Seniors who are age 65 or over and people with certain disabilities are eligible for Medicare. Medicare is a national health insurance program funded by the Medicare taxes employers withhold from your paycheck. Although most people are very happy with their Medicare benefits, it can be a complicated program to understand.
Here are six important facts about Medicare you should know before you enroll.
1. Original Medicare is not free
If you or your spouse have worked at least 10 years (40 quarters) in the United States and paid payroll taxes, you qualify for premium-free Part A. However, if you or your spouse have not worked 40 quarters, you can still enroll in Part A, but your premiums could be as high as $458 a month.
Everyone pays a monthly premium for Medicare Part B. The standard Part B premium is $144.60, but if you are in a higher income bracket, you may pay more.
2. Your Initial Enrollment Period is vital
You can delay Medicare if you work past age 65 for a large employer and are covered by the employer’s health insurance. If this does not apply to you, you should enroll in Medicare during your Initial Enrollment Period.
Your Initial Enrollment Period (IEP) begins three months before your 65th birthday and lasts for seven months. For example, if your birthday is April 6th, your IEP would begin on January 1st and end on July 31st.
During the IEP, you can enroll in Part A, Part B, Part C (Medicare Advantage) and Part D. When you enroll in Original Medicare during your IEP, you dodge a late enrollment penalty.
If you fail to enroll in Part B during your IEP, you will likely pay a life-long late enrollment penalty. The Part B late enrollment penalty is 10% of the standard premium for each year you could have been enrolled in Medicare and weren’t. For instance, if you went without coverage for five years, you will have a 50% penalty added onto your Part B premium once you enroll.
3. Part D plans are for drug coverage
Original Medicare does not cover prescription drugs most prescription drugs you take at home. Therefore, many beneficiaries enroll in a Part D plan for prescription drug coverage.
Without Part D drug coverage, you pay 100% of the cost for most medications. Part D plans are sold through private insurance companies and there may be special coverage rules; most plans use a provider network, for example.
Part D has a monthly premium, which in most states is around $15 a month. However, if you don’t enroll in a plan when you are first eligible and you don’t have creditable drug coverage from another source, you may be subject to a late enrollment penalty.
4. There are alternatives to Original Medicare
Medicare does not cover 100% of your health care costs. For example, if you receive a Medicare-approved outpatient service, Part B will pay 80%, which leaves you responsible for the remaining 20% of the allowable charge. That 20% can be costly if you receive an expensive service, which is why many seniors purchase a Medigap or Medicare Advantage plan.
Private health insurance companies sell Medicare Supplement or Medigap plans. Medigap plans help cover your out-of-pocket costs with Original Medicare, such as that 20% copayment for outpatient services. If you have a Medigap plan, Medicare will pay first, and your Medigap plan will pay second.
With that said, Medigap plans will only pay if Medicare pays. If you see a doctor who doesn’t accept Medicare or you receive a non-covered service, your Medigap plan won’t help with the cost.
There is a separate monthly premium for Medigap plans. These vary depending on the plan you choose, your age, sex, ZIP code, and smoking status.
Private health insurance companies also sell Medicare Advantage plans (Part C). Medicare Advantage is an alternative way to get your Medicare benefits.
Most Medicare Advantage plans are HMOs or PPOs, which means you may have a provider network. The insurance carrier sets its own premiums, deductibles, and cost-sharing structure.
Medicare Advantage plans typically include Part D, so you get all your Medicare benefits with a single plan. Medicare Advantage plans typically have lower monthly premiums than Medigap plans, but you pay a copayment every time you get care.
Note that you are still responsible for your Part B premium if you enroll in Medicare Advantage.
5. Medigap Open Enrollment
Most people have just one opportunity to apply for a Medigap plan without answering health questions. This is the Medigap Open Enrollment Period. Your Medigap OEP begins the day your Part B becomes effective and lasts for six months. For example, if your Part B becomes effective on August 1st, you will have until January 31st to enroll in a Medigap plan.
When you apply for a Medigap plan during your Medigap Open Enrollment, you can buy any plan sold in your state and you can’t be turned down based on your health status. You can still apply for Medigap outside your OEP. However, you will likely be subject to medical underwriting and could be denied coverage. Alternatively, the insurance company could charge you a higher premium based on your pre-existing condition.
6. Annual Election Period
The Annual Election Period (AEP) is an important time for Medicare beneficiaries. The Annual Election Period begins on October 15th and ends on December 7th each year. You can either switch between Original Medicare and Medicare Advantage, enroll in a different Medicare Advantage plan, and make changes to your Part D coverage.
For instance, if your Part D plan stops covering a medication you take regularly, you can switch to a plan that does during the AEP. Also, if you want to drop your Medicare Advantage plan and go back to Original Medicare, you can do so during the AEP. Take note that the Annual Election Period has nothing to do with Medigap plans – only Medicare Advantage and Part D plans.
With all the different Medicare parts, plans, and enrollment periods, it’s easy to be confused about your coverage. It’s important to become familiar with your options before you are eligible for Medicare, so you have the information you need to choose a plan that fits both your budget and health care needs.