Medicare, the government health care program for those 65 and over (and disabled persons who have been collecting Social Security for at least two years, and selected others), has features important to understand for your retirement health care needs. A recent study by Employee Benefit Research Institute indicated that a typical 65-year-old couple retiring in 2024 without health insurance would need approximately $351,000 to pay for their health care costs in retirement. The study excludes the cost of long-term care, but does include premiums, deductibles, and co-pays, as well as the cost of insurance to “fill the gaps” Medicare coverage leaves. Therefore, today’s retirees must not only know how Medicare works, but know their options to supplement Medicare’s core benefits.
Original Medicare has two parts, Part A and Part B. About 20 years ago, Medicare added a Part C, known as Medicare Advantage, and a Prescription Drug Benefit Program (Part D). This article reviews these parts of Medicare.
Part A, or “Hospital Insurance” generally covers room charges and services associated with an inpatient hospitalization, including stays in acute care hospitals, psychiatric hospitals, and limited coverage for care in skilled nursing facilities. Part A also covers hospice care and limited amounts of home health care. In 2024, the Part A deductible is $1,632 for each hospitalization up to 60 days. Hospital stays exceeding 60 have co-insurance charges may kick in. Likewise, skilled nursing facility coverage levies co-insurance charges for days beyond the first 20 up to 100 days (with 80 life-time reserve days available). Part A will not pay for private rooms, TV, a telephone, or private duty nurses, but provides good coverage for acute hospital care, including coverage for medical tests, blood work, and drugs administered in the Hospital. There’s no premium for Part A for most people, as payroll taxes levied during their working lives establish eligibility for Part A (and their spouse).
Part B (or medical insurance) covers physician care regardless of where received. Part B also pays for ambulances, lab tests, physical therapy, and rehabilitations services as well as x-rays, medical services, and durable medical equipment. The 2024 annual deductible for Part B is $240. After meeting your deductible, Part B pays for 80% of the “Medicare allowable” charges. Services not covered by Part B include: eyeglasses, routine podiatric care, hearing aids, dental care, homemaker services, care received outside the country, and custodial care. In 2024, the monthly Premium for Part B is $174.70 per month per person. Married couples with Adjusted Gross Income over $206,000, and single beneficiaries with AGI over $103,000, pay higher Part B premiums.
The Part D prescription drug program (PDP) covers prescription drugs through Medicare authorized, private insurance plans. Minimum coverage for a Part Plan in 2024, includes an annual deductible of $545, and partial cost of prescriptions up to $5,030 (including premiums and what you and the plan paid). In all PDP plans, you enter the catastrophic phase once you reach $8,000 in out-of-pocket drugs cost, you’ll pay nothing for your covered drugs for the rest of the year. The out-of-pocket costs that help you reach catastrophic coverage include:
- your deductible
- What you paid during the initial coverage period
- Almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the coverage gap
- Amounts paid by others, including family members, most charities, and other persons on your behalf
- Amounts paid by State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service
Costs that do not help you reach catastrophic coverage include your monthly premiums, what your plan pays toward drug costs, the cost of non-covered drugs, the cost of covered drugs from pharmacies outside your plan’s network, and the 75% generic discount. Many private Part D insurance plans exceed this minimum coverage.
If you are collecting Social Security benefits and you’re under 65, upon reaching age 65 you will be automatically enrolled in Medicare Part A. Part B coverage is voluntary. However, unless you are covered under a group health plan (or have dependent coverage under your spouse’s group health plan), it’s important to enroll in Part B immediately. If you delay and want to sign up for coverage later, you must generally wait until the next annual enrollment period (between January and March of the following year), and your coverage will not begin until the following July. Furthermore, Medicare will charge you a permanently higher Part B premium for each month you were eligible to sign up but didn’t. Likewise, Plan D Prescription drug plans charge a permanently higher premium for those who don’t sign up when they’re first eligible (and then want to enroll later).
Part C (Medicare Advantage Plan) works differently. Original Medicare allows beneficiaries to choose any physician who accepts Medicare, and it’s available anywhere in the country. Under Part C, insurance companies contract with the federal government to offer Medicare benefits through their insurance plans. These plans can include: managed care plans (e.g., HMOs), preferred provider plans (PPOs), private fee-for-service plans (PFFS), and others. Generally, Part C Plans provide beneficiaries with all Medicare-covered services, and most cover prescription drugs and other services. Part C plans often restrict which doctors or health care facilities you may use, and plan benefits and cost-sharing arrangements also may differ significantly from Original Medicare. Likewise, most Part C plans require that you meet with a primary care physician before you gain access to specialists, and most Part C Plans levy no monthly premiums.
Part C is available only to those who are in Medicare Part A and have enrolled in Part B. Also, participants must generally live in the plan’s service area. You become eligible to join a Part C plan when you first become eligible for Medicare (generally, at age 65). After your initial enrollment in a Plan C plan, you may change plans once a year during an “annual election period.” If special situations arise, (e.g., you move out of the plan’s service area, or the plan leaves Medicare), you’re also allowed to switch plans during the year.
As an alternative to a Medicare Advantage Plan to enhance Original Medicare’s coverage, you could buy a Medicare Supplemental Insurance (aka, Medi-gap plan) to cover the co-pays and deductibles not covered by Medicare. Medigap plans allow you to see any physician, specialist, or other provider without the “gatekeeper restrictions” and care limiting networks present in most Part C Plans, but they do charge monthly premiums for their coverage. Since Medicare Supplemental Plans do not cover prescription drugs, you’ll also need to buy a Prescription Drug Plan for your prescription drug coverage.