Medicare: A Simple Explanation of the Costs & Components

Medicare is a federally funded health insurance program in the United States that provides healthcare coverage to eligible individuals. It primarily serves individuals aged 65 and older, as well as certain younger individuals with disabilities or specific medical conditions.

Medicare Part A: This is the hospitalization portion of Medicare and is free to anyone who has paid into Medicare for at least 40 quarters (10 years). Because it is free, you will want to enroll when you turn 65 whether you are still working or not. Your FEHB will remain the primary payor until you retire, Medicare will become the primary payor after you retire.

Medicare Part B: Part B specifically covers outpatient services visits to doctors and specialists, including primary care physicians, surgeons, and other healthcare professionals. It also covers some preventive services like screenings for certain conditions and vaccinations. For this reason it is often referred to as "Medical Insurance."

Enrolling in Part B: When you retire or turn 65 (whichever comes later), Medicare Part B will become your primary insurer and your FEHB will act as the supplement to this coverage. If your retirement date is AFTER you turn 65, you will have up to 8 months after your retirement date to enroll in Part B coverage. However, if you are already retired when you turn 65, the rules for enrolling are the same as enrolling for Part A (3 months before your 65th birthday, the month of your 65th birthday and 3 months after your 65th birthday). If you miss the initial enrollment period you may enroll during "open season". Open season is typically January 1 - March 31 each year. Beware that each year that you wait to enroll will incur a 10% penalty, thereby increasing your Medicare Part B premium permanently. So you should carefully consider if Medicare Part B is the right choice for you at age 65, that way you will avoid the penalties of choosing it later.

The Cost of Part B: Unlike Part A, this component comes with a cost. In 2023 the monthly premium for Medicare Part B is $164.90. However, if your modified adjusted gross income is greater than $85,000 you will be required to pay more than the $164.90 (in 2023). This is the federal government's way of saying that if you have the means to pay more, they will require you to pay more for Medicare Part B.

It should be noted that if Part B is elected it becomes the primary payor, meaning you MUST use a physician that accepts Medicare. Sadly, more and more doctors are not accepting Part B, because of the complicated paperwork and slower and/or lower payouts.

Medicare Part C: Also known as Medicare Advantage, you must be eligible for Part A and Part B. Medicare Advantage plans bundle together the coverage of Original Medicare (Part A and Part B) into a single plan. They are administered by private insurance companies that are approved by Medicare. These plans must cover all the services that Original Medicare covers, but they can also offer extra benefits such as prescription drug coverage (Part D),vision, dental, hearing, and wellness programs.

Part C Networks: Medicare Advantage plans often have networks of healthcare providers, including doctors, hospitals, and specialists. Some plans require you to use providers within the network to get the full benefit coverage. Others may offer out-of-network coverage but at different cost-sharing levels.

Types of Plans: There are different types of Medicare Advantage plans, including Health Maintenance Organization (HMO) plans, Preferred Provider Organization (PPO) plans, Special Needs Plans (SNPs), and more. Each type has different rules about where and how you can receive care.

Part C Enrollment: To enroll in a Medicare Advantage plan, you must first be eligible for Medicare Part A and Part B. You can usually join a Medicare Advantage plan when you first become eligible for Medicare or during the Annual Enrollment Period (AEP) from October 15 to December 7 each year. Before enrolling in a Medicare Advantage plan, it's recommended that you carefully review plan options, coverage details, provider networks, and potential out-of-pocket costs to choose the plan that best meets your healthcare needs and preferences.

The Cost of Part C: Medicare Advantage plans often have monthly premiums, in addition to the Part B premium. The costs can vary based on the plan and the benefits offered. Some plans may have lower premiums but higher out-of-pocket costs when you receive care. Medicare Advantage plans are sold by private insurance companies. Part C plan costs can vary depending on several factors, including what plan you have and where you live. NOTE: Part C costs are additional to the cost of Part B.

Part C Advantages and Considerations: Medicare Advantage plans can offer extra benefits and potentially lower costs compared to Original Medicare, but they also have limitations like network restrictions. It's important to review plan details, coverage options, and costs to ensure the plan aligns with your healthcare needs.

Medicare Part D: Part D is a prescription drug coverage program offered by private insurance companies that are approved by Medicare. It provides prescription drug coverage to eligible individuals who are enrolled in Medicare, helping them afford the cost of prescription medications. Part D plans are available as standalone prescription drug plans (PDPs) that work alongside Original Medicare (Part A and Part B). These plans are designed specifically for individuals who have Original Medicare and want to add prescription drug coverage.Enrollment: To enroll in a Medicare Part D plan, you must be eligible for Medicare Part A and/or Part B. You can usually join a Part D plan when you first become eligible for Medicare or during the Annual Enrollment Period (AEP) from October 15 to December 7 each year.

The Cost of Part D: Part D plans have monthly premiums, annual deductibles (the amount you must pay out of pocket before coverage begins), and copayments or coinsurance for prescription medications. Costs can vary widely between plans, so it's important to compare different plan options.

Part D Coverage Gap (Donut Hole): In the past, Part D plans had a coverage gap, often referred to as the "donut hole," where beneficiaries would pay a larger share of their prescription drug costs. However, the coverage gap has been gradually closing due to changes in healthcare laws.

Part D Low-Income Subsidy (Extra Help): Low-income beneficiaries may qualify for extra financial assistance to help cover their Part D costs. This subsidy, known as Extra Help, can significantly reduce premiums, deductibles, and copayments.