Medicare is the federal health insurance program for people:

1. Who are 65 years or older.
2. Have certain disabilities or end-stage renal disease.

This article explains the Medicare parts impacting group 1: those who are 65 and older.

Understanding your Medicare options is an important part of planning for success in your retirement years and beyond.

What The Medicare Letters Mean

• Part A and Part B: Original or “basic” Medicare
• Part C: Medicare Advantage Plans
• Part D: Pharmaceutical Plans
• Plans A, B, C, D, F, G, K, L, M or N: Medigap Plans

What is Original Medicare?

Original Medicare, often referred to as “Basic” Medicare has two parts: Part A and Part B.

Medicare Part A Explained

Part A is Hospital Coverage. It will pay 100% of the first 60 days of inpatient stay in a hospital, and 100% of the first 20 days of skilled nursing care. There is a $1,632 deductible per occurrence.

Part A premiums are free for anyone who is “fully insured” under Social Security, meaning you or your spouse has worked in Medicare-covered employment for at least ten years. If you are not fully insured but have worked for seven and a half years, part A has a premium of $278 per month, and if you have less than seven and a half years of employment, the monthly premium is $505 in 2024.

Medicare Part B Explained

Part B is Medical Coverage. It will pay for services outside of the hospital, such as doctor visits, lab work, x-rays, ambulance, emergency room, and outpatient surgery. There is a $240 annual deductible. More importantly, Part B covers only 80% of these costs, and there is no “out-of-pocket” maximum.

Part B premiums for individuals earning less than $103,000 or couples earning less than $206,000 are $174.70 per month in 2024. Those earning more than these amounts are subject to an Income-Related Monthly Adjustment Amount (IRMAA) as follows:

 

 

 

 

 

 

Private Insurance

Various private insurance companies provide Medicare Part C, Part D, and plans A, B, C, D, F, G, K, L, M and N, and retiree medical group plans.

Medicare Part C, aka Medicare Advantage, Explained

Also known as Medicare Advantage, Medicare Part C is the private health insurance alternative to the federally run original Medicare. It is a one-stop shopping choice that combines various parts of Medicare into one plan. To qualify for Part C, you must still enroll in Parts A and B and pay the Part B premium. In addition, you will enroll in a Part C plan with a private insurer. It is important to know that with Part C you no longer have your original Medicare benefits. The private insurance company provides your benefits and makes up its own rules. They must follow Medicare’s guidelines, but those guidelines are quite broad.

The federal government requires these plans to cover everything that original Medicare covers, and most plans include other coverage such as dental and vision care, and most fold in prescription drug coverage as well. The insured is still on the hook for the 20% that basic Medicare does not cover, but there is an annual cap that limits your out-of-pocket costs.

With those additional benefits, it may surprise you to find that some of these plans carry no premium whatsoever, other than the Part B portion that is paid directly to Medicare. This comes about because of restrictions that may be put in place that are not present with original Medicare. Hospitalizations can be more expensive, you are more likely to see a nurse practitioner than a doctor, you may be required to get a referral, and the benefits, costs, and providers change every year.

Medicare Advantage plans generally are health maintenance organizations (HMOs) or preferred provider organizations (PPOs). In HMOs you choose a primary care doctor who will direct your care and will need to give you a referral if you wish to see a specialist. PPOs have networks of doctors that you can see without a referral. If you use a provider outside the network, you will pay more.

Medicare Part D Explained

Part D is Prescription drug coverage. Each private insurer generally sets its own premiums and other out-of-pocket costs, either flat co-pays for each medication or a percentage of the costs. Like Part B, Part D is subject to IRMAA, (the Income-Related Monthly Adjustment Amount) as seen in the chart above.

Keep in mind that these amounts are in addition to the premium you pay to the private insurer. The additional IRMAA amounts are paid directly to Medicare.

Part D plans have various deductibles, but they cannot exceed $545 per year. The costs of generic and brand name drugs will be paid by some combination of the covered person (also referred to as the “beneficiary”), the insurance plan, the drug manufacturers, and the federal government, as this chart from the NCAA illustrates:

WHO PAYS WHAT UNDER PART D*

 

 

 

 

 

 

 

 

 

 

What are Medigap Plans, aka Medicare Supplement Plans?

Medigap Plans A, B, C, D, F, G, K, L, M and N are also known as Medicare Supplement Plans. As the name implies, these plans are designed to fill in the coverage gaps of original Medicare. The biggest gap is the Part B 20% copay. This is important, as the Part B copay has no out-of-pocket maximum. Without a Medigap Plan (or Part C plan with an out- of- pocket maximum), the out-of-pocket costs are unlimited.

To illustrate the problem with an extreme circumstance; consider a heart transplant, which costs about $1 million for surgery alone. Without a Medigap Plan or Part C, you would be on the hook for 20% of that cost, or $200,000.

Some Medigap policies cover services that original Medicare does not, such as medical care when you travel outside the U.S.

Here are some useful facts regarding all Medigap Policies:

• When you buy a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered healthcare costs. Then, your Medigap policy pays its share.
• Medigap plans all cover an additional 365 days of hospital care after Plan A benefits are used.
• You must have original Medicare Parts A and B to qualify for a Medigap policy.
• You will pay a premium to the private insurer in addition to the monthly Part B premium that you pay to Medicare.
• A Medigap policy covers only one person. If you and your spouse both want Medigap coverage, you’ll each have to buy separate policies.
• Any Medigap policy is guaranteed renewable even if you have health problems. This means the insurance company cannot cancel your policy as long as you pay premiums.
• Medigap policies sold after 2006 are not allowed to cover prescription drugs. For that, Medicare Part D is necessary.
• It is illegal for an insurance company to sell you a Medigap policy if you already have Medicare Advantage.

Medigap Plans A, B, C, and D Explained

Plans A, B, C, and D are all quite similar. Plans A and B do not cover co-insurance costs for skilled nursing facilities or Medicare Part B excess charges. Plan C is no longer available for newly eligible participants. These plans are among the least comprehensive plans, and they have lower premiums.

Medigap Plans F and G Explained

Plan F and Plan G are the most comprehensive, and nearly identical, with the only difference being that Part F covers your Medicare Part B deductible of $240. This makes plan F the most comprehensive of all Medigap plans. Unfortunately, it is no longer available to anyone who became eligible for Medicare after January 1, 2020. For all newly eligible participants, Plan G is now the most comprehensive plan. Plan G pays your Part B excess charges, which are the amounts that providers charge that can be as much as 15% higher than what Medicare approves for a service.

Medigap Plans K and L Explained

Plan K and Plan L do not pay 100% of the Part B 20% copay as all the others do. Plan K pays only 50% of it, and Plan L pays 75%. They do, however, have maximum out-of-pocket amounts: Plan K has a maximum out-of-pocket of $6,220, and Plan L has a $3,110 maximum out-of-pocket.

Medigap Plans M and N Explained

Plan M and Plan N are similar to Plan G, except they don’t pay your excess charges and you pay a copay for doctor visits, among some other minor differences.

A summary chart from boomerbenefits.com illustrates the differences:

 

 

 

 

 

 

 

 

 

 

 

 

 

How Do Retiree Medical Plans Fit into Medicare?

If you are retired and have Medicare and a group health plan (retiree coverage), generally, Medicare pays first for your health care bills, and your group plan pays second. Retiree Medical Plans are controlled by the employer. They can change benefits, premiums, or even cancel the coverage. When you are eligible for Medicare, you will need to enroll in both Medicare Part A and B to get full benefits from your retiree coverage. Retiree coverage isn’t the same as a Medigap policy, but like a Medigap policy, it usually offers benefits that fill in some of Medicare’s gaps in coverage, such as the coinsurance and deductibles.

What If I Have Employer Coverage Past Age 65?

If you are still working past age 65 and have employer medical insurance coverage, or you have coverage through your working spouse, you may be able to

1. Continue with your employer coverage
2. Apply for Medicare, or
3. Have some combination of both.

The rules for this are complex, but the general point is that in this circumstance, you may be able to avoid penalties for late Medicare enrollment, as outlined here:

Penalties for Late Medicare Enrollment

• Part A: If you are not fully insured, having worked less than ten years, you will pay a Medicare Part A premium. If you choose not to enroll at age 65, you will pay a 10% premium penalty for twice the number of years you did not enroll. For example, if you wait two full years to enroll, you will pay a 10% penalty for 4 years.
• Part B: If you do not apply for Medicare Part B at age 65, you will pay a lifetime penalty of 10% for every year in which you do not apply. For example, if you wait five years to enroll, you will pay a 50% penalty every year for life.
• Part D: If you do not apply for Medicare Part D at age 65, you will pay a 1% penalty for each month that you forego coverage. For example, if you wait 2 years before you enroll, the lifetime penalty is 24%.

Summary

Like most government-run programs, Medicare is a confusing topic. Hopefully this article has explained a few basic points, but when it comes time to navigate the complexities of Medicare enrollment, I recommend retaining the services of a Medicare Specialist. These brokers work for the insurers, and you pay no more than you would if you applied for coverage directly.

While this article aims to outline some basic facts about Medicare, various strategies to consider around Medicare will be addressed in a separate article.