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by Kamil Skawinski
Friday, August 15, 2008provided byBankrate
For most Americans, Medicare is on the distant horizon. But as you approach retirement age, knowing about Medicare and what it can or cannot do for you could be important to your physical and financial well-being.
You'll be automatically enrolled in the program if you're already collecting Social Security or receiving benefits from the Railroad Retirement Board when you turn 65 -- or if you've been collecting disability for more than two years. But if you're working and not collecting government pension benefits, you need to sign up three months before your 65th birthday.
The Medicare program isn't exactly "free" government-sponsored health care. You'll have to pay deductibles and co-payments out of pocket, and certain services aren't covered at all.
What you'll ultimately pay for your future medical care will depend on the type of Medicare plan you choose, whether you'll have additional health insurance coverage from a former employer, whether you've purchased "supplemental coverage" and how often you make use of the medical services offered by your doctor or hospital.
Medicare ABCs
You have several options, and they're not cut-and-dry. Here's what you need to know to make intelligent decisions about your insurance coverage.
The ins and outs of Medicare
1. The original Medicare plan: parts A & B
2. Medicare Part C: Medicare Advantage plans
3. Medicare Part D: Prescription drug benefit
4. Medigap policies
5. Where to get help
"Unfortunately, answering what Medicare does and does not cover ... well, to do that fully and accurately would lead to a very broad and wide-ranging discussion," says Peter Ashkenaz, a spokesman for the Centers for Medicare and Medicaid Services. "So what we recommend is that people access the Medicare Web site and download and read the 'Medicare & You 2008' handbook."
However, if you're not willing to wade through 120 pages of government-issue text just yet, here's a synopsis of what you need to know.
The Original Medicare Plan: Parts A & B
The original Medicare plan is designed to help pay for certain medical services and supplies provided in hospitals, doctors' offices and other health care settings. Medicare Part A focuses on hospital insurance while Part B is the program's medical insurance component. All U.S. citizens and legal residents of the United States who have paid Medicare payroll taxes for a minimum of 10 years will be eligible for Part A and Part B coverage upon reaching age 65.
Part A basically helps people better absorb the costs associated with inpatient care in hospitals (including inpatient rehabilitation facilities), inpatient stays in a skilled nursing facility (but not custodial or long-term care), inpatient mental health care in a psychiatric hospital (limited to 190 days in a lifetime), as well as hospice care services and home health care services. Some of the costs associated with these services and procedures will be covered completely by Medicare Part A. Others will require out-of-pocket co-payments or the satisfaction of annual deductibles.
Part B coverage helps pay for "medically necessary" services such as doctors' services, outpatient care and other medical services not covered by Part A. Part B also helps pay for some preventive care services that are designed to prevent or detect illness at an early stage, when treatment is likely to work best. (For a list, see pages 18 to 25 of the Medicare handbook).
As with Part A, Part B has its own separate annual deductible -- $135 for 2008 -- as well as its own co-payment and co-insurance costs. Generally speaking, Medicare will pay about 80 percent of the expenses for Part B-covered services and supplies.
"People expect that Medicare will provide them with health coverage after they retire, and that's true -- Medicare is comprehensive, it's guaranteed. But it doesn't cover all of your costs," says Paul Precht, director for policy and communications at the Medicare Rights Center.
"You need to be aware of the fact that you will spend money out of pocket, either for the cost-sharing under Medicare, or for the cost of supplemental insurance if you don't have that through an employer or if your income isn't low enough to qualify for additional assistance through Medicaid. And it's important to remember that Medicare doesn't have any annual out-of-pocket limits."
You usually don't pay a monthly premium for Part A coverage if you (or your spouse) paid Medicare taxes while working at least 40 calendar quarters. But if you aren't eligible for premium-free Part A coverage -- meaning you have worked fewer than 40 calendar quarters -- you may be able to buy Part A coverage if you meet certain conditions.
Those enrolled in Part B have to pay a monthly Part B premium and an annual Part B deductible. Most plan participants will pay the standard monthly premium amount, which is $96.40 in 2008. The monthly premium amount, however, will be higher for people above certain income thresholds ($82,000 for singles; $164,000 for married people filing jointly). Financial hardship cases can get this premium covered with governmental help. This premium is deducted from your monthly Social Security payment.
Medicare Part C: Medicare Advantage Plans
Formerly known as Medicare+Choice, Medicare Advantage plans are alternatives to the original Medicare plan and are not the same thing as "supplemental insurance" (more about this later). Sometimes called Part C or "MA plans," these plans are run by private companies and are part of the Medicare program.
Basically, Medicare pays an amount of money for your health care into these private Medicare Advantage plans every month. In return, these plans must provide all of your Part A and Part B benefits, and they must cover at least all of the medically necessary services that the original Medicare plan provides.
MA plans can charge different co-payments, co-insurance and deductibles for their services and generally have set provider networks. This means you will likely be limited to seeing only those doctors who belong to the plan, going to certain hospitals for covered services and getting referrals to see specialists. If you use providers who aren't in the network, you may have to pay the entire cost of the services rendered. However, MA plans can offer extra benefits, such as vision, hearing, dental, and health and wellness programs. Most include Medicare prescription drug coverage (usually for an extra cost).
Retirees can currently choose from five different types of Medicare Advantage plans. Most function like HMOs with specific networks of doctors. Other plans, such as Private Fee-For-Service plans, or PFFS, will allow you to go to any doctor if the doctor agrees to accept the plan's terms of payment before treating you. Medicare Special Needs plans, or SNPs, serve certain people who are chronically ill, live in institutions such as nursing homes or have other special needs. (The different benefits offered by the various types of Medicare Advantage plans are outlined on pages 42 to 44 of the "Medicare & You 2008" handbook.)
It's important to call any plan before joining to find out what your services will cost and to make sure that a plan will meet your needs. Some plans, for example, will let you use out-of-network providers (sometimes for a higher cost). Also, be sure to check in advance with your doctors or hospital to determine if they accept the plan. To enroll in a Medicare Advantage plan, you can complete a paper application, call the plan provider by telephone or enroll online. Be aware that there are limitations as to when you can join, switch or drop a Medicare Advantage plan.
Remember, when you join a Medicare Advantage plan, you will have to provide your Medicare number from your Medicare card and the date your Part A and Part B coverage started. You will also generally still pay the monthly Part B premium along with Medicare Advantage plan's premium (if they charge one). That includes coverage for Part A and Part B benefits, prescription drug coverage (Part D, if offered) and any other extra benefits.
Medicare Part D: Prescription Drug Benefit
Medicare offers prescription drug coverage for everyone with Medicare under Part D. But to get Medicare drug coverage, you must take the initiative and join a Medicare drug plan.
Medicare drug plans are run by insurance companies and other private companies approved by Medicare. Each plan varies in cost and drugs covered. Even if you don't take a lot of prescription drugs now, you should still consider joining a Medicare drug plan because, if you decide not to join such a plan when you are first eligible, you will pay a late-enrollment penalty if you choose to join later. The penalty is 1 percent of the monthly premium for each month you don't enroll and it's applied to all future monthly premiums.
"Although there will be a number of seniors out there who don't take any prescription drugs right now and who'll view paying for prescription drug insurance as kind of a waste, they also need to think about the future," says Clark Howard, consumer advice talk show host and author. "Consequently, you are so much better off holding your nose and picking a plan now rather than having to do so in the future and also having to pay a penalty on top of your regular premiums."
There are 2 ways to get Medicare prescription drug coverage:
1. You can join a stand-alone Medicare Prescription Drug plan. These plans, sometimes called PDPs, add drug coverage to the original Medicare plan, to some Medicare Private Fee-for-Service plans, and to some Medicare Cost Plans and Medicare Medical Savings Account plans, or MSA plans. (The latter two plans are part of the catch-all "other Medicare plans" that are not Medicare Advantage plans. Medicare Cost Plans, available only in certain parts of the country, are a variation of the original Medicare plan. An MSA plan combines a high-deductible Medicare Advantage plan and a bank account, much like the consumer-directed health savings account plans that are available in the private sector.)
2. You can join a Medicare Advantage plan (such as an HMO or PPO) or another Medicare health plan that includes prescription drug coverage. Through these you will get all of your Medicare coverage (Part A and Part B), including prescription drugs (Part D). These plans are sometimes called "MA-PDs" and you will usually pay a separate monthly premium in addition to your Part B premium.
Every year from Nov. 15 to Dec. 31, you can switch to a different Medicare drug plan if your plan coverage changes or your prescription needs change. When you join or switch to a new Medicare drug plan, your coverage will generally begin Jan. 1, of the following year.
Medigap Policies
The original Medicare plan pays for many, but not all, health care services and supplies. To help pay your out-of-pocket costs, you might want to consider getting a Medigap policy, also called Medicare supplement insurance. Note: These plans can't be used to pay your co-payments or deductibles for Medicare Advantage plans.
You can buy a Medigap plan from a private insurance company or you might be able to get this supplemental insurance from a former employer (your own or your spouse's) as a retiree benefit. There are also several government programs that can help you obtain Medigap coverage if you meet certain income requirements or other qualifications.
A Medigap policy is private health insurance that's designed to supplement the original Medicare plan and help pay some of the health care costs that aren't covered -- such as co-payments, co-insurance and deductibles. Each Medigap policy only covers one person, so if you and your spouse both want coverage, you each must buy separate Medigap policies.
Each standardized Medigap policy, however, must offer the same basic benefits, no matter which insurance company sells it. Premiums will vary depending on the plan you choose and the company you buy it from (the typical premium is about $150 per month), but usually the only difference among Medigap policies sold by different insurance companies is the cost.
The best time to buy a Medigap policy is during your "Medigap open-enrollment period." In all states, there is an open enrollment period that lasts for six months and it begins on the first day of the month in which you are both age 65 or older and enrolled in Part B (some states have additional open enrollment periods). For more information about buying a Medigap policy, call your State Health Insurance Assistance Program.
All Medigap policies must follow federal and state laws that are designed to protect consumers and every Medigap policy must be clearly identified as "Medicare Supplement Insurance." Furthermore, Medigap insurance companies can only sell you a "standardized" Medigap policy. There are 12 such policies identified by letters (i.e., Medigap Plans A through L), except in Massachusetts, Minnesota and Wisconsin, where Medigap policies are standardized differently. Also, in some states, you might be able to buy another type of Medigap policy called "Medicare Select," which is a Medigap policy that requires you to use specific hospitals and, in some cases, specific doctors to get full benefits.
Where to Get More Information
It's all rather complicated, but you don't have to go it alone.
"There are a number of programs out there that can help people make decisions with regard to Medicare, and they are generally referred to as State Health Insurance Assistance Programs," says Precht of the Medicare Rights Center, noting that these services are often underutilized. "They, of course, can have different names in different states, but they're generally run out of a state's department of insurance or a state's department of aging, and they offer services that can often provide one-on-one counseling with respect to the coverage choices you'll need."
Human resource departments and union offices are also good sources of Medicare-related information, as is the "Medicare & You" handbook, he says.
Finally, long-term care insurance is another insurance option people might want to consider in addition to the optional Medicare Advantage and Medigap plans discussed above.
"Medicare doesn't cover long-term care -- that is, help with the daily activities of living if you are disabled or have dementia -- basically, all of the day-to-day care you'd need toward the end of your life either at home or in a nursing home," says Precht. "Medicare will only cover your medical care then, but it won't pay for the sort of 'custodial care,' such things like feeding, dressing, bathing, etc."
Being prepared with long-term care insurance could prove financially beneficial to you and your heirs. But this separate insurance is best purchased with the assistance of a financial adviser.
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