Medicare 101 – Understanding the Basics

If you are 65 years old or older, then you are eligible to enroll in Medicare. Medicare is the federally subsidized healthcare program for senior citizens. It’s run by the Centers for Medicare and Medicaid Services (CMS).

Funding for this program comes from three separate sources. One is the taxes you pay for Social Security and Medicare. Another is the premiums that you pay for your Medicare coverage. The third part of the funding comes directly from the federal government.

Here’s a quick rundown of the basics of Medicare. Call it “Medicare 101” — the essentials of what you need to know about this federal program for your retirement or other financial circumstances.

History of Medicare

Medicare was created in 1965 through the enactment of the federal law known as Health Insurance for the Aged (Title XVIII) of the Social Security Act. The program has undergone a few big changes since then.

In 1972, the program was expanded to include those with end-stage renal disease (ESRD) and those who qualified for Social Security Disability payments. The following year, the HMO Act was passed creating health maintenance organizations (HMOs). Then the CMS was created in 1977 to oversee the program as an agency within the U.S. Department of Health and Human Services.

In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was passed. This legislation created major changes to the Medicare program, including Part D prescription drug benefits and Medicare Advantage plans. Both of these new provisions were implemented in 2006.

Medicare has remained in its present form since that time. Today, there are tens of millions of people enrolled in Medicare, and this program is the financial backbone of healthcare insurance for senior citizens and disabled persons.

Eligibility for Medicare

There are three separate categories of people who qualify for Medicare. The first and largest group is those who are 65 years old (the “traditional” retirement age) or older.

You automatically qualify for coverage once you reach this age. This is why Medicare comes up so often in retirement planning discussions.

The second group is disabled persons who receive Social Security Disability payments. In this case, the recipient must have been disabled for at least two-and-a-half years before they will qualify for Medicare.

First, they must satisfy the six-month waiting period to begin receiving Social Security disability payments. Then they must wait for another two years before becoming eligible for Medicare.

So, if you became disabled in February of 2021, then you would have begun receiving Social Security disability payments in August. Then you would become eligible for Medicare in August of 2023.

The final group of persons who can qualify for Medicare is those who have been diagnosed with end-stage renal disease (ESRD). If you have been ordered to have a kidney transplant or are put on a regular program of dialysis, then you may be eligible for Medicare.

However, eligibility isn’t automatic. The insured must have paid Medicare taxes for at least 10 years or else already have been receiving Social Security or Railroad Retirement benefits. Spouses and dependents of those in this category also qualify.

The Basic Structure of Medicare

Medicare coverage is divided into four parts (A, B, C, and D). The provisions of each of these parts are broken down as follows.

Medicare Part A

This is one of the two original parts of Medicare, and it covers hospital insurance. All Medicare members are automatically enrolled in this portion of Medicare once they become eligible.

Medicare Part A covers the following types of expenses:

• Inpatient hospital care – Expenses such as a semi-private room, meals, skilled nursing care, rehabilitation-related services, drugs that are necessary for your treatment, and other miscellaneous services and supplies. The types of facilities that you can get qualifying inpatient care in include acute care hospitals, critical access hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, long-term care hospitals, and any inpatient care you receive as part of a qualifying clinical research study.
• Home health services – Nursing care that is only needed on a part-time basis when it’s medically necessary. This includes physical therapy, speech/language pathology, and ongoing occupational therapy.
• Hospice care – For those with terminal illnesses or conditions. The recipient must have a life expectancy of six months or less to be eligible for this type of coverage.

Medicare Part A doesn’t cover such items as private-duty nursing, a private room (unless it’s deemed medically necessary), a phone and/or television in your room (if those as handled as separate charges in billing), and personal items such as clothing.

Medicare Part B

This is the other original part of Medicare. It covers outpatient medical treatments. Part B covers the following types of expenses:

• Medically necessary doctors’ services
• Many forms of preventative care
• Durable medical equipment, such as walkers or wheelchairs
• Outpatient care from a hospital
• Laboratory tests
• X-rays
• Outpatient mental health treatment
• Some types of home healthcare
• Ambulance services
• Diabetic supplies
• Emergency room services
• Flu shots
• Screening mammograms
• Physical therapy
• Certain types of transplants
• Outpatient occupational therapy

Medicare Parts A and B generally only pay for 80% of the costs of these services. The people who are insured must foot the remainder of the bills themselves.

It should be noted that original Medicare has no maximum out-of-pocket amount; there is no limit to how much insureds may have to pay. Parts A and B both have premiums, deductibles, and coinsurance just like a health insurance plan in the private sector.

Most people don’t have to pay premiums for Part A. That being said, there are deductibles and limits to what Part A covers. But everyone must pay the premiums for Part B.

The amount of the Part B premium changes each year, and it varies based upon the insured’s income. Those who enroll in Part B after the deadline will also have a late enrollment penalty applied to their premiums.

It should also be noted that original Medicare doesn’t cover the costs of vision, dental, or hearing services. Some Medicare Advantage plans do cover this for an additional cost (more on this below).

Medicare Part C

Medicare Part C is made up of Medicare Advantage Plans. This alternative to Medicare Parts A and B works in the same manner as an HMO or a PPO.

However, each Medicare Advantage Plan must at least cover all services that Medicare parts A and B cover. Some Medicare Advantage Plans also include prescription drug coverage and other types of coverage such as for dental, vision, hearing, and/or health & wellness programs.

Insureds must be eligible for Medicare Parts A and B and live within the jurisdictional area that is covered by the plan. Those who have been diagnosed with ESRD aren’t eligible for this type of plan.

If you decide to enroll in a Medicare Advantage Plan, then you will still have to pay the monthly premiums for Original Medicare. However, your specific plan may have different rules, restrictions, and costs than the original Medicare plan.

If you currently have health insurance coverage from a union, former employer, or current employer, then you may become enrolled in their Medicare Advantage plan automatically.

You can elect to either stay with this new plan, revert to your old health insurance coverage, or enroll in Medicare Parts A and B. But you should probably talk to your union or employer before you make a final decision here.

Medicare Part D

Part D deals with prescription drug coverage. In this case, it covers prescription drug plans (PDPs). This type of plan covers some or all the costs of both generic and prescription drugs. Medicare beneficiaries must choose a specific plan and join it on their own.

These plans are run by commercial health insurance companies or other companies in the private sector. All companies that offer this kind of coverage must meet the federally mandated criteria for this type of plan.

Medicare Advantage recipients can also purchase this type of coverage. Their plans are known as Medicare Advantage Prescription Drug Plans (MAPDs). Part D plans have their own premiums, copays, and deductibles. They come at an additional cost to Original Medicare.

Everybody who enrolls in any type of Medicare plan will receive a red, white, and blue Medicare card. You will show this card to your doctor and other healthcare providers whenever you go to see them.

If you enroll in a Medicare Advantage Plan, you will still receive this card. But you will also receive a separate additional card that you will show instead to your healthcare providers.

Regardless of the type of Medicare benefit that you decide to use, you should only ever give your Medicare number to your doctor or other healthcare provider – and no one else.

Supplemental Medicare Plans

Those who enroll in Original Medicare often also choose to purchase a Medigap or supplemental Medicare plan that covers the costs that Original Medicare doesn’t pay. These policies are offered by private health insurance companies but are regulated by the federal government.

Medigap policies pay for the premiums, deductibles, and copays that come with Original Medicare coverage. However, they themselves also require their own premiums.

You can ask your financial professional more about the advantages and disadvantages of Medicare Advantage or Medicare Supplement plans. They can discuss your situation with you and see what coverage might the right fit for your personal needs.

Exploring Your Medicare Options

The bottom-line? If you are 65 years old and need to enroll in Medicare, you may want to talk to a financial advisor about what kind of coverage you should get.

If you are looking for guidance with your retirement, no sweat! Help is just a phone call away. Connect with us at 480-607-1346 or 888-416-(LIFE) to discuss your concerns, goals and overall situation.