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Medicare Basics

Medicare is a federal health insurance program for people age 65 or over and certain people under age 65 with disabilities or End-Stage Renal Disease. The insurance program is divided into parts covering specified medical services. Part A is known as hospital insurance; Part B is medical insurance. Part C is a plan offered by a private insurer which covers the benefits of Original Medicare Parts A & B and sometimes Part D. Part D provides prescription drug coverage.

Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care and some home health care.  You are not charged a monthly premium for Part A if you have paid for your coverage through payroll taxes under your own work record or your spouse’s. 

Medicare pays a portion of Part A services, and you are responsible for deductibles, copays and coinsurance as you receive services.  The Part A deductible for an inpatient hospital stay is defined by a 60-day “benefit period.”  A new benefit period begins and a new deductible is imposed when you are re-admitted after 60 days of receiving no inpatient hospital or skilled nursing facility care.  It is possible to incur the Part A deductible several times in one year if you have multiple hospitalizations.  You are also responsible to pay copays for days 61-90 in a hospital and for days 21-100 in a skilled nursing facility.  There is no annual out-of-pocket maximum that limits your cost-sharing for Part A services.

Part B covers services which are considered to be medically necessary for treating a disease or condition.  These services include lab tests, doctor visits, durable medical equipment (DME) and preventive services.  The monthly premium for Part B is based on your income plus any late enrollment penalties that may apply.

After you have paid an annual deductible, Medicare pays 80% of most Part B services and you pay 20% coinsurance.  Most preventive services are covered 100% by Medicare if you get the service from a provider who accepts assignment from Medicare.  There is no annual out-of-pocket maximum that limits your cost-sharing for Part B services.

Part C refers to plans offered by private insurance companies which cover the benefits offered by Original Medicare (Parts A & B).  Some private insurance plans also include Part D prescription drug coverage.  The most common kind of Part C plan is known as a Medicare Advantage plan.  Besides covering Medicare services, Medicare Advantage plans may offer additional benefits, such as dental and vision coverage, hearing aid subsidies, gym memberships, over-the counter allowances, home care services and reimbursements for travel to medical appointments.

You must continue to pay your Part B premium while enrolled in a Medicare Advantage plan.  Most Advantage plans impose an additional monthly premium. 

Besides the monthly premiums, you are responsible to pay deductibles, copays or coinsurance for the medical services you receive through a Medicare Advantage plan.  The Medicare Advantage plan changes how you share the costs of your services, but in a manner that is considered equivalent to your cost-sharing under Original Medicare.  For example, instead of paying a $1632 Part A deductible for one night in the hospital, you may be charged a one-day copay of $325.

One of the benefits of a Medicare Advantage plan is the protection offered by an annual out-of-pocket maximum (OOPM).  Your responsibility for cost-sharing under Original Medicare is unlimited—there is no cap on the amount you may have to pay for deductibles and coinsurance.  With a Medicare Advantage plan, however, your responsibility for deductibles, copays and coinsurance ends when you reach the OOPM.  Deductibles and copays for prescription drugs are not included in the OOPM.

Medicare Advantage plans limit services by networks. To receive the maximum benefit from your plan, you must use doctors and hospitals in the plan’s network.  There may be no coverage from the plan if you receive a service outside the network.

Part D is prescription drug coverage provided by private insurers.  If you are receiving your Medicare benefits through Original Medicare, you can get Part D drug coverage through a separate prescription drug plan (PDP).  You will be responsible to pay a monthly premium for the plan, as well as a deductible and copays for your prescriptions.  If you are receiving your Medicare benefits through a Medicare Advantage plan, you must get your prescription drug coverage through that plan. You will be responsible to pay a deductible and copays for your prescriptions. 

Your share of the cost of prescriptions changes as you purchase prescriptions through the year. Click here for more information on the four stages of cost-sharing for prescription drugs.

Medicare Supplement Insurance Plans, also known as Medigap plans, are secondary insurance plans offered by private insurers.  As the secondary insurer, these plans pay after Original Medicare pays its portion of your medical services, covering some or all of your deductibles and coinsurance. Click here for a comparison of benefits covered by the ten standardized Medigap plans available in Michigan.

With a Medigap plan, you may receive your Medicare services from any provider in the United States who accepts assignment with Medicare.  You are not restricted to provider networks.  Some Medigap plans have coverage for medical services received outside the United States.

Medigap plans charge a monthly premium, which can increase each year with inflation and age.  Depending on the plan design, you may be responsible for deductibles and/or coinsurance for your medical services.  As long as you continue to pay your monthly premiums, you can keep your Medigap plan from year to year.

Medigap plans, as secondary insurance plans, may impose underwriting on applicants, resulting in higher premiums or denial of the application if you have a restricted medical condition.  At certain times, however, you are eligible for Guaranteed Issue and can purchase a Medigap plan without answering medical questions.  The most common Guaranteed Issue windows occur when you turn 65, when you first enroll in Part B and when you leave group coverage.