Medicare: What You Need to Know

by Richard King

There are three basic ways to get Medicare: One – from the federal government only (Original Medicare); Two – from the federal government and a private insurance company (Original Medicare plus a Medicare Supplement plan/Medicare prescription drug plan); Three – from a private insurance company only (Medicare Advantage Plans).  Each way has some advantages and disadvantages, and which one is best depends upon your circumstances and what you’re the most comfortable with. Here’s a brief description of each way you can get your Medicare:

Original Medicare consists of Part A (hospital coverage) and Part B (medical coverage). Depending upon what level of care you receive, you may use only Part A, only Part B or both.  Neither Part A nor Part B cover outpatient prescription drugs. Also, there is no limit to how much you may have to pay each year.  So, what’s covered by Original Medicare and what will it cost me?

Medicare Part A (hospital) covers inpatient hospital care (care received when you are admitted to the hospital as an inpatient). It also covers skilled nursing care and any medications you receive as an inpatient. Most people don’t pay any premium for Part A because they have met the 40-quarter requirement (basically, you paid taxes for at least 10 years). However, there are several costs that you will pay under Part A in 2018:

A deductible of $1,340 per benefit period (you may have to pay more than once a year), which covers your first 60-days of care billed directly by the hospital.

A copay of $335 per day for days 61 thru 90.

A copay of $670 per day for days 91 thru 150 (your lifetime reserve days). There is no coverage after day 150 (after day 91 if you have already used all of your lifetime reserve days).

A copay of $167.50 per day for skilled nursing care on days 21 thru 100 (the first 20 days don’t have a copay).

Medicare Part B (medical) covers your doctors and things not billed directly by the hospital (lab, x-rays, etc.).  It also covers medications that aren’t self-administered (such as flu shots, pneumococcal pneumonia shots, etc.). There is a premium for Part B coverage. The standard premium (what most people pay) is $134 in 2018. However, people with an income over $85,000 as an individual or $107,000 as a couple will pay a higher premium. Part B also has an annual deductible of $183.

Medicare Supplement plans (also called MedSup or Medigap plans) cover some or all of the copays and deductibles of Original Medicare, depending upon which plan you choose. There are ten standardized Medicare Supplement plans to choose from in North Carolina (Plans A, B, C, D, F, G, K, L, M and N).  Because the plans are standardized, the coverage for a Plan A thru N from one company will be the same for all the companies offering the same plan (but not all companies offer all ten plans). However underwriting standards will vary from one company to another. Generally, the easier it is to qualify for coverage, the higher the premium. Medicare Supplement plans (except Medicare Select plans) do not have a network. If the provider accepts Medicare, they accept Medicare Supplement. The plan provides nationwide coverage, with your premium based upon where you live. It’s important to understand that everyone has a guaranteed issue period for Medicare Supplement insurance. This is a six-month period that starts when you first enroll in Medicare Part B. During your guaranteed issue period you can’t be turned down or rated up for any reason. However, if you miss the guaranteed issue period the insurance company can either decline to cover you or charge you a higher premium based upon your health. Medicare Supplement plans do not provide any coverage for outpatient prescription drugs (although some plans bought before January of 2016 may still provide prescription drug coverage). Most people who purchase a Medicare Supplement policy will also need a Medicare prescription drug plan.

Medicare prescription drug plans (also called Medicare Part D) covers outpatient prescription drugs only. All Medicare prescription drug plans use a formulary (a list of the drugs covered). They have a network of pharmacies that participate and they have copays based upon a tier system (the lower the tier number, the lower the copay). The plans provide prescription drug coverage nationwide, but your premium will be based upon the state where you live. Technically, Medicare prescription drug plans are optional; However, you will usually have to pay a late enrollment penalty if you don’t enroll when you are first eligible, or if you go over 63 days without creditable coverage (such as an employer group plan). If you are charged a late enrollment penalty it lasts for the rest of your life! You can purchase a Medicare prescription drug plan with or without a Medicare Supplement plan. However, you cannot normally purchase a prescription drug plan with a Medicare Advantage Plan. There are four basic stages to a Medicare prescription drug plan:

Deductible: If your plan has a deductible, that is the amount you will pay before the plan provides coverage. Your plan may or may not have a deductible. The maximum deductible in 2018 is $405.

Initial coverage: This starts after you meet your plan’s deductible (if it has one) and lasts until the total cost of your medications reaches $3,750 in 2018. The total cost is what both you and the insurance company pay for your medications. During this stage you will simply pay a copay for each prescription.

Coverage gap (donut hole): This starts once the total cost of your medications reaches $3,750 and lasts until your cost reaches $5,000 in 2018. In this stage you get a discount from the drug manufacturer so that you pay 35% of the cost for name brand drugs and 44% of the cost for generic drugs. Your cost includes only any deductible and copays you paid, plus the discount you get from the drug manufacturer: It does not include anything paid by your insurance company.

Catastrophic care: Once you reach this stage you will pay only a very small copay or co-insurance, usually about 5% for the rest of the year.

Medicare Advantage Plans (also called Medicare Part C) provide all of your Part A, Part B and usually your Part D coverages (although some plans without prescription drug coverage are available) in a single plan offered by the insurance company. In addition, many of the plans offer additional services (not covered by Medicare) such as vision, dental and transportation. To be eligible for a Medicare Advantage Plan you must have Medicare Part A and Part B, you must live in the plan service area (which may be an entire state or just a county) and you cannot have been diagnosed with end stage renal disease (kidney failure that requires dialysis or a transplant). When you select a Medicare Advantage Plan you are still enrolled in Medicare – however, you receive your coverage through a private insurance company. Therefore, your deductibles and copays are determined by the plan you chose, not by Original Medicare. Also, your doctors must submit all bills to your insurance company, not Medicare. All Medicare Advantage Plans place an annual limit on how much you pay for covered services. This limit will vary from one plan to another, even within the same company. Premiums for a Medicare Advantage Plan are smaller than premiums for a Medicare Supplement plan. However, you will have copays and co-insurance amounts with Medicare Advantage Plans that are normally higher than they are with Medicare Supplement plans. You aren’t allowed to have both a Medicare Advantage Plan and a Medicare Supplement plan at the same time. There are several types of Medicare Advantage Plans to choose from (not all companies offer every type of plan):

Health Maintenance Organization (HMOs) plans normally have a network of providers that you must use to get coverage. However, all Medicare Advantage Plans must cover medical emergencies and medically urgent care. Most HMO plans include prescription drug coverage.

Health Maintenance Organization Point-of-Service (HMO POS) plans have a network but allow you to use some out-of-network providers for a additional fee.

Preferred Provider Organization (PPOs) plans have a network of providers but allow you to use out of network providers at a higher cost to you.  Most PPO plans include prescription drug coverage.

Private Fee-for-Service (PFFS) plans allow you to see any doctor that agrees to accept the plan’s payment terms and agrees to treat you. A doctor may accept the plan’s terms and treat you today but refuse to treat you next week. You need to ask if the doctor will accept this plan each time you use it. Many PFFS plans do not include prescription drug coverage.

Special Needs Plans (SNP) are available for some people, such as people in a nursing home, people who have both Medicare and Medicaid and people with specific conditions such as diabetes, HIV/AIDS and chronic heart disease. All SNPs include prescription drug coverage.

About the Author: Richard King has been a life and health insurance agent since June of 1999 and has been a Medicare Supplement/long-term care insurance agent since September of 2001. He has been certified to instruct insurance pre-licensing and continuing education courses since December of 2004. King taught pre-licensing courses for life insurance, health insurance and Medicare Supplement/long-term care insurance for seven years and teaches continuing education classes in these subjects. He is currently an independent insurance agent. Richard can be reached at 910-977-3118.