicare Savings Programs are set up to help defray some of the associated out-of-pocket costs.
Per Medicare.gov at the time of this writing:
After you have met your deductible, you typically pay 20% of the Medicare-approved amount for most doctor services (including most doctor services while you’re a hospital inpatient), outpatient therapy, and durable medical equipment.
Once you meet your $183 deductible, an 80/20 coinsurance will apply to all Part B services, meaning that Medicare will cover 80% of the Medicare-approved amount and you will be responsible for 20% of that charge. A contracted provider (physician) must accept the Medicare-contracted rate and cannot bill you over the agreed-upon amount (known as “balance billing”).
Occasionally, you might obtain services from providers who are not contracted with Medicare (in traditional insurance terms, these providers would be “out of network”). It’s important to note that these providers CAN bill you up to 15% more than the Medicare rate for their services. To minimize your financial responsibility, it’s essential to ensure that you are receiving medical services from contracted Medicare providers whenever possible.
What Is Medicare Part C (Medicare Advantage)?
Medicare Advantage, or Medicare Part C, is an all-inclusive type of policy that wraps Medicare Part A and Part B into one plan. Medicare Advantage policies are administered by private insurance companies that are approved and contracted by the Center for Medicare and Medicaid Services (CMS). These companies are required to follow Medicare guidelines and provide these policies to qualified individuals to help ensure a higher quality of care and ease of use. You are not required to purchase Medicare Part C, but to be eligible to purchase a Medicare Advantage plan, you must enroll in Medicare Part A and Part B.
Some Medicare Part C plans cover additional services that aren’t routinely covered under Original Medicare (such as dental, vision, and hearing). Some also offer prescription coverage, or “Medicare Advantage Prescription Drug” plans, which in some cases eliminates the need for a separate Medicare Part D plan. This way, you can have your coverage “under one roof,” and won’t have to worry about dealing with different insurers and issues like coordination of benefits, which can complicate the claims process.
Some Medicare Advantage plans may have a smaller deductible than Original Medicare, or even no deductible, and your overall out-of-pocket costs may be lower than they would be with Original Medicare.
Another choice for prescription coverage is a Medicare Advantage Prescription Drug plan — if this coverage is offered in your area. If your income level qualifies as low-income based on established guidelines, you may qualify for extra help through Medicare. This can provide you with assistance in paying for premiums and other out-of-pocket costs involved in ensuring you have the pharmacy coverage you need.