Medicare and Medicare Supplement Insurance consumer guide: Coverage, cost and more


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UPDATED: 2020-12-03T21:22:10.761Z
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If you’re turning age 65 soon, you’re not alone. Baby boomers are turning 65 at the rate of 10,000 people per day, and this is expected to continue into the 2030s. Your mailbox is likely filled with various insurance company flyers offering you Medicare options from Medicare Advantage to Medicare Supplement or Medigap insurance.

It can be overwhelming and confusing given all these new terms. But this guide will walk you through everything you need to know so you can make an educated and well-informed choice.

Insurance companies refer to you as an “age-in” since you’re going to be eligible for the federal Medicare program soon. But how do you know which option is best for you? Let us help!

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What is Medicare?

Let’s start by explaining what Medicare is and how it works. Medicare is a social insurance program in the U.S. that helps people age 65 or older, and those with permanent disabilities, End Stage Renal Disease or ALS pay for many healthcare services. It was designed to help provide retirees with health insurance coverage.

What is the difference between Medicare and Medicaid?

Medicaid is a state and federal program that provides health coverage if you have a very low income. While Medicaid is also government funded, it’s operated and funded by a different part of the government and typically serves a different group than Medicare. However, some individuals are dually eligible for both, and in this case, you can have both and your costs may be lowered.

How is Medicare funded?

The Centers for Medicare & Medicaid Services (CMS) is the federal agency that runs the Medicare Program. CMS is a branch of the Department of Health and Human Services. CMS also monitors Medicaid programs offered by each state. This money comes from the Medicare Trust Funds. There are two trust fund accounts held by the U.S. Treasury and they can only be used for Medicare:

  • Hospital Insurance Trust Fund

    • Payroll taxes paid by most employers, employees, and self-employed people.
    • Other sources, like income taxes paid on Social Security benefits, interest earned on the trust fund investments, and Medicare Part A premiums from people who aren't eligible for premium-free Part A.
  • Supplementary Medical Insurance Trust Fund

    • Funds authorized by Congress, premiums from people enrolled in Medicare Part B (medical insurance) and Part D (prescription drug coverage), and other sources, like interest earned on the trust fund investments.

What does Medicare cover?

There are three parts to the Medicare insurance program:

  • Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.
  • Part B covers certain doctors’ services, outpatient care, medical supplies, and preventative services.
  • Part D covers prescription medications. These coverages are called Original Medicare.

Medicare pays for only about half of your medical costs due to deductibles, copayments and coverage exclusions that apply. However, much of the balance not covered by Medicare can be covered by purchasing a Medicare Supplement (also called Medigap) insurance policy from an insurance company through an agent or directly from the insurer. More about this in a minute.

How much does Medicare cost?

The cost of Medicare depends on a number of factors, including the coverage you select, the company you select and your income. Here’s a breakdown of the 2019 premiums, deductibles and copays for Part A, B, C and D. The federal government has additional info that can be found here.

Medicare Part A premium, deductible and copay

  • Premium: Free (usually). Most individuals don’t have to pay a monthly premium for Part A. If you’re eligible for or are already receiving federal retirement benefits, you won’t have a monthly premium for Part A. If you paid Medicare taxes for less than 30 quarters, the standard Part A premium is $437. If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $240.
  • Deductible: $1,364 deductible for each benefit period
  • Copay:
    • Days 1-60: $0 copay for each benefit period
    • Days 61-90: $341 copay per each benefit period
    • Days 91 and beyond: $682 copay per each “lifetime reserve day” after day 90 for each benefit period (up to 60 days over your lifetime)
    • Beyond lifetime reserve days: All costs

Medicare Part B premium, deductible and copay

  • Premium: Standard is $135.50. You may have a higher premium depending on your income.
  • Deductible: $185 per year
  • Copay: After you meet your deductible, you usually pay 20 percent of the medicare-approved amount for most coverages in Part B.

Medicare Part C premium, deductible and copay

  • Premium: Varies by plan
  • Deductible: Varies by plan
  • Copay: Varies by plan

Medicare Part D premium, deductible and copay

  • Premium: Varies by plan (higher income individuals may pay more per month)
  • Deductible: Varies by plan
  • Copay: Varies by plan

What is Medicare Advantage?

When you enroll in Medicare, you will have the option of selecting Original Medicare or Medicare Advantage. You’ve probably seen insurance company commercials about Medicare Advantage as this is the private insurance option for Medicare. This part of the Medicare program is referred to as Medicare Part C.

Medicare Advantage is like an HMO health insurance plan with certain doctors in their networks. If you join a Medicare Advantage Plan, the plan will provide all of your Part A and Part B coverage, and it may offer additional coverage, such as vision, hearing, dental, and/or health and wellness programs. Most of these plans include Medicare prescription drug coverage.

Medicare pays a fixed amount for your care every month to the companies offering Medicare Advantage Plans. These companies must follow rules set by Medicare. However, each Medicare Advantage Plan can charge different out-of-pocket costs and have different rules for how you get services (like whether you need a referral to see a specialist or if you have to go to doctors, facilities, or suppliers that are only in the plan’s network for non‑emergency or non-urgent care).

For example, if you need to see a specialist and would like to see one recommended by a friend or family member but they’re not in the plan’s network, the expenses may not be covered. Another thing to consider is if you like to travel and need medical attention while you’re away from your home area, these expenses may not be covered.

These rules can change each year. Determining if this is the best coverage for you can be tricky. The answer may depend on how frequently you travel or if you spend part of the year living in another place besides your primary residence.

When to sign up for Medicare?

Medicare enrollment begins three months before you turn age 65 and continues for seven months. Delaying your enrollment can result in penalties, so you shouldn’t wait to make these important health coverage decisions.

The month you turn age 65, you will automatically be enrolled in Medicare Parts A and B. If you’re still working and covered under an employer health insurance plan, you may not need to sign up for Medicare Part B right away. You should ask your employer if their health insurance plan is considered the primary insurer. If not, and it’s the Medicare plan, then you will need to sign up for Part B. Either way, you should sign up for Medicare Part A as it may help pay for some costs not covered under your employer’s health plan.

How to sign up for Medicare

The Social Security Administration handles Medicare eligibility and enrollment. You can contact them at 1-800-772-1213 to enroll in Medicare or to ask questions about whether you’re eligible. The government website also provides a lot of helpful information.

Once you’ve enrolled in Medicare, you’ll need to decide if you want either Medicare Advantage or Medical Supplement insurance.

What is Medicare Supplement Plan?

Medicare Supplement insurance (also referred to as Medigap insurance) is offered by private health insurers and is designed to supplement what’s covered under the government Medicare Parts A and B. Medicare Supplement insurance is regulated and must follow the federal and state Medicare rules.

What does Medicare Supplement insurance cover?

The Medicare Supplement/Medigap policy covers the coinsurance (the amount you have to pay for services) only after you've paid the deductible (unless the Medigap policy also pays the deductible).

There are 10 plan types to choose from in most states. Each of these plans are represented by a different letter that determines the benefit level included. A "yes" indicates the plan covers 100% of the benefit while a "no" indicates that the policy doesn't cover the benefit.

Medigap Benefits Medigap Plan A Plan B Plan C Plan D Plan F* Plan G Plan K Plan L Plan M Plan N
Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Part B coinsurance of copayment Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes***
Blood (first 3 pints) Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes
Part A hospice care coinsurance or copayment Yes Yes Yes Yes Yes Yes 50% 75% Yes Yes
Skilled nursing facility care coinsurance No No Yes Yes Yes Yes 50% 75% Yes Yes
Part A deductible No Yes Yes Yes Yes Yes 50% 75% 50% Yes
Part B deductible No No Yes No Yes No No No No No
Part B excess charge No No No No Yes Yes No No No No
Foreign travel exchange (up to plan limits) No No 80% 80% 80% 80% No No 80% 80%
Out-of-pocket limit** N/A N/A N/A N/A N/A N/A $5,560 $2,780 N/A N/A

* There is also a high-deductible option for Plan F. If you choose the high-deductible version of Plan F, this means you must pay for Medicare-covered costs up to the deductible amount of $2,300 before your Medigap plan pays anything.

** After you meet your out-of-pocket yearly limit and your yearly Part B deductible ($185 in 2019), the Medigap plan pays 100% of covered services for the rest of the calendar year.

*** Plan N pays 100% of the Part B coinsurance, except for a copay of up to $20 for some office visits and up to a $50 copay for emergency room visits that don't result in inpatient admission.

To view this chart and additional information, you can visit the national Medicare website here.

Note: Starting January 1, 2020, Medigap plans sold to new people with Medicare won’t be allowed to cover the Part B deductible. Because of this, Plans C and F will no longer be available to people new to Medicare starting on January 1, 2020. If you already have either of these 2 plans (or the Plan F high-deductible option) or are covered by one of these plans before January 1, 2020, you’ll be able to keep your plan. If you were eligible for Medicare before January 1, 2020, but not yet enrolled, you may be able to buy one of these plans.

You live in Massachusetts, Minnesota, or Wisconsin

If you live in one of these 3 states, Medigap policies are standardized in a different way. Click the link to visit the Medicare website for additional information.

These are referred to as Standardized Plans, so all insurance companies that offer them must offer the same basic benefits. In other words, the basic benefits for a Plan F is the same across every insurer that sells Plan F, no matter where you live. This makes it easy to compare ‘apples to apples’ options since the benefits are all the same.

However, some insurance companies offer additional benefits beyond the basic benefits. So it’s worth doing your homework to find the right company for you.

When does a decision to buy Medicare Supplement insurance need to be made?

If you decide to buy a Medicare Supplement policy when you’re first eligible, you have what is called “guaranteed issue” rights. This means you can’t be underwritten and declined for health reasons. This may result in you getting a more affordable premium option. However, if you apply for coverage later after the seven-month window, you may be declined for pre-existing conditions or may be unable to secure coverage at all, so pay attention to your deadlines for enrollment.

How much does a Medicare Supplement plan cost?

The cost varies greatly between Plans and the insurance companies that offer them in your state. The cost of your Medicare Supplement or Medigap policy may depend on whether the insurance company does any of the following:

  • Offers discounts (such as discounts for women, non-smokers, or people who are married or are sharing a household; discounts for paying yearly; discounts for paying your premiums using electronic funds transfer; or discounts for multiple policies).
  • Sells a Medicare Select policy that may require you to use certain providers. If you buy this type of Medigap policy, your premium may be less.
  • Offers a “high-deductible option” for Medigap Plan F. If you buy Medigap Plan F with a high-deductible option, you must pay the first $2,300 in 2019 of deductibles, copayments, and coinsurance not paid by Medicare before the Medigap policy pays anything. You must also pay a separate deductible ($250 per year) for foreign travel emergency services.

You should shop for the best price and also consider how other consumers, like you, rate them. It may be wise to get a recommendation from a family member or friend before selecting the insurance company and/or agent to work with.

There are many resources available to you — just proceed with caution when searching online as many websites are sponsored by insurance companies and agents are may be biased.

How can I learn more?

The federal government website provides a lot of information as does your state’s bureau of insurance section of their website. Most states also publish a consumer guide to help you.

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