Understanding Medicare

Medicare at a glance

This is a brief summary of some of the covered benefits. Refer to Medicare.gov for more specifics.
Part     Name     Description     Monthly Premium
A     Hospital insurance     Inpatient hospital care     No cost for most people (provided you or your spouse paid Medicare taxes while working)
B     Medical insurance     Outpatient care, ambulance service, lab tests, physical therapy     Starts at $99.90 per month in 2012. Premiums rise once income reaches $85,000 for individuals, $170,000 for married couples.
C     Medicare Advantage     Plans offered by private companies that contract with Medicare to provide your Part A and B benefits     Varies, but typically between $0 and $75 a month (must also be enrolled in Parts A and B)
D     Prescription drug coverage     Drug plans offered by private companies     Varies, but averages $30 a month in 2012


Part A: Hospital Insurance

Medicare Part A covers hospitalizations, hospice, limited home health services and skilled nursing facilities (only after a three-day inpatient hospital stay for a related illness or injury) for up to 100 days, but Medicare does not cover long-term care.

While it's free for most people, Part A coverage makes you responsible for an inflation-adjusted portion of your hospital costs. In 2012, a hospitalization may require you to pay:

    A $1,156 deductible per benefit period, which begins the day you go into the hospital and ends when you haven't received any inpatient hospital care for 60 consecutive days. Therefore, it is possible that you would have to pay the co-payment for each hospital stay, if each stay occurs 60 days or more after your last one.
    100% for the first three pints of blood you get as an inpatient, then 20% of the Medicare-approved amount for additional pints of blood.
    20% of the Medicare-approved amount for durable medical equipment.
    Coinsurance of $289 per day for days 61 through 90 of hospitalization.
    Coinsurance of $578 per day for days 91 through 150 of hospitalization.
    All expenses after 150 days.
    Coinsurance of $144.50 per day for days 21 through 100 for each benefit period for a skilled nursing facility and all costs for each day after day 100 in the benefit period.


Part B: Medical Insurance

This optional coverage provides benefits for outpatient expenses such as doctors' fees, physical therapy, laboratory services, X-rays, some mental health visits and ambulance service. You pay the first $140 a year for Part B covered services and items. You must also pay 20% of Medicare-approved doctor services, outpatient therapy, most preventive services and durable medical equipment. You pay 50% for mental health services.

Part C: Medicare Advantage

Medicare Advantage allows private companies to contract with Medicare to replace all of your Part A and B benefits. Some Medicare Advantage plans provide additional benefits not found in Original Medicare Part A and B — often with lower co-payments and deductibles.

You can join a Medicare Advantage plan when you first become eligible for Medicare or each year during an annual election period, which begins Oct. 15 and ends Dec. 7. When you join, you continue to pay your Part B premium to Medicare, and you also may pay a low premium — or no premium — to the Medicare Advantage provider.

Medicare Advantage plans resemble those available to people who aren't retired, such as:

    Managed care plans. These plans — which include health maintenance organizations — generally provide the most opportunity to save money on health costs. Coverage is usually restricted to doctors and hospitals in the plan's provider network.
    Preferred provider organizations. Similar to managed care plans, PPOs let you use out-of-network providers for an additional fee. Also, you can see a specialist without a referral.
    Private fee-for-service (PFFS) plans. Generally the most costly, these plans provide the most flexibility in choosing your doctors.


Part D: Prescription Drug Coverage

This optional coverage is offered by private insurers. It's an excellent value if you don't have drug coverage through another plan — like an employer's retiree medical plan. It usually isn't necessary if you've enrolled in a Medicare Advantage plan, because those plans typically include prescription drug benefits. If you're already eligible for Medicare, you can enroll in Part D or change your plan between Oct. 15 and Dec. 7 each year.

The chart below shows how a Part D plan that meets the government's minimum requirements splits expenses between individuals and the plan. Other plans provide higher benefits for a higher premium.
Standard Medicare Part D Prescription Drug Example (for Medicare-Approved Drugs)
      You Pay     The Plan Pays
Yearly deductible     Up to the first $320 of drug costs; some plans have no deductible     From zero to $320
Co-payment/coinsurance     A co-payment or coinsurance amount until total drug costs, including the deductible, reach $2,930     The balance of the cost after your payment
Coverage gap (nicknamed the "Doughnut Hole")     50% of the cost of brand-name drugs and 86% of the cost of generics, until reaching $4,700 in out-of-pocket costs. (Though you pay half, the full price of brand name drugs counts toward this limit.)     Nothing; your costs are lowered through drug manufacturer discounts
Catastrophic coverage     Only a small coinsurance amount (around 5%) or co-payment amount     The balance of the cost after your payment


Medicare Supplements

As mentioned, Original Medicare makes you responsible for a portion of your medical expenses. If you don't purchase a Medicare Advantage plan, consider protecting yourself from potentially large bills by purchasing a Medicare supplement, or Medigap, policy.

Medigap policies are offered by private insurers, and in most states are offered in 12 standardized forms, called Medigap Plans A through L. This standardization makes comparisons easier. For example, the benefits of Medigap Plan B coverage from two different insurers will be identical. What might differentiate them are the price and the quality of the service.

If you're a military retiree covered by TRICARE, Medicare will become your primary health insurance at age 65. Your TRICARE coverage will be replaced by TRICARE for Life, which acts as a Medicare supplement. While there's no cost for TRICARE for Life, you'll need to enroll in Medicare Part B and pay its premium.

--Contributed by USAA