Understand Medicare in 4 Steps

Navigating Medicare can be daunting. You receive the hefty "Medicare & You Handbook for 2024" in the mail, brimming with unfamiliar terms. On top of that, insurance companies flood your mailbox with piles of promotional material every week.

How can you possibly read all of that and make sense of it? Which pieces of mail can you safely discard?

For many, Medicare is intimidating, especially at first. Throughout our working lives, our employers typically handle our insurance choices. We attend an annual benefits meeting and enroll in the plan they've selected for us.

But when we turn 65, we're often bewildered by Medicare and its myriad of plan options. Common questions arise: What will Medicare cost? How much will services cost? What does it cover?

Whether you're new to Medicare, or you're still working and unsure if you need Medicare but want to avoid late enrollment penalties, you're not alone in your confusion. 

Medicare can be broken down into simple, understandable steps right here.

Step 1: The Parts of Medicare

Who is eligible for Medicare? Anyone in the United States who is 65 or older, including permanent residents who have lived in the country for at least five years. Additionally, individuals who have received Social Security disability benefits for 24 months also qualify.

Once you confirm your eligibility for Medicare, it's best to start with the fundamentals. Many people get overwhelmed by diving straight into Medigap plans and Medicare Advantage plans without first understanding the core Original Medicare benefits.

This approach is akin to putting the cart before the horse, so let's set that aside for now. Initially, you should familiarize yourself with the basics of Medicare, which includes Part A and Part B.

These two parts are provided by the federal government, and you will enroll in them through the Social Security office.

The Parts of Medicare

Part A: This is your inpatient, hospital coverage. It covers your room and board during hospital stays or in a skilled nursing facility.

Part B: This is your outpatient coverage, which includes doctor visits, lab work, surgeries, diagnostic tests, durable medical equipment, and more.

Part D: This is your prescription drug coverage. With a Part D plan, you can purchase medications at a reduced cost compared to retail prices. This insurance is essential for current and future medication needs unless you can afford to pay for all medications out of pocket.

You become eligible for these three parts of Medicare on the first day of the month you turn 65 (or earlier if you qualify due to disability).

Don't worry, we haven't forgotten about Part C. We'll cover that in Step 4, as it's optional.

Step 2: Medicare Costs

Now that you're aware of your eligibility for the three parts of Medicare at age 65, it's important to understand the costs associated with each part. This knowledge is important, especially if you are weighing the decision to continue working for an employer with health benefits or retire and use Medicare as your primary insurance.

Medicare Part A is typically free for most individuals, provided you or your spouse have worked for at least 10 years in the United States.

The cost of Medicare Part B depends on your income. For new enrollees in 2024, the base rate is $174.70 per month. However, individuals with higher incomes will pay an “income adjustment,” meaning those with higher earnings will incur higher Medicare costs.

Social Security calculates your income adjustment based on your tax returns, usually looking at your income from two years prior. If your income has decreased since then, you can file a reconsideration request with proof of your lower income to potentially reduce your Part B premium. Social Security will review your request and notify you if they adjust your premium.

Once your premium is determined based on your income, Social Security will deduct your Part B premiums from your monthly income benefits. If you have postponed your Social Security income benefits, you will be billed for Part B quarterly. When you eventually start receiving your income benefits, the premiums will then be deducted monthly from your Social Security check.

Medicare Part B is essential if Medicare will be your primary insurance when you turn 65. You cannot purchase supplemental insurance without first enrolling in both Part A and Part B.

However, if you are still working for a large employer (20+ employees), your group insurance will remain your primary coverage, and Medicare will be secondary. In this case, you might consider delaying Part B, as your group insurance likely includes outpatient benefits.

Understanding Medicare Part D costs can be complex due to varying plan premiums. Similar to Part B, higher-income beneficiaries may pay more.

Most states offer over 20 different Part D plans, with the national average premium around $34.70 per month. This figure is useful for initial estimates.

Part D plans have different formularies, so you’ll need to choose one that covers your medications at reasonable prices. The Medicare website offers a plan finder tool to assist in selecting the right plan.

Part D premiums are paid directly to the insurance carrier, though you can request that Social Security deduct this premium from your monthly Social Security check. If you owe an income adjustment due to high income, this surcharge will be added to your chosen Part D plan’s monthly premium.

Step 3: Medicare Coverage

At this point, you might be wondering: what exactly am I paying for? What benefits do I receive?

Medicare covers the majority of your healthcare costs, but you are still responsible for your share, which includes deductibles, coinsurance, and co-pays.

This system is similar to the employer-sponsored coverage you might have had in the past. You paid a portion of the monthly premium through paycheck deductions to secure insurance coverage. Then, when you used that insurance, you also paid your share for medical services. This included co-pays for doctor visits and deductibles for surgeries or hospital stays. Medicare operates in a similar fashion.

Part A: Covers your first 60 days in the hospital. In 2024, your share of this cost is a hospital deductible of $1,632. After 60 consecutive days, Medicare’s share diminishes, and you begin paying a larger portion through daily hospital co-pays, which can amount to hundreds of dollars per day. Therefore, it’s crucial to have supplemental coverage to protect against these high Part A expenses.

Part B: Covers your outpatient care, which includes doctor visits, lab work, imaging tests, surgeries, durable medical equipment, and treatments like chemotherapy, radiation, and dialysis. After paying a small annual deductible of $240 in 2024, Part B will cover 80% of these services. You are responsible for the remaining 20%, with no upper limit. This can lead to substantial costs for expensive treatments, so having supplemental coverage is essential to manage high Part B expenses.

Part D: Helps pay for retail prescription medications, which you pick up at a local pharmacy or receive via mail order. You do not need supplemental insurance for Part D, as it includes built-in co-pays for medications, ensuring you don't have to pay 100% out-of-pocket for necessary medications.

Step 4: Supplemental Coverage Options

Now that we’ve covered what Medicare pays for and your share of the costs, it’s clear that some form of supplemental insurance is necessary. This is the primary subject of the many solicitations you’ve been receiving.

Once you choose between the two main types of supplemental coverage, you can discard most of that stack of mail. If you decide on Medigap plans, you can ignore Medicare Advantage plans and vice versa.

The good news is that Medicare insurance options cater to a wide range of budgets. Let’s briefly go over the two choices.

Medigap Plans

Medigap plans pay after Medicare. They cover expenses that would normally be your responsibility. For instance, all Medigap plans cover the 20% of outpatient costs under Part B that Medicare doesn’t pay. So, Medicare pays 80%, and your Medigap plan covers the remaining 20%. Some Medigap plans also cover your Part A and B deductibles. You can choose a separate Part D drug plan to accompany this coverage.

Medigap plans offer freedom in choosing healthcare providers. You can see any physician or provider that accepts Medicare, which includes nearly 900,000 providers nationwide. These plans are more expensive than Medicare Advantage plans because they are more comprehensive and offer greater freedom in selecting providers.

Medicare Advantage Plans

Medicare Advantage plans can be a bit confusing because they are also referred to as Part C of Medicare. These plans pay instead of Medicare and were created as a low-cost alternative to Medigap.

Medicare Advantage plans are private insurance plans with their own network of providers, typically structured as HMO or PPO plans. By joining an Advantage plan, you’ll use these network providers to get the lowest co-pays.

You will pay co-pays for doctor visits, hospital stays, and other Medicare-approved services. Generally, Medicare Advantage plans have lower premiums than Medigap plans because you agree to share costs through co-pays. In contrast, Medigap plans often eliminate co-pays depending on the plan you choose.

Most Medicare Advantage plans also include Part D drug coverage. This can be advantageous or not, depending on whether the included drug benefit meets your medication needs. Each type of plan has its pros and cons, and you’ll need to consider what’s most important to you.

Let Us Help You with Medicare

Our agency has been assisting people new to Medicare for many years. We understand what matters most and what doesn’t. We’ll guide you through the necessary steps to enroll in the appropriate parts of Medicare. Additionally, we’ll help you select the most suitable supplemental coverage and an affordable drug plan, ensuring you avoid any unnecessary coverage.

While Medicare can’t be boiled down to a truly simple explanation, we hope we’ve helped you grasp the basics. You don’t have to navigate this alone. Get support in understanding Medicare today—our help is absolutely free.