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Medicare is the government health care program for people 65 and over, and its coverage plays an important role in containing medical costs as you age. But Medicare benefits don’t pay for everything.
As you approach age 65, you’ll need to decide how to deal with some of those coverage gaps. For now, knowing the basics of how Medicare works can help you understand some of the expenses you’ll face.
What is Medicare?
Medicare is a federal health insurance program for people in the U.S. who are 65 and older as well as some younger people with disabilities. Medicare is a different program than Medicaid, which offers health and other services to eligible low-income people of all ages.
Who qualifies for Medicare?
You’re entitled to Medicare if you’re at least 65 and a U.S. citizen, or a permanent legal resident for the past five years. Medicare also covers some disabled people under age 65. People who receive Social Security disability insurance usually become eligible for Medicare after a two-year waiting period, although those with end-stage renal disease (permanent kidney failure) are enrolled automatically upon signing up and those with amyotrophic lateral sclerosis (ALS, also known as Lou Gehrig’s disease) are eligible the month disability begins.
How do I enroll in Medicare?
If you’re receiving Social Security benefits when you turn 65, you will be enrolled automatically in Medicare Part A, which covers hospital costs, and Part B, which covers doctor visits. If you want Medicare Part D prescription drug coverage you’ll need to enroll yourself — that’s not automatic.
If you’re not receiving Social Security benefits, you’ll sign up through the Social Security Administration website. You typically should do so in the seven-month window around your 65th birthday (which includes the three months before the month you turn 65, your birthday month, and the three months after your birthday month) to avoid permanent penalties.
If you want Medicare Supplemental Insurance (Medigap), you would sign up during the six-month Medigap enrollment period, which starts the month you turn 65 and are enrolled in Medicare Part B. The private insurers who provide Medigap plans are required to take you if you sign up during that period. Otherwise, there is no guarantee they will sell you a Medigap plan.
If you miss your initial window, or want to switch plans later, there are several annual Medicare open enrollment periods.
Is Medicare free?
You don’t have to pay premiums for Medicare Part A if you or your spouse paid Medicare taxes for at least 10 years. (Medicare taxes are part of the payroll taxes deducted from most working people’s paychecks. You can see if you qualify by checking your Social Security statement, which is available through the Social Security website.)
Otherwise, eligible people pay monthly premiums for Part A of up to $471 each month. The other parts of Medicare, which cover things like doctor visits and prescription drugs, require monthly premiums.
What does Medicare Part A cover?
Medicare Part A covers inpatient care in a hospital or skilled nursing facility, although not custodial or long-term care. Part A also helps pay for hospice care and some home health care. Medicare Part A has a deductible ($1,484 in 2021) and coinsurance, which means patients pay a portion of the bill. There is no coinsurance for the first 60 days of inpatient hospital care, for example, but patients typically pay $371 per day for the 61st through 90th day of the hospitalization, and more after that.
What does Medicare Part B cover?
Medicare Part B covers doctor visits and other medically necessary services and supplies. That includes preventive services or health care to prevent illness, as well as ambulance services, durable medical equipment, mental health coverage and a few types of outpatient prescription drugs.
Medicare Part B requires a monthly premium that starts at $148.50 per month. Single people with adjusted gross incomes over $88,000 and married couples with AGIs over $176,000 pay higher premiums. Medicare Part B has a $203 deductible. After that, you typically pay 20% of the Medicare-approved amount for the services and supplies.
What is the Medicare Part B penalty?
If you don’t sign up for Medicare Part B at 65 and later decide you need it, you’ll likely pay a penalty of 10% of the premium for each 12-month period that you delayed. You will pay this penalty for life, basically, since few people drop Medicare Part B once they have it.
You can avoid the penalty if you had health insurance through your job or your spouse’s job when you first became eligible. You must sign up within eight months of when that coverage ends.
What is Original Medicare?
Original Medicare refers to Medicare Part A and Medicare Part B, which are managed by the federal government. People can see any doctor that accepts Medicare assignment and the government pays a portion of the cost.
What is Medicare Advantage?
Medicare Advantage, also known as Medicare Part C, is a type of health plan offered by private insurance companies that provides the benefits of Parts A and Part B and often Part D (prescription drug coverage) as well. These bundled plans may have additional coverage, such as vision, hearing and dental care.
Unlike Original Medicare, Medicare Advantage plans have an annual limit on out-of-pocket costs. Medicare Advantage plans are typically HMOs or PPOs and are available only in certain areas.
What is Medicare Part D?
Medicare Part D helps cover the cost of prescription drugs. Plans are offered by private insurers and require a monthly premium that averages about $33 a month. Higher income beneficiaries pay more. As with Part B, there typically is a late penalty premium if you don’t sign up when you are first eligible.
What isn’t covered by Medicare?
The biggest potential expense that’s not covered is long-term care, also known as custodial care. Medicaid, the federal health program for the poor, pays custodial costs but typically only for low-income people with little savings.
Other common expenses that Medicare doesn’t cover include:
Hearing aids and exams for fitting them.
Eye exams and eyeglasses.
Most dental care.
Medical care overseas.
What is Medigap?
Medigap, or Medicare Supplement Insurance, is an additional health insurance policy you can buy from a private insurer to help pay some of the costs not covered by Medicare Part A and Part B, including deductibles, coinsurance and health care if you travel outside the U.S. Medigap plans don’t cover long-term care, prescription drugs, dental, vision, hearing aids or private nursing care.
There are 10 types of Medigap plans available in most states. You must have Medicare Part A and Part B to purchase a Medigap policy. Medigap is not compatible with Medicare Advantage — you may purchase one or the other.