The 10 most important things to know about Medicare

Medicare plays a crucial role in providing retirement security – it makes health care expense predictable, and it covers a great deal of seniors’ needs.

Unfortunately, the program is complicated, and it doesn’t cover everything. Here’s my list of the ten most important things seniors should know about Medicare.

1. You have two basic choices. First things first: when you enroll in Medicare, you can enroll in traditional, fee-for-service Medicare, or a Medicare Advantage plan. The traditional fee-for-service program allows you to see any health care provider who accepts Medicare, but you put together your plan from an a la carte menu of insurance choices (see No. 2, below); Advantage is a managed care option that rolls all the different parts of Medicare into an all-in-one option. Enrollees often save some money with Advantage, but there’s a trade-off: you must use the providers in the network assembled by the plan provider.

2. There are four different parts. If you enroll in traditional Medicare, you’ll need to be aware of the “parts” that cover hospitalization (Part A), outpatient services (Part B) and prescription drugs (Part D). You pay no premium for Part A but you will pay a monthly premium for Part B ($104.90 in 2015) and for drug plans (premium prices vary). You may also  want to enroll in a Medigap plan, which plugs gaps in Medicare’s coverage (see No. 3, below).

Most Medicare Advantage plans (Part C) include prescription drug coverage – sometimes with no additional premium. But it’s very important to evaluate the drug coverage to make sure it meets your individual needs. You’ll still pay your Part B premium, which the government passes along to your provider.

3. You may also want a Medigap policy.  Medigap insurance policies are used to cap the out-of-pocket health care costs you can face in traditional Medicare, and to supplement Medicare’s basic coverage. Typical policies cover deductibles and co-insurance for long hospital stays and outpatient services. Medigap pricing varies by region and policyholder age, but the benefits are standardized nationally using alphabetical labels for plan types. It’s generally best to buy a Medigap policy in your open-enrollment period, which runs for six months and starts on the first day of the month in which you are 65 and enrolled in Medicare Part B (outpatient services). Insurance companies are required under the law to sell you a policy in open enrollment. They can’t exclude pre-existing conditions or charge a higher premium because of past health problems.

All Medigap plans insure against the risk of high out-of-pocket Part A and Part B co-insurance costs. Beyond that basic coverage, Medigap plans provide escalating levels of coverage, and higher premiums, as you move through the alphabet of options. Generally, it’s best to buy the most comprehensive coverage that you can.

Note: If you are enrolled in Medicare Advantage, you don’t need a Medigap policy, because Advantage plans have built-in production for deductibles, co-insurance and the like. In fact, it’s illegal for an insurer to sell a Medigap policy to an Advantage enrollee. If you are in an Advantage plan and drop out of it, you can add Medigap protection.

4. If you’re rich you will pay more. High-income seniors pay surcharges on premiums for both Part B and D. The surcharges affect only about five percent of Medicare enrollees, because most retirees don’t have ordinary income high enough to trigger them. But for those who do, the extra costs are substantial. The surcharges affect individual tax filers with $85,000 or more in annual income, and joint filers with income over $170,000, and scale up from there. View a complete table of the income brackets and costs for 2016 here

5. You’ll pay big penalties if you sign up late. Medicare filing errors can be costly. Eligibility begins at 65, and sign-up is automatic if you already receive Social Security benefits. If not, it’s important to sign up sometime in the three months before your 65th birthday up through the three months following, because failing to do so can lead to expensive premium penalties down the road. (Although signup can be done up until three months after the 65th birthday, but there’s a waiting period for people who don’t enroll by the end of the month that they turn 65.) Note: if you already have signed up for Social Security by age 65, Medicare enrollment is automatic.

Monthly Part B premiums jump 10 percent for each full 12-month period that a senior could have had coverage but didn’t sign up. That can really add up: a senior who fails to enroll for five years ultimately would face a 50 percent Part B penalty–10 percent for each year. Penalties also are applied to Medicare Part D (prescription drugs) and Medicare Advantage plans (Part C) that include drug coverage.

An important caveat here: If you are enrolled in a high-deductible health plan and have a Health Savings Account (HSA), you can no longer contribute to your HSA if you are enrolled in Part A or Part B.

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  1. Donna Kaniss says:

    There are a couple of points that I think are very important that I never see mentioned in articles about Medicare. These items are so not mentioned that I wonder if I have a correct understanding about them. I would appreciate if you would clarify on these issues:
    Is it true that:
    1) Once you have signed up for a Medicare Advantage program and stayed on that program for an entire year, you are no longer eligible to switch back to a regular Medicare Part B policy where you can choose your own physicians, etc., unless there is some special circumstance such as your plan going out of business or you move to an area your Advantage plan doesn’t cover, etc.;
    2) Once you have signed up with an insurance provider for MediGap coverage, if you later wish to change insurance providers you would need to undergo medical underwriting which can make the plan with the new provider more expensive than if you had signed up with that new provider iniitially – or they could deny you coverage entirely due to pre-existing conditions, etc.
    Thank you.

  2. Mark Miller says:

    Donna, good questions…..

    1) Using Medicare Advantage does not prevent you from going back to traditional Medicare. But usually, you would have to wait for the annual enrollment period to make that switch.

    2) One benefit of signing up for Medigap when you initially enroll in Medicare is that there is no medical underwriting at that time. Under national law, you have a six-month open enrollment period that begins the month you turn 65 to buy a policy with no underwriting. Beyond that, there are all kinds of wrinkles and rules. Here are links to two posts that may help you with this:

  3. Donna Kaniss says:

    Thank you, Mark. That is very helpful. I think the reason I got confused about whether you can go back to traditional Medicare after having a Medicare Advantage plan for more than a year is the point that is made about the protected period for purchasing a MediGap policy :

    From the first article you mentioned, “ :

    “If you joined a Medicare Advantage Plan when you first became eligible for Medicare and disenrolled within 12 months, you have the right to buy any Medigap policy offered in your state by any insurance company.” — so if after 12 months you decide to switch back to traditional Medicare, you may not be able to purchase a MediGap policy or you may have to pay a higher price for it or have to wait for pre-existing conditions to be covered if they are covered at all. I know I would have trouble covering all the expense gaps in traditional Medicare without Medigap coverage so I know I would be unable to switch back after a year on a Medicare Advantage plan.
    It is all very confusing and I appreciate that you have taken the time to gather and share all this information.

  4. I have read several articles that say you do not need medigap insurance if you enroll in a medicare advantage program. And it is against the law if a company tries to sell you medigap insurance with an advantage program. Please tell me if this is true and clarify if needed. Also are there any online courses that cover becoming a medicare specialist? I have seen articles saying go to college for medical billing and coding. This is not what I am looking for. I am just interested in knowing everything i can about the medicare programs and how to choose. As the oldest child on both my mom and dads side choosing the medicare insurance is left to me and I have read everything I can but I know there are still a lot of things that have been left out. I would like to know more.

  5. Mark Miller says:

    Tiffany, that’s correct – Medigap is not needed with Medicare Advantage, and insurance companies are not permitted to sell it to M.A. enrollees. Sorry to report I am now knowledgable about Medicare education, but perhaps other readers can offer thoughts.

  6. Bruce King says:

    Mark, How do I quantify waiting for SS until 66 vs suffering Medicare price inflation?

  7. Mark Miller says:

    Bruce, good question. I will look into this a bit, but drop me a note here if you like with more detail about your situation: in particular, your Primary Insurance Amount listed on your SS statement, current age and also age/PIA of your spouse, if any.

  8. Don Lewis says:

    when I started receiving Medicare in 2013 my cost for part B was $104.90 But in 2014 and 2015 I earned above the threshold and my medicare payments went up to $170.50 and $187 50 on 2016 and 2017. Last year my income fell back below the threshold, so in 2018 will I pay the original 104.90 under held harmless, or will it increase to $120.70 plus $3 without held harmless protection.

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