How Does Medicare Work?

by

Joseph F. Baugher

Last revised October 13, 2020

Medicare is a government-financed single-payer medical insurance program that is available to US citizens or permanent residents aged 65 and over. To receive Medicare, you must be at least 65 years old and you must have worked for a minimum of 10 years in a job that has paid money into the Medicare system, or be a spouse of someone who has worked for a minimum of 10 years. However, people aged 65 who have not met the minimum work requirements may still be able to get Medicare by paying a premium. Medicare is also available to some disabled people under age 65, and to people of all ages with permanent kidney failure who are being treated by dialysis or by a transplant.

Basic access to Medicare is not means-tested, and eligibility is not affected by how much income you earn or by how many financial resources you have. You do not necessarily have to be retired to be eligible for Medicare—you can work full-time and still be on Medicare. All you have to be is a US citizen or a permanent resident who is aged 65 or over and who has worked at least ten years in a job that has paid Medicare taxes. There are no exclusions for preexisting conditions, and anyone eligible for Medicare can participate, no matter what the status of their health is.

Medicare is closely coupled with Social Security, but you do not necessarily have to be receiving Social Security benefits to be eligible for Medicare—you may have reached age 65 but might not yet have applied for Social Security benefits. Nevertheless, once you reach age 65, you are eligible for Medicare whether or not you are drawing Social Security benefits. People under 65 can sometimes receive Social Security, but they are still not eligible for Medicare until they turn 65.

There are now four distinct parts to Medicare, formally labeled Part A, Part B, Part C, and Part D. When Medicare was originally created back in 1965, there were only two parts—Part A that covered hospital bills and Part B that covered doctor bills and outpatient costs. Part A and Part B together are sometimes referred to as Original Medicare or Traditional Medicare. Part C and Part D came later—Part C in 1997 when private insurance carriers were brought into the program, and Part D in 2006 when prescription drug coverage was added to the program.

Do not confuse Medicare with Medicaid. Medicaid is a means-tested welfare program that is available only to certain low-income individuals and families who fit into an eligibility group (disability, blind, aged, limited income and resources) that is determined by federal and state law. Low income is only one criterion for eligibility—other criteria are assets and resources. Under this program, Medicaid sends payments for the medical treatment of eligible recipients directly to the service provider. Medicaid is jointly funded by federal and state money, but it is actually a state-administered program, and each state sets its own guidelines. Each state may have its own name for the program—in California it is known as Medi-Cal. Some people with Medicare are also eligible for Medicaid, and Medicaid offers them programs that can help to pay Medicare premiums and other costs, provided that they qualify.

Medicare Funding

Medicare is funded by three primary sources of revenue—payroll taxes, insurance premiums, and general federal revenues:

• Medicare is partially financed by payroll taxes. For employees, the tax is currently equal to 2.9% (1.45% from the worker and 1.45% paid by the employer) of the wages, salaries, and other compensation paid in connection with the employment. Unlike Social Security, there is no maximum amount of wages on which the Medicare tax can be imposed each year. For self-employed individuals, the entire 2.9% of self-employed net earnings must be paid by the self-employed individual, but half of the tax that is paid can be deducted for income tax purposes. In the year 2010, about 43% of Medicare costs were paid by payroll taxes.

• In addition, Medicare beneficiaries contribute to the funding of the program by paying premiums for certain Medicare programs—people who participate in Medicare Part B pay a monthly premium. In the year 2010, about 13% of Medicare costs were paid by subscriber premiums.

• Finally, some of the costs of Medicare are paid from general Federal revenues. It turns out that Medicare costs exceed the amount of money brought in from premiums and payroll taxes, and money must be taken from general revenues to make up the difference. In the year 2010, about 44% of Medicare costs were paid out of general revenues.

The money paid into Medicare does not simply sit there. It goes into two different trust funds. One is the Hospital Insurance (HI) fund, which helps to pay for hospital, home health, skilled nursing, and hospice care, basically Part A of Medicare. The other is the Supplemental Medical Insurance (SMI) fund which used to pay for Part B expenses as well as Part D prescription drug expenses. Medicare Part C expenses are paid out of both the HI and SMI funds.

How Do You Enroll in Medicare?

It’s pretty easy to do. You do the enrollment through Social Security.

If you are already receiving Social Security or Railroad Retirement Board benefits , you will be automatically enrolled in Medicare (both Part A and Part B), starting the first day of the month when you turn 65. You don’t need to do anything to enroll, and your Medicare card will be automatically mailed to you about 3 months before your 65^th birthday. If you apply for Social Security benefits at age 65, you will also be automatically enrolled in Medicare at the same time. If you are under 65 and disabled, you automatically get Part A after you get disability benefits from Social Security.

If you had worked for a minimum of 10 years in a job that has paid money into the Medicare system, or are a spouse of someone who has worked for a minimum of 10 years, you don’t have to pay a premium for Part A. However, there is a premium for Part B. Most people choose to keep Part B, but you may choose to delay getting Part B during your automatic enrollment period (and paying the premium). To do so you need to let Medicare know before the coverage start date on your Medicare card. If you do nothing,

you will keep Part B and pay the premiums. If you choose not to keep Part B but decide you may have to wait to enroll and pay a late enrollment penalty

However, if you decide to delay applying for Social Security benefits past age 65, you can still enroll in Medicare when you turn 65 by visiting your local Social Security office or you may be able to enroll over the telephone. If you are not already receiving Social Security benefits, you can enroll in Medicare up to three months before your 65^th birthday, but no later than three months after the month of your birthday. This 7 month period is known as the initial enrollment period, and you would be well advised to enroll in Medicare during this period. If you sign up for Medicare during the first 3 months before the month you turn 65, your coverage will begin on the month you turn 65. However, if you wait until the last 4 months of your initial enrollment period to sign up for Medicare, your coverage will be delayed.

Most people sign up for Part A and Part B during their initial enrollment period. But you may delay enrollment in Part B (and paying the Part B premium), and you may have valid reasons for doing so, for example if you have group health coverage through your or your spouse’s employer and you may have valid reasons for doing so However, in most cases, if you don’t sign up for Part B when you are first eligible, you may have a delay in getting Part B and you may have to pay a late enrollment penalty when you do sign up.

Not everyone signs up for Medicare when they first become eligible, the most frequent reason being because they are still working and are being covered by their employer’s health plan. In such a case, you can enroll in Medicare at a later time without having to pay any late enrollment penalty. This is known as a special enrollment period. You can of course sign up for Medicare anytime you please while you are still getting group healthcare coverage through your employer or through a union. But if you lose your job or quit, or if your employer drops their healthcare coverage, you can sign up for Medicare penalty-free during an 8-month Special Enrollment Period that begins the month after your employment ends or the group health plan coverage ends, whichever happens first.

This eight-month special enrollment period begins as soon as your employment ends, even if you take COBRA benefits while unemployed. COBRA stands for Consolidated Omnibus Budget Reconciliation Act, which is a law that give workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under circumstances such as voluntary or involuntary job loss, reduction in hours worked, or transition between jobs, but usually at extra cost. However, if at the time you initially became Medicare eligible you happened to be on COBRA or had retired and were covered by a retiree health plan, you would not eligible for a special enrollment period when that coverage ends, because you are not considered as having coverage based on current employment, and you would be well-advised to go ahead and sign up for Medicare right away

If you delay enrollment into Medicare past your initial enrollment period, you may have to wait until the next general enrollment period, which is January 1 through March 31 of each year, and you may end up having to pay a late enrollment penalty. This late enrollment penalty applies primarily to people who have delayed signing up for Medicare when they had no other medical insurance coverage. If you enroll in Medicare during the general enrollment period, your coverage will start on July 1. In addition, you may have to wait until the next annual election period (October 15 to December 7 of each year) to enroll in a Medicare drug plan.

Coordination of Plans

Even if you are enrolled in Medicare, you can also be enrolled in other medical insurance plans. The coordination between these plans can be quite complicated, and you need to check carefully to make sure which one pays for what.

Even if you are still working and are getting health care coverage through your employer or your union, you might still choose to enroll in Medicare. If so, you will be covered by two different plans at the same time. The coordination between these plans can bec complicated, and you check with your employer or union to see how their plan coordinates with Medicare. If your employer has 20 or more employees, your group health plan pays first, but if your employer has fewer than 20 employees, Medicare pays first. If you have a disability and your employer has 100 or more employees, your group

health plan pas first, but if the employer has fewer than 100 employees, Medicare pays first.

If you have TRCARE (health care program for active duty and retired service members), you generally must enroll in Part A and Part B when you are first eligible in order to keep your TRICARE coverage But if you are active duty, you don’t have to enroll in Part B in order to keep your TRICARE

Certain low-income people are eligible for Medicaid and they can also enroll in Medicare. If you have Medicaid, Medicare pays first. If you have Medicaid and don’t have Par B, Medicare will pay first and Medicaid will pay second. Medicaid may be able to help pay Medicare out-of-pocket costs.

If you have Health Insurance Marketplace (“Obamacare”), you should generally enroll in Medicare when you are first eligible in order to avoid the risk of a delay in Medicare coverage and the possibility of a Medicare late enrollment penalty. When you sign up for Medicare, you should terminate your Marketplace coverage.

A Health Savings Account (HSA) lets you set aside money on a pre-tax basis to pay for qualified medical expenses. However you cannot make contributions to your HSA after you have Medicare, lest you get hit with a tax penalty.

Original Medicare

Medicare Parts A and B are sometimes called “Original Medicare”. Original Medicare is a single-payer fee-for-service plan created back in 1965 and managed by the Federal government, specifically by the Centers for Medicare and Medicaid Services (CMS), which is a part of the Department of Health and Human Services. You can get coverage from any Medicare-enrolled doctor, other healthcare provider, hospital, or other facility that accepts Medicare patients anywhere in the USA. There are no gatekeepers, and there are no networks. You do not need to choose a primary care doctor, and you don’t need a referral to see a specialist. You can go to any doctor, supplier, hospital, or other facility that is enrolled in Medicare and is accepting new Medicare patients.

Patients generally don’t need to file Medicare claims—providers such as doctors and hospitals are required by law to file Medicare claims for the covered services and supplies that they provide. However, hospitals and doctors that handle Medicare patients deal mostly with private insurance companies that have been subcontracted by Medicare to handle Medicare claims at the local level. If you have Original Medicare, you will get a Medicare Summary Notice that lists all the services billed to Medicare. It will show what Medicare paid and what you may owe the provider.

Medicare does not cover everything, and it does not pay the total cost for most services and supplies that are covered. Like most private insurance plans, Medicare has deductibles under which you have to pay for the entire cost of the service until you have paid a certain amount. Even after you have met the deductible and Medicare starts paying, there are coinsurance and copayments, under which you have to pay a part of the total cost of the service. The difference between coinsurance and a copayment is that coinsurance is usually a pre-established percentage (for example 20 percent) of the total cost that the patient is asked to pay out of their own pocket, whereas a copayment is usually a set amount rather than a percentage--for example, you might be asked to pay a set fee of $10 for each doctor’s visit. Many people have a Medicare supplemental policy Medigap policy from a private insurer or other private insurance, Medicaid, military retiree or employer or union coverage that may pay for some of the deductibles, coinsurance and copayment costs that Medicare does not cover.

Not all doctors or healthcare providers participate in Medicare. They have either decided not to provide services through Medicare or they have been excluded from Medicare for some reason. In some cities, doctors who have gotten frustrated by what they say are low Medicare reimbursements, excessive paperwork, and onerous rules are limiting the number of Medicare patients that they take. Sometimes they have even refused to accept any new Medicare patients at all. Doctors who have opted out of Medicare can charge whatever they want, but they cannot bill Medicare for reimbursement nor may their patients submit claims to Medicare. If your medical provider does not participate in Medicare, Medicare will not pay anything toward the cost of your treatment, except in the case of an emergency or urgent need. In addition, Medigap supplementary insurance policies will not provide any coverage when basic Medicare doesn’t, so the entire bill becomes the patient’s responsibility. However, your doctor must tell you if he or she has been excluded from Medicare, and they must tell you if Medicare would pay for the service if you got it from another doctor who accepts Medicare.

Those providers who have opted out of Medicare will often ask you to sign a private contract, which is a written agreement between you and the doctor about how much the charge will be for the requested service. If you do sign such a contract, Medicare will not pay anything for the services you get from this doctor, and you will have to pay the entire cost out of your own pocket. A Medigap supplementary insurance policy will not pay anything for this either. However, you can’t be asked to sign a private contract in an emergency situation or when you need urgent care. You don’t have to sign a private contract, and you can always choose to go to another provider who does participate in Medicare.

However, the vast majority of doctors nationally still participate in Medicare, but there are pockets where we are seeing more and more doctors opt out of Medicare. This points out a problem with Medicare—how to provide more benefits to more people, pay enough to keep healthcare providers satisfied, and yet keep spending in check.

You may have heard of the term “assignment”. When a doctor or a provider says that they accept “assignment”, this means that they agree to accept the Medicare-approved amount as full payment for all covered services. If the doctor or supplier accepts assignment, they agree to charge you only the Medicare deductible or coinsurance amount, and to wait for Medicare to pay its share. Nearly all hospitals, skilled nursing and other post-acute care facilities, and over 90 percent of doctors accept assignment by Medicare. Even though most doctors, providers, and suppliers accept assignment, you should always check to be sure. You can save money if you choose doctors or providers who accept assignment. Other healthcare providers have not signed an agreement to accept assignment for all Medicare-covered services, but they can still choose to accept assignment for individual services. These providers are called “non-participating,” which is sort of a confusing term, since they still participate in Medicare.

There are some providers who participate in Medicare but who do not accept assignment for any services. For providers who do not accept assignment, the patient would be liable for the difference between the amount charged and the amount paid by Medicare. Medicare will still pay, but the amount that is paid will be only the pre-established “reasonable charge”, and the patient is liable for the amount that was charged that was above the Medicare fee schedule amount.

Even if the doctor or provider doesn’t accept assignment, they must still submit a claim to Medicare when they provide you with Medicare-covered services. If they don’t submit the claim, you should contact the company that handles bills for Medicare in your state and file a complaint. You might have to pay the entire charge at the time of services, but the provider is required to submit a claim for any Medicare-covered services that they provide to you, but there are certain situations in which you might have to submit your own claim to Medicare.

However, under federal law there is a set limit as to the amount a physician who participates in Medicare may charge over the Medicare fee schedule amount for that particular service. A physician may balance bill only 115 percent of the Medicare fee schedule amount. For example, suppose your doctor does not accept assignment and wants to charge you $100 for a service where the Medicare fee schedule is only $70. The doctor can bill you only 115 percent of the fee schedule amount, or $80.50. Medicare will pay 80 percent of the $70, which is $56, leaving you to pay the remaining $24.50.

Medicare Part A

Part A is also known as hospital insurance. When you first sign up for Medicare, you will automatically be enrolled in Part A. Even if you are still working and have healthcare coverage through your employer, Part A may still help pay some of the costs not covered by your group health plan.

Most people on Medicare don’t have to pay a monthly premium for Part A coverage. If they or a spouse had 40 or more quarters of employment under which Medicare taxes were paid, there is no monthly premium. However, if one does not have enough work experience to qualify for Social Security payments, or is not married to someone who does, they can still get Medicare Part A coverage, but they will have to pay a monthly premium. For someone who has 30-39 quarters of Medicare-covered employment, the monthly Part A premium is $250 for 2021. For someone with less than 30 quarters, the monthly premium is $471 for year 2021.

If you are not eligible for premium-free Medicare Part A, and did not sign up for Part A during your Initial Enrollment Period, you will have to wait until the General Enrollment Period (January 1 through March 31 of each year) and may have to pay a late enrollment penalty of 10 percent of your monthly premium. You will have to pay this extra premium for twice the number of years you could have had Part A but did not join

Medicare Part A pays for inpatient hospital costs, skilled nursing facility care, hospice care, and some home health care. However, it does not pay for long-term or custodial care, and it does not pay for medical costs incurred outside the hospital (outpatient care).

Part A also provides for inpatient care in a Religious Nonmedical Health Care Institution (which is a facility that provides non-medical, non-religious health care items and services to people who need hospital or skilled nursing facility care but for whom that care would not be in agreement with their religious beliefs).

Medicare Part A pays all covered hospital costs except for a deductible (which was $1132 in 2010) for the first 60 days in the hospital. For hospital stays that last beyond 60 days the patient will have to pay a co-insurance amount of $283 per day for a hospital stay of 61-90 days, and $566 per day for days 91-150 of a hospital stay. The patient pays all costs for each day in the hospital beyond 150 days. Hospital stays must be at least 3 days (72 hours) in duration. Fiscal intermediaries handle the claims for Medicare Part A. These are private insurance companies that are contracted to act as agents for the federal government in processing and paying clams.

Part A also pays for nursing home or skilled nursing facility stays, but such stays must be related to a diagnosis that occurred during a hospital stay. It is necessary to have at least a three-day prior hospital stay before being admitted to a Medicare-approved skilled nursing facility. Suppose you have to go to the hospital because of a stroke—the subsequent stay in a nursing home for rehabilitation would be covered by Medicare Part A. Medicare Part A pays for all covered charges for services that occur within the first 20 days of a stay in a skilled nursing facility. After that, there is a copayment of $141.50 per day for days 21 through 100 for each benefit period. After the 100^th day, Medicare will not pay any of the costs. Unfortunately, Medicare Part A provides no annual maximum on the out-of-pocket medical expenses that are incurred by a patient, so a catastrophic illness could still wreck a senior’s finances.

Medicare Part A will pay for certain home health services. Part A will cover the cost of the first 100 home health visits following a hospital stay. These visits are limited to medically-necessary part time or intermittent skilled nursing care or physical therapy, speech-language pathology, or a continuing need for occupational therapy. The care must be ordered by a doctor and must be provided by Medicare-certified home health agency. In order to qualify, you must be homebound, which means that leaving home requires a lot of effort.

Medicare Part A will also pay for hospice care for people with a terminal illness who are expected to live 6 months or less (as certified by a doctor). Coverage may include drugs, medical, nursing, social services, and other things not usually covered by Medicare, such as grief counseling. Hospice care is usually provided in the home or in a Medicare-approved hospice. You can stay in a Medicare-approved facility up to 5 days each time you get respite care.

Medicare Part A will also cover the cost of blood transfusions. In most cases, the hospital gets blood from a blood bank at no charge, and you won’t have to pay for it or replace it. However, if the hospital has to buy blood for you, you will have to pay for the first 3 pints you get in a calendar year or have the blood donated.

What about long-term care? Medicare does not pay for long-term care. Long-term care provides support services such as assistance in activities of daily living like dressing or bathing—this type of long-term care is often called custodial care. Such care may be provided at home, in the community, in assisted living or in nursing homes. Although Medicare does not pay for long-term or custodial care, it will pay for medically necessary skilled nursing facility or home health care. However you must meet certain conditions for Medicare to pay for these types of care.

Copayments, coinsurance, or deductibles may apply for each of these services. You may choose to obtain a Medicare Supplement “Medigap” policy from a private insurer that can help pay for some of these costs

Medicare Part B

Medicare Part B is sometimes called medical insurance. Part B is designed to cover medical costs that are not handled by Part A. Generally, Part B covers those medical costs that are incurred on an outpatient basis (outside the hospital), which are not covered by Part A. However, Part B also helps to pay doctor bills, whether incurred inside or outside the hospital.

Part B covers Medicare-eligible physician services (whether received inside a hospital or in a doctor’s office), outpatient hospital services, certain home health services, and durable medical equipment. It also covers many services, tests and preventive treatments. It covers bariatric surgery. It covers medically necessary tests, labs, and screenings, preventive services such as exams, X-rays, MRIs, CAT scans, EKGs, lab tests, or screening inoculations, glaucoma tests, bone mass measurements, blood tests, mammograms, prostate cancer screenings, cervical and vaginal cancer screenings, colorectal cancer screenings, diabetic testing supplies, and cardiovascular screenings. It covers abdominal aortic aneurysm screenings, acupuncture, advance care planning alcohol misuse screenings and counseling Cardiac rehabilitation is also covered. Medicare also covers the blood-based biomarker test once every 3 years

Medicare may cover a 3-month trial of Continuous Positive Airway Pressure devices, accessories, and therapy.

Medicare Part B covers chemotherapy in a doctor’s office, freestanding clinic, or hospital outpatient setting. Part A covers chemotherapy in an inpatient hospital setting. Some home health services are covered, plus ambulance services. Emergency room services are also covered. Part B will also cover treatment for some mental health conditions such as depression, anxiety, or substance abuse. It covers behavioral health integration services. Part B will cover counseling to prevent tobacco use. Part B would also cover medical equipment like canes, walkers, wheelchairs, and mobility scooters. If you have to pay for the blood that you receive during surgery, Part B will pay the cost of the blood you receive beyond the first three pints.

Part B will cover e-visits that allow you to talk to your doctor using an online patient portal without going to their office

Medicare Part B does not cover dental work, cosmetic surgery, hearing tests not ordered by a doctor, long-term care, custodial care at home or in a nursing home, massage therapy, routine eye care, or eyeglasses. It also does not cover items and services that are deemed to be not reasonable or medically necessary.

Even though Medicare will not cover routine eye care or eyeglasses, Medicare will cover glaucoma tests, and will cover cataract removal surgery as well as corrective eyeglasses needed after cataract removal surgery.

Medicare Part B does not cover prescription drugs purchased from a pharmacy, but it will cover those prescription drugs that require administration by a physician. However, you can add drug coverage by joining a Medicare drug plan (Part D)

Initially, Part B did not cover routine physical exams, but it would cover a “Welcome to Medicare” physical if you got it within the first 12 months after you have signed up for Part B. However, under the provisions of the 2010 healthcare reform act, Medicare Part B was revised so that one can get an annual physical exam and many preventive services without having to pay a deductible or coinsurance.

Unlike Part A, there is a monthly premium for Part B. The standard monthly Part B premium for most people was $148.50 in 2021. However, even though basic eligibility for Medicare is not based on income or financial resources, some more wealthy people have to pay higher premiums for Medicare Part B, based on their modified adjusted gross income that was reported on their IRS Form 1040. If one files an individual tax return with an annual income of more than $85,000 (or a married joint return more than $170,000), then Social Security will use the income reported two years ago on the income tax return to determine the premium.

Here’s the official table for 2011

You Pay	If Your Yearly Income is
	Single	Married Couple
$115.40	$85,000 or less	$170,000 or less
$161.50	$85,001-$107,000	$170,001-$214,000
$230.70	$107,001-$160,000	$214,001-$320,000
$299.90	$160,001-$214,000	$320,001-$426,000
$369.10	Above $214,000	Above $428,000

You Pay	If You Are Married but You File a Separate Tax Return From Your Spouse and Your Yearly Income is
$115.40	$85,000 or less
$299.90	$85,001-$129,000
$369.10	Above $129,000

You can pay the monthly Medicare Part B premium directly to CMS, or you can make arrangements to have it taken out of your Social Security check every month if you are drawing Social Security benefits. If you are a federal retiree with an annuity from the Office of Personnel Management and are not entitled to Social Security or RRB benefits you can request that the Part V premiums deduced from your annuity. Otherwise you will get a monthly bill, which you can pay online by credit card, debit card, savings, or checking account. You can pay directly from your savings or checking account through your bank’s online bill payment services. You can also sign up for Medicare Easy Pay, which automatically deducts your premium from your savings or checking account. If none of these are available for you, you can mail your payment to Medicare.

Under the provisions of the healthcare reform act passed by Congress in 2010, the income levels listed in the above table will be frozen until the year 2020. This will probably mean that people will start having to pay higher premiums for their Medicare Part B coverage as inflation in the economy in general continues to take its toll.

For 2021, the Medical Part B deductible is $203 per year. Each year, before Medicare Part B will pay anything, the patient must incur medical expenses equal to the deductible. However, there is a gotcha here--the expenses incurred that count against meeting the deductible are based on a “reasonable charge” established by Medicare, not on the provider’s actual charge. After the deductible is met, Medicare Part B has an 80/20 coinsurance rate, under which it will pay for 80 percent of the “reasonable charges” for the patient’s medical expenses, with the patient being responsible for the remaining 20 percent. Unfortunately, the “reasonable charge” as established by Medicare is often substantially less than the actual charge, which means that the patient is sometimes left with substantial out-of-pocket expenses. Unfortunately, there is no yearly limit on what the patient must pay out-of-pocket. A Medicare Supplement policy sold by a private insturer may help in paying some of the deductibles, coinsurance, and copays.

Initially, outpatient psychological services covered under Part B were subject to 50 percent coinsurance. The 2008 Medicare Improvements for Patients and Providers Act (MIPPA) has changed all that, and the coinsurance for outpatient psychological services under Part B will be reduced in stages by 2014 to only 20 percent coinsurance, which brings it in line with the coinsurance for other covered services under Part B.

There is a growing awareness of the importance of preventive services in the early detection of health problems and in the identification of risk factors that could lead to future health problems. MIPPA allows Medicare to cover such services if they are recommended by the US Preventive Services Task Force. MIPPA also waives the deductible for the “Welcome to Medicare” initial preventive exam and it extends the eligibility period from six months to one year after enrollment in Part B.

There is no cap on the amount of money Medicare Part B will pay for covered hospital services in any given year, but Medicare Part B does not offer any sort of annual maximum on the amount of money that a participant must pay out-of-pocket. This means that a catastrophic illness or accident could still be very costly to the patient. However, some Medicare Part C and Medigap supplementary policies can offer some amount of relief from this danger—they typically offer their subscribers annual out-of-pocket maximums ranging from $1000 to $4000, depending on the plan.

However, there are annual caps on the amount of money that Medicare Part B will pay for certain things like outpatient therapy services. For example, there are caps on Medicare payments for physical therapy and speech-language pathology combined, as well as on occupational therapy. A beneficiary must first cover the deductible and then pay 20 percent coinsurance. Medicare will then cover the remaining 80 percent up to the annual cap, which was $1840 in 2009. Once the beneficiary has reached the $1840 cap, they are responsible for 100 percent of the charge, unless they have other insurance coverage. However, there is no cap if the patient goes to a hospital outpatient therapy department. CMS can grant some exceptions to the caps when the therapy is deemed “medically necessary”.

Enrollment in Medicare Part B is a rather tricky matter, and deserves a detailed explanation.

Generally, you enroll in Medicare Part B at the same time you sign up for Part A. When you initially enroll in Medicare, you will automatically be signed up for Part A, and you will be asked if you want to sign up for Part B as well. In order to make sure that your Medicare Part B coverage start date is not delayed, you should apply for Medicare three months before the month you turn 65. If you wait to enroll in Medicare until you are 65, or you wait until the last 3 months of your Initial Enrollment Period, your Medicare Part B coverage start date will be delayed.

However, you don’t have to sign up for Part B if you don’t want to, and you might have perfectly valid reasons for not doing so. Why wouldn’t you want to sign up for Part B when you initially enroll in Medicare? This will generally depend on whether or not you are still working at the time you first become eligible for Medicare and still have employer-provided medical insurance coverage. If you are not working and are not getting any other sort of medical insurance coverage, it would certainly be advisable for you to go ahead and sign up for Part B when you first become eligible. However, if you or your spouse are still working and are obtaining separate group medical insurance through the employer, your Medicare Part B benefits might actually be of limited value to you. In such a situation, it might be a good idea to delay taking Part B (and paying the premium) until you actually need it.

If you are already getting Social Security benefits, you will automatically get Part B (as well as Part A) the first day of the month when you turn 65. You will be sent your Medicare card in the mail about 3 months before your 65^th birthday. If you don’t want to take Part B, simply send the card back—if you keep the card this implies that you are taking Part B and the Part B premium will be automatically deducted from your Social Security check.

However, you need to be very careful here. You should check with your employer’s benefits experts before you make any decision about whether or not to take Medicare Part B when you first become eligible. You need to make sure that your employer’s group health plan doesn’t suddenly become secondary when you become Medicare eligible. If you have two separate medical insurance policies, there is a coordination of benefits between the two carriers and one of the policies is the primary payer and the other is the secondary payer. Under this system, the primary payer pays what it owes on your medical bills, then sends the bill to the secondary payer to pay its share of whatever is left. The rules are quite tricky here, and you have to be very careful, lest you get burned. For most large companies, their group healthcare coverage is primary and Medicare is secondary, and it might be reasonable for you to decline Part B. However, the rules are different for smaller companies, those with less than 20 employees. For such small companies, Medicare is the primary payer and the group health plan is the secondary payer. So if you don’t have Medicare Part B, you would have no primary payer for your doctor’s bills, and your employer’s insurance might not cover anything at all. You could be out a lot of money if you get sick.

What about the group medical insurance provided to retirees by the companies for which they once worked? How does that coordinate with Medicare? If you are retired and are still covered by your previous employer’s retiree group health plan, you should probably go ahead and sign up for Part B when you first become Medicare eligible and hold on to it. The reason for this is that the coverage provided by retiree employer group health plans is only secondary for those retirees who are entitled to Medicare, and you could be out a lot of money if don’t have Medicare Part B. Since Medicare pays first after you retire, your retiree group medical insurance coverage may be similar to that provided by a Medigap or Medicare Supplement Insurance policy, and it may help to fill in some of Medicare’s gaps in coverage such as coinsurance and deductibles. However, retiree coverage provided by the previous employer is often not like Medigap at all—your employer’s plan may have limits on how much it will pay, or it might turn out that it will actually pay little or nothing of your medical bills, even after Medicare has paid its share. The retiree group plan may only provide what is known as “stop loss” coverage, which will not pay anything at all unless the retiree’s out-of-pocket medical costs reach a maximum amount, sometimes thousands of dollars. Bear in mind that your employer can change your retiree health coverage at any time—they can change the benefits or the premium, and can even cancel the coverage altogether if they so choose.

There is yet another potential problem. When you sign up for Medicare Part B, a 6-month Medigap Open Enrollment Period opens up, during which you have a guaranteed right to buy a Medigap (Medicare Supplementary Insurance) policy that would help to pay for the deductibles, copays and coinsurance that Medicare Part B does not cover . Once this Medigap Open Enrollment period starts, it cannot be delayed or repeated. If you miss the Medigap Open Enrollment window, you might be charged extra for a Medigap policy because of a pre-existing condition or you might be denied coverage altogether. The practice of charging higher rates, imposing waiting periods, or denying coverage altogether based on one’s medical history is known as medical underwriting. If you went ahead and signed up for Part B while you are still working and had insurance coverage through your employer’s group health plan, you would be forced to buy a Medigap policy at the same time as well, lest you find yourself subjected to medical underwriting or perhaps even being turned down when your employment ends and you find that you need that Medigap policy.

If you don’t sign up for Part B during your initial enrollment period, can you sign up for it later without a problem? The answer is quite complicated and once again you have to be very careful.

If you did not sign up for Part B during your 7-month initial enrollment period, you can only sign up for it during the Part B general enrollment period, which is between January 1 and March 31 of each year. Coverage begins on July 1 of that year. There may be a problem if you delayed enrolling in Part B and were not actively working and did not have any other medical coverage—you may get hit with a late-enrollment penalty. In such a case, for each year that you were eligible for Part B and didn’t enroll, your Part B monthly premium will be increased by ten percent when you finally do enroll. This is a permanent penalty, added to every monthly premium for the rest of your life.

However, if you delayed enrolling in Part B because you or your spouse are still working and had group health plan coverage based on current employment (or if you or your spouse were retired and had coverage under your previous employer’s retirement plan), you probably won’t have to pay any penalty when you do finally enroll in Part B. If you lose your employer group health coverage or if your employment ends, you do not have to wait for the Part B general enrollment period and can sign up for Part B any time during an 8-month period (known as the Special Enrollment Period) that begins the month your employment ends, or your group health plan coverage ends, whichever happens first. Medicare Part B coverage will start on the first day of the month you enroll.

If you lost your employer health plan and have elected to continue to receive group health benefits under the provisions of COBRA for limited periods of time under circumstances of voluntary or involuntary job loss, you must still enroll in Medicare Part B during the 8-month Special Enrollment Period that begins the month after the employment ends. If you went on COBRA before you became Medicare eligible, remember that COBRA coverage is not considered as coverage based on current employment, and does not make you eligible for a special enrollment period when that coverage ends. If you are on COBRA and miss your Special Enrollment Period, you will have to wait until the next Part B General Enrollment Period, and will have to pay the late enrollment penalty. So if you are on COBRA when you become Medicare eligible, you would be well-advised to go ahead and sign up for Part B right away.

Can you sign up for Medicare Part B and then drop it at a later time? The answer is, yes you can, but there again you have to be very careful. Suppose you have already signed up for Part B and either you or your spouse returns to work and gets group health coverage through the employer. Your Medicare Part B benefits may be of limited value to you if your group health insurance is the primary payer of your medical bills. In such a case, you are allowed to drop Medicare Part B, with a guarantee that you will be able to restart it later without penalty when you do need it. At a later time, if your lose your group coverage or if you quit your job, you can sign up for Part B again during the Special Enrollment Period listed above without paying any late enrollment penalty. However, you could have a hassle if you attempt to get a Medigap policy to supplement your Part B coverage, since you will not get another Medigap open enrollment period when you restart Part B.

But you should make sure that your group coverage is actually in effect before you drop Part B. Also, you need to be sure that your group coverage is primary (and not secondary) if you are on Medicare. You should talk to your group health plan administrator before you decide to drop Medicare Part B.

Medicare Part C—Medicare Advantage

Initially, Medicare was a single-payer system, under which the federal government acted as both the administrator and distributor of money of taxpayer-funded health insurance. However, in the 1990s a major change was introduced under which private insurance companies started to take part in Medicare. The first of these changes was Medicare Part C.

Medicare Part C was introduced in 1997, and combines Part A and Part B coverage, plus additional coverage that is not available under either Part A or Part B. Unlike Part A and Part B, Medicare Part C is provided by private insurance companies that are approved by Medicare and offered to Medicare recipients under what is known as Medicare Advantage.

Medicare Advantage plans provide all of your Part A and Part B. The must cover all emergency and urgent care and almost all medically-necessary service that Original Medicare covers. Most Medicare Advantage plans offer coverage for things that Original Medicare covers, such as fitness programs, gym memberships, and some vision, hearing, and dental services. Some plans will cover transportation to doctor visits, over-the-counter prescription drugs, and services that promote health and wellness.

In order to enroll in a Medicare Advantage plan, you must be already enrolled in both Medicare Part A and Part B, and you must be paying the Part B monthly premium. As in traditional Medicare, you cannot be turned down for coverage because of a pre-existing medical condition, and you cannot be charged a higher premium because of your health status. But you don’t do the enrollment in a Medicare Advantage Plan through the government—you get your insurance through a private insurance carrier, and must deal directly with them. The private company that offers the Medicare Advantage policy becomes your insurer, and the company becomes the payer of your medical bills. Just as in Original Medicare, if you participate in a Medicare Advantage plan, you do not have to file any claims or submit any bills--the doctor or the medical provider submit all the claims, and the private insurance company takes care of all the paperwork and pays out the money. The way that the system works is that Medicare pays the private insurance company a set amount of money for each member who participates in their Medicare Advantage Plan, regardless of how many medical services they actually use, or even if they use none at all.

Medicare Advantage plans assume the risk from Medicare, and as such these private insurers are essentially in direct competition with Medicare for membership. In order to entice members to join, the overall premium for Part C plans will often be more attractive and benefits will be more comprehensive than most combinations of Medicare plus Medigap plans.

As in Original Medicare, no Medicare beneficiary can be denied membership in a Medicare Advantage plan because of poor health, a disability, or a pre-existing condition, with the exception of end stage renal disease. You don’t have to answer any health-related questions or take a physical exam in order to enroll. You can enroll in a Medicare Advantage Plan at any age, and the plan cannot charge you a higher premium than other plan members in your area.

When you enroll in a Medicare Advantage Plan, you generally get all your Medicare-covered health care through the plan—you deal with the private insurance carrier that provides your coverage, not Medicare. With a Medicare Advantage plan, you are essentially outside of Medicare. However, even though Medicare Advantage Plans are offered by private insurance companies, they are regulated by Medicare, and are required by law to offer coverage that meets or exceeds the standards set by the original Medicare Part A and Part B program. They must cover at least all of the services that Original Medicare covers, and some Medicare Advantage plans also cover extra days in the hospital as well as supplemental prescription drug coverage. Some Medicare Advantage plans even cover things that basic Medicare does not cover at all, such as dental care, routine physicals, wellness programs, and vision care--even health club memberships. However, each Medicare Advantage plan can charge different out-of-pocket costs. These out-of-pocket costs are usually copayments, but can also be coinsurance and deductibles. These out-of-pocket costs are not regulated by Medicare, and can vary widely, depending on the details of the particular Medicare Advantage plan. Before enrolling in a Medicare Advantage plan, you need to find out the plan’s rules, you need to determine what your costs will be, and you need to make sure that the plan meets your needs.

In addition to the basic services that ordinary Medicare provides, a Medicare Advantage Plan usually also provides the extra medical insurance coverage that would otherwise be handled by a separate Medigap insurance policy that you would purchase to supplement your Medicare Part A and Part B coverage. With a Medicare Advantage Plan, you don’t need to purchase a Medigap policy—Medicare Advantage plans are your basic Medicare and your Medicare supplementary plan all in one. You cannot have a Medigap policy and a Medicare Advantage plan at the same time. If you have a Medicare Advantage plan, it would be illegal for anyone to sell you a Medigap policy, unless you are switching back to Original Medicare. If you have a Medigap policy when you join a Medicare Advantage plan, you have to drop your Medigap policy. You may not be able to get your original Medigap policy back if you change your mind and return to Original Medicare.

However, unlike Medigap policies, Medicare Advantage policies are not standardized by CMS, and making comparisons between different Medicare Advantage plans can be difficult and time-consuming. Sometimes, even a plan offered by the same insurance company under the same trade name can vary widely depending on the geographical area in which the policyholder lives.

Members of Medicare Advantage plans generally need to pay a monthly premium to the insurance carrier in addition to the Medicare Part B premium that they are already paying, the amount varying with the details of the plan. Generally, the premium will be higher if the plan includes lots of extra things that are not already covered by Medicare Part A and Part B—things like prescription drugs, dental care, routine physicals, wellness programs, vision care, or health club memberships. In some cases, if you acquire a Medicare Advantage policy, you may have lower costs and may receive extra benefits over what would get under traditional Medicare Parts A and B plus a Medigap insurance policy. In addition, the premiums that you need to pay to a Medicare Advantage Plan insurance carrier may be significantly smaller than those you would have to pay for a combination of traditional Medicare plus a Medigap policy as well as a Medicare Part D drug plan—since Medicare reimburses the Medicare Advantage health plan directly for each enrollee, the monthly premiums are generally rather low, sometimes even $0. Some Medicare Advantage plans will even pay part of the monthly Part B premium.

Most Medicare Advantage Plans also cover prescription drugs, but some do not. If prescription drug coverage is not already included in the Medicare Advantage plan you chose, you have the option of adding Part D prescription drug coverage. However, if your Medicare Advantage plan offers prescription drug coverage, you must take it. In addition, if the Medicare Advantage Plan that you choose has prescription drug coverage included in it, you cannot enroll in a separate standalone Medicare Part D plan, and there is no reason why you would want to. Alternatively, if you want to keep your Part D drug plan, you would have to choose a Part C plan that does not have prescription drug coverage included. In fact, if you are currently in a Medicare Advantage plan that includes prescription drug coverage and you foolishly join a Medicare Prescription Drug plan, you will automatically be disenrolled from your Medicare Advantage plan and returned to Original Medicare.

Medicare Advantage plans have a yearly cap on the maximum amount you must pay out of pocket for Part A and Part B services, a feature which Original Medicare does not provide. However, this yearly maximum out-of-pocket amount is generally different with different Medicare Advantage providers, and you need to check carefully with each play you are considering to see what the amount is.

You also have some protections when it comes time to renew your Medicare Advantage policy. Your Medicare Advantage insurance carrier cannot refuse to renew your policy simply because your health has changed—even if you have developed end stage renal disease, your carrier cannot drop you at renewal time. The only circumstances under which an individual could be dropped at renewal time would be if they had failed to pay the premiums or if it were shown that they had lied on their original application.

These plans are widely advertised in the media, but you need to do some legwork to figure out which plan is best for you. If you decide that you want to join a Medicare Advantage plan, you must reside in the plan’s service area and the plan you choose must be accepting new members. You can join a Medicare Advantage plan anytime during your 7-month Initial Enrollment period when you first become eligible for Medicare. Otherwise, you would have to wait to enroll in Medicare Part C during the Annual Enrollment period, which is October 15 through December 7 (about a month earlier than it was in previous years). Your coverage will begin on January 1 of the following year.

The enrollment rules for Medicare Advantage can be rather tricky, and you need to be careful. You can join a Medicare Advantage plan when you first become eligible for Medicare. This is known as the Initial Enrollment Period. If you have Part A coverage and you get Part B for the first time during the General Enrollment Period, (which lasts from January 11 to March 31 of each year) you can also join a Medicare Advantage plan. Your coverage may not start until July 1. If you enrolled in a Medicare Avantage plan during your Initial Enrollment Period you can change to another Medicare Advantage plan or go back to Original Medicare (with or without a separate Medicare drug plan) within the first 3 months you have Medicare.

If you have Part A coverage and you get Part B for the first time during the General Enrollment Period (Jan 1 to Mar 31) you can also join a Medicare Advantage Plan. Your coverage will start July 1

You can also join, switch, or drop a Medicare Advantage plan during an Open Enrollment Period which lasts from October 15 to December 7. Your coverage will begin on January 1.

You can also make changes to your Medicare Advantage plan during the Medicare Advantage Open Enrollment period, which lasts from January 1 to March 1 of each year. During this time, you can switch to another Medicare Advantage plan, or can drop your Medicare Advantage plan and return to Original Medicare, and you can join a Medicare drug plan. But during this period, you cannot switch from Original Medicare to a Medicare Advantage plan. You can only make one change during this period.

You can typically only switch or leave a Medicare Advantage plan during the Open Enrollment period. For most people, this is the only time that they can join or switch Medicare Advantage plans. At other times, once you are enrolled in a Medicare Advantage Plan, you must stay with that plan for that calendar year. However, if you move out of the plan’s service area, if you qualify for extra help, or if you live in an institution you may be able to drop your Medicare Advantage plan and switch to some different form of insurance during a Special Enrollment period.

If you are already in a Medicare Advantage plan and want to switch to a different Medicare Advantage plan during the yearly annual enrollment period listed above, all you have to do is simply join the new plan—you will automatically be disenrolled from your old plan when your new plan’s coverage begins. If you are switching from a Part C plan which offers drug coverage to one that does not, the only time you can add Part D drug coverage is during the yearly annual enrollment period.

But if you want to drop out of your Medicare Advantage plan and return to traditional Medicare during the times listed above, you need to contact your current plan and formally disenroll. If you want to replace your Medicare Advantage plan with a Medigap policy, simply signing up for the Medigap policy will not end your Medicare Advantage coverage—you must formally disenroll from your Medicare Advantage plan

If you had enrolled in a Medicare Advantage plan during the annual enrollment period listed above, you will have until February 14, 2012 to disenroll from that plan. If you do disenroll during this time, you will be returned to Original Medicare, and you can’t join another Medicare Advantage plan. However, if prescription drug coverage was part of your Medicare Advantage plan that you are dropping, you will be allowed to enroll in a Medicare Part D plan during this time. But you have to be careful here. You could lose your prescription drug coverage if you try to move from a Medicare Advantage plan that has drug coverage to one that doesn’t. If you do this, you will have to wait until the next Part D open enrollment period to get drug coverage, and you may have to pay a late enrollment penalty.

A new wrinkle was added in 2011. Starting December 8, 2011, you can switch to a 5-star Medicare Advantage plan at any time during the year. Medicare uses information from member satisfaction surveys and health care providers to give overall performance ratings to Medicare Advantage plans. A plan can get a rating of anywhere between one and five stars. A 5-star rating is considered to be excellent. However, you can do this only once in a year.

If you are currently working and have healthcare coverage through your employer, how does Medicare Advantage coordinate with that? This can be a bit tricky, and yet again you have to be careful. If you already have employer-provided healthcare coverage, you should talk to your benefits administrator before signing up for a Medicare Advantage plan. In some cases, if you sign up for a Medicare Advantage plan, you could lose your employer-provided coverage. In other cases, you may still be able to use the employer coverage in coordination with the Medicare Advantage plan you chose. Some employers or unions may also offer a Medicare Advantage retiree health plan that they sponsor. Remember that if you drop your employer-provided coverage, you might not be able to get it back.

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Medicare Advantage Plans vary widely in the details of how they work. They include PPOs, HMOs, Private Fee-For-Service plans, Medicare Medical Savings Account Plans, and Medicare Special Needs Plans. Here are some of the differences:

· Medicare Health Maintenance Organizations (HMO) plans limit you to doctors in the HMO’s network only. In most cases, you must choose a primary care physician from among the doctors in the plan’s network. The primary care physician will act as a gatekeeper and will decide which tests are required, which specialists you will see, and whether or not you should be admitted to the hospital. If you don’t get prior approval, neither Medicare nor the HMO will pay for the services. Also, if you get health care outside the plan’s network, you may have to pay the full cost. But some HMO plans will let you go out of network for certain services, but usually for a higher cost. Some Medicare HMOs will not provide coverage outside the HMO’s geographical area. The only exceptions are for emergency or urgent care you may receive outside the plan’s service area or outside the network.

Some Medicare HMOs provide their participants the ability occasionally to see medical providers outside the network and still qualify for some reimbursement—these are generally known as Point-Of-Service (POS) options. If you get service from an out-of-network provider, you will probably be asked to pay more. Because there is flexibility to see non-network providers, the premiums may cost more than those in a standard Medicare HMO plan.

· Medicare Preferred Provider Organization (PPO) plans have set up networks of medical providers, doctors, and specialists with which they have negotiated reduced rates, supposedly resulting in substantial savings for the insurance company and for their policyholders. Providers in these networks are “preferred” and you can save money by using them

PPOs differ from HMOs in that they will allow you to see any doctor or specialist that you choose, even ones who are not in the network, but usually for a higher cost. You can receive care from any doctor, hospital, or specialist that accepts Medicare. You don’t need to choose a primary care doctor, and in most cases you don’t need to get a referral to see a specialist. You do not need permission to see any out-of-network provider, and you can receive care from any doctor, hospital, or specialist that accepts Medicare. .

However, it will usually cost you more in copayments and coinsurance if the medical professional that you choose is not in your PPO’s network. These extra charges can sometimes be substantial, supposedly encouraging you to stay inside the network. Some even require that you bear the entire cost if you use an out-of-network provider.

Mot PPO plans provide prescription drug coverage, but if you join a PPO plan that does not provide drug coverage, you cannot join a separate Medicare drug plan.

Some states do not allow Medicare PPOs, and even for those that do, Medicare PPOs are only available in certain areas.

· Medicare Private Fee-For Service (PFFS) plans allow you to see any doctor or specialist, but they must be willing to accept the PFFS’s fees, terms, and conditions. Such a provider is known as a deemed provider. You do not need to choose a primary care doctor, and you do not need to have a referral to see a specialist. However, if you go to a provider who does not accept the terms of the plan, you will be responsible for the full cost of your care, and the rules might not allow them to give you care in any case, except for an emergency.

If you join a PFFS plan that has a network, you can also see any of the network providers who have agreed to always treat plan members. You can also choose an out-of-network provider who accepts the plan terms, but you may have to pay more.

Medicare allows providers to decide at each and every visit whether or not they will accept the PFFS plan’s terms, conditions, and payment rates, and the provider could drop out of the plan at any time with little or no notice.

Some PFFS plan offer prescription drug coverage, but others do not. Hoewever, if your plan doesn’t offer such coverage, you can join a separate Medicare drug plan to get coverage

· Medicare Special Needs Plans (SNP) are designed for people with certain chronic diseases or other special health needs, or limited incomes. For example, people with diabetes might be eligible for a Special Needs Plan. It would also include people who live in nursing homes or who require nursing care at home, and might include people who are eligible for both Medicare and Medicaid.

You usually have to get your care and services from doctors or hospitals in the network. You need to choose a primary care physician, and you need to get a referral to see a specialist. But some SNPs cover out-of- network services. All SNPs must provide Medicare prescription drug coverage.

· Medicare Medical Savings Account (MSA). There are generally of two types, one a high-deductible plan under which coverage doesn’t start until an annual (usually a rather high) deductible is met. The other is a savings account plan where Medicare deposits money for you to use for your health care costs. Although you generally don’t have to choose a primary care physician or get a referral to see a specialist, some plans have preferred doctors and hospitals you could go to for a lower cost. Most Medical Savings Accounts do not provide prescription drug coverage.

Medicare Advantage plans may look attractive at first sight because they supposedly offer some services that original Medicare does not offer and their premiums are generally fairly low in comparison to a combination of traditional Medicare, Medigap, and Part D drug plans. However, depending on your situation, your care could actually be more expensive if you are in a Medicare Advantage plan, because of higher copayments and higher out-of-pocket expenses. In addition, it might be hard to find a doctor or provider who accepts Medicare Advantage plans in your area.

However, there is a major gotcha with most Medicare Advantage Plans. Medicare Advantage Plans usually have networks, and you must use the doctors or hospitals that belong to the Plan, or must go to certain hospitals to get covered services. Some Medicare Advantage plans require that you choose a primary care physician, they require that you must get a referral to see a specialist, or they require that you get prior approval for certain procedures. In some cases, this means that if you see a doctor or use a provider which is not in your plan’s network your costs will be higher--sometimes your services may not even be covered at all. In addition, not all Medicare Advantage Plans are available in all areas. Before you sign up for a Medicare Advantage Plan, be sure to check to see if your doctor or hospital is in the network, and you need to clearly understand what the rules are and determine if you can live within them

There have been some bad publicity about Medicare Advantage plans, some critics even charging that they are little more than scams. The original intention of the Medicare Advantage program was to save the taxpayer money through the use of private insurers that would be in competition with each other, which would supposedly encourage them to offer lower costs and better service. Instead, these plans are costing Medicare billions of dollars in overpayments. Some of the advantages supposedly offered by Medicare Advantage plans have quickly vanished--low premiums that once initially lured customers have suddenly zoomed way up at renewal time. Medicare Advantage premiums jumped upward by an average of 14 percent in 2010, and some even doubled in price. Some of these increased costs may be a result of people in Medicare Advantage plans becoming more comfortable with them and using more of the extra services that they offer, thus driving costs upward. There have been complaints that once you sign up for a Medicare Advantage plan, you are essentially outside the Medicare system, and that the CMS will no longer protect you nearly as vigilantly against potential abuses. There have been charges that the administrators of these plans arbitrarily deny lots of claims for frivolous reasons, and when the policyholders complain, the plan administrators drag their feet and do not process appeals in a timely fashion. Many Medicare Advantage plans outwardly reject claims from out-of-network doctors, and even when they do pay, they end up paying quite a bit less than Medicare would have paid the same doctor for the same services. Some will even deny coverage for medically necessary services. Doctors and hospitals can drop out of participation in Medicare Advantage plans at any time, but a patient has to wait until their yearly election period or their open enrollment period comes along before they can drop or change their Medicare Advantage plan, so the policyholder could be stuck for months in a plan that no longer serves their needs.

Another problem is that a Medicare Advantage enrollee can get a “surprise bill” when they visit their network doctor or hospital, especially in a medical emergency in which the patient may have little say in who treats them or how. Even though they went to an in-network facility, it might happen by chance that they were served by an out-of-network ambulance company or medical lab, or happened to have been treated by a doctor or specialist who was not in the insurer’s network. The out-of-network doctor or facility might then bill the enrollee for the remaining balance, and their Medicare Advantage insurer refuses to cover the bill. Anesthesiology, emergency treatment, and lab services were among the most common causes of these unexpected bills. This “surprise bill” can add up to thousands of dollars. While some states have laws in place to shield consumers from surprise medical bills, there is no nationwide protection. That may soon change. Bipartisan groups in both the House and Senate, and the White House have gotten behind efforts to restrict the chief cause of surprise bills, which occurs when patients are treated at medical facilities in their health plan's network but are seen, and charged, by out-of-network doctors.

There is another potential problem when it comes time to renew your Medicare Advantage policy. Although your Medicare Advantage plan insurance carrier cannot drop you simply because your health has changed, there is no guarantee that your plan itself will not disappear at renewal time. Medicare Advantage insurance plans are established by annual contracts between Medicare and the insurance carriers—these contracts may or not be renewed at the end of the year, at the whim of CMS or at the whim of the insurance company. Sometimes, Medicare Advantage plans can decide at a moment’s notice to stop participating in Medicare—they can decide not to renew their contracts with Medicare, or they may decide to stop serving certain geographical areas. Each year, many Medicare Advantage plans withdraw entirely from the Medicare market due to insufficient profits. You could find out to your horror that your Medicare Advantage policy is disappearing when renewal time comes around. If this happens, you will have to join another Medicare Advantage health plan or return to Original Medicare. If your plan is leaving Medicare or is stopping providing coverage in your area, they are required to send you a notification before the start of the Open Enrollment period. If you do decide to return to Original Medicare after losing your Medicare Advantage policy, you will also have the right to buy a Medigap policy to replace the lost Medicare Advantage plan without regard to your medical history or condition, so long as you do so within 63 days of the notification of the nonrenewal.

There have been some complaints about high-pressure sales tactics being used to get seniors to sign up for these Medicare Advantage plans. Some Medicare Advantage plan salespeople have been caught using hard-sell tactics as well as making misleading or even fraudulent claims to pressure seniors into signing up for policies that may leave them worse off than they would be with traditional Medicare coverage. Illegal tactics have included enrolling unwilling consumers and the forgery of signatures. Several states are investigating a range of sales abuses that already have been observed.

Insurance brokers can make lots of money by enticing seniors into these Medicare Advantage plans--brokers who enroll senior citizens in Medicare Advantage plans often make more on those members than do the health plans themselves. Up to $500 can be spent on a broker fee by the health plan, contributing to the total member acquisition cost. Even if Medicare Advantage plans can deliver the actual health benefit at a considerable lower cost than traditional Medicare, it is possible that the entire saving could be consumed by member acquisition costs.

Also, there may be a potential political risk to Medicare Advantage plans. Medicare Advantage plans have been criticized as costing significantly more per participant than does traditional Medicare, and that by paying a flat fee per participant, the government and the taxpayer are in effect subsidizing the insurance industry’s profits. Estimates indicate that Medicare Advantage plans cost taxpayers an average of 12 percent more per participant than does traditional Medicare. Some economists charge that most of these extra payments go into additional profits for the insurance companies that offer these plans.

Traditional Medicare is actually fairly efficient—it spends 98 cents out of every dollar that it takes in on the actual delivery of healthcare. However, in Medicare Advantage, the ratio is less that 85 cents out of every dollar taken in that is spent on healthcare delivery, and there was at least one plan that in 2007 spent a little as 36 percent of its revenue on healthcare. Some members of Congress want to reduce the government's payments to Medicare Advantage plans down to the level of traditional Medicare. A few members of Congress regard the whole Medicare Advantage idea as little more than corporate welfare for the insurance industry and want to eliminate the program altogether. However, the insurance industry argues that these overpayments allow them to offer extras that people can’t get in the regular Medicare program.

Critics have been especially rough on private fee-for-service (PFFS) Medicare Advantage plans. It turns out that PFFS plans are the most expensive of the Medicare Advantage plans for the taxpayer. Estimates suggest that the government now pays Medicare PFFS programs 19 percent more per patient than it spends on traditional Medicare. This may explain why PFFS plans are the fastest growing of the private Medicare plans, because they provide higher profits for the insurance companies, which makes their shareholders happy. Although some suggest that PFFS plans are important because they serve people located in rural areas, PFFS enrollment and extra payments are actually heavily focused in urban areas. If new Medicare legislation fails to address these issues, we will probably continue to see PFFS plan enrollment centered on high extra-payment urban areas and Medicare will continue to spend billions of dollars that unnecessarily deplete Federal resources.

The biggest complaint about PFFS plans is that there are relatively few physicians or hospitals that will take the private fee-for-service plan. Many doctors who participate in Medicare will not accept PFFS plans because of long delays in payments, lower reimbursements, or complicated claims procedures. Medical providers who do participate in PFFS plans can drop out of these plans at any time, leaving their patients high and dry. In some cases, physicians who accepted the PFFS plan on one visit refused to take it on the next, requiring patients to scurry around at the last minute to find another provider who will take the plan.

A high percentage of physicians participating in Medicare Advantage PFFS plans as deemed providers reported that they experienced denial of payment for services that were typically covered under traditional Medicare, and that most of their patients who have PFFS plans have very little understanding of how their policies actually work. Their patients are often surprised to find that their copays and coinsurance often turn out to be higher than they expected, sometimes turning out to be quite a bit higher than would have been if they stayed under traditional Medicare and had purchased a Medigap supplementary policy. PFFS plans do not have to adhere to strict Medicare guidelines on the setting of fees, nor do they have to follow the usual Medicare fee limitations. PFFS plans differ from Original Medicare in that there is no limit to the premiums or co-payments that the PFFS plan can charge. The plans are able to establish their own rates and are free to set their own fee schedules, without reference to the Medicare Part B reasonable charges or limiting charge restrictions, and they often do so—always to their own financial advantage.

Unlike other Medicare Advantage plans, PFFS plans are not required to have a contract or other type of network arrangement with physicians, hospitals and other providers. Providers treating PFFS plan enrollees may directly charge patients coinsurance of up to 15 percent more than the plan payment amount. PFFS plans are currently exempt from quality reporting and disclosure requirements to which other plans are subject. PFFS plans are not subject to bid review or negotiation with Medicare.

Recent legislation has made some attempts to correct some of the problems in the Medicare Advantage program. The 2008 Medicare Improvements for Patients and Providers Act (MIPPA) has made an attempt to rein in some of the excessive costs in these Medicare Advantage plans. Under MIPPA, Medicare Advantage payments will be cut by roughly $12.5 billion from 2009 to 2013. In addition, the $10 billion Medicare Advantage Stabilization Fund (initially established by the Medicare Modernization Act of 2003 to encourage private Medicare Advantage PPOs to enter the market and remain in the Medicare program) is deemed to be longer necessary, and will be eliminated in stages over the next few years.

Another source of excessive Medicare Advantage costs was the practice of paying teaching hospitals a fee each time a Medicare beneficiary is emitted, supposedly to help defray the costs of educating doctors and providing more intensive care. These were known as Indirect Medical Education payments. It turned out that such IME payments were also included in the calculation of payments to Medicare Advantage plans, but these plans are not required to actually make these payments to teaching hospitals, which meant that many MA plans were simply keeping the money. These duplicate payments to Medicare Advantage plans were phased out by MIPPA, and there is no longer an IME adjustment in Medicare Advantage rates. Medicare now reimburses teaching hospitals directly.

MIPPA has also attempted to rein in some of the more dubious high-pressure sales tactics used to lure seniors into these Medicare Advantage plans. Effective as of 2009, marketing tactics such as door-to-door sales, cold calling, providing free meals to potential customers, and cross-selling of non health-related products are prohibited. Compensation to MA sales personnel in the form of commissions, renewals and gifts is now limited by law as well, and all Medicare Advantage plans must submit 2009 compensation schedules to the Centers for Medicare & Medicaid Services for approval.

MIPPA has also made some attempts to address the particular problems of PFFS plans. Over the past few years, PFFS plans had proven to be relatively easy for insurers to establish, because unlike other types of Medicare Advantage plans they were not required to establish a network of providers, nor were they required to collect any data on quality of care. MIPPA is ending this practice, and will require PFFS plans to have contracts with hospitals and providers in most areas beginning in 2011. So PFFS plans will now have networks, just like other Medicare Advantage plans. In addition, PFFS plans are required beginning January 1, 2010 to report data on the same quality measures as reported by other MA plans, which is intended to help patients in choosing a plan.

Healthcare reform legislation mandated by Congress in 2010 under the provisions of the Patient Protection and Affordable Care Act has made further attempts to rein in some of the high costs of these Medicare Advantage plans. The overpayments made to Medicare Advantage plans will gradually be phased out over the next few years and replaced with a payment system that rewards plans that meet certain quality standards for care and customer service. All Medicare Advantage plans will now have an annual out-of-pocket maximum, the amount of which will vary by plan, but the out-of-pocket maximum in 2011 is $6700. Starting in 2014, Medicare Advantage plans are required to spend at least 85 percent of the money that they take in from premiums on actual medical care, and they will no longer be able to charge higher copayments than does traditional Medicare for certain services. These changes may mean that Medicare Advantage plans will be forced to raise their premiums or to cut out extra benefits such as healthclub memberships or routine vision care. Some Medicare Advantage insurance carriers may even be forced to drop out of Medicare altogether.

I don’t mean to be completely down on Medicare Advantage plans, since I know of several people who have such plans and are completely happy with them. They especially appreciate the extra perks that they provide, such as free gym memberships, and they really like the low premiums that are charged. But your mileage may vary, and you need to do a lot of checking and fact-finding before you decide to sign up for one.

Medicare Part D

This is the Medicare drug prescription coverage that was introduced in 2006. It is a stand-alone prescription drug insurance plan. Neither Part A nor Part B covers prescription drugs, and Part D is designed to make up for that deficiency.

You have to already be enrolled in both Medicare Part A and Part B in order to sign up for Part D. Anyone with Medicare, regardless of income, health status, or the number of prescription drugs used, can get Medicare Part D coverage. But unlike Medicare Part A and Part B, you do not get your Medicare Part D coverage through the government—you need to get it from a private insurance carrier, one that is approved by Medicare. These private insurance carriers administer the Part D plan, and Medicare reimburses them for the claims that they pay.

Even though Medicare Part D insurance is handled by private insurance carriers, the Medicare law establishes a standard Part D drug benefit. All insurance companies offering Medicare Part D plans must offer benefits that are at least as good as the standard Part D drug benefit, but insurance carriers have the option of offering additional features and additional benefits, but usually at the cost of higher premiums. In 2020, the standard Part D benefit included an initial $435 deductible. After meeting the deductible, the beneficiaries will have to pay 25 percent of the cost of covered Part D prescription drugs. However, some plans offer a zero deductible and lower amounts of cost sharing, albeit for a higher monthly premium.

There is a monthly premium that varies with different plans, with the average being about $32 per month. The premiums generally increase if additional features are offered beyond the standard Part D benefit—for example some plans offer a zero deductible option and lesser amounts of copayments. You can pay by check, by automatic withdrawal from your bank account, or you can have the plan premium deducted from your Social Security check. The plan premium cannot be changed during the year, but it can change at renewal time, generally increasing as medical inflation continues to take its toll.

If you have a higher income, you might have to pay more for your Medicare Part D drug coverage. For year 2020, if your income is above $87,000 or $174,000 if you are married and file jointly, you will have to pay an extra amount in addition to your plan premium. Usually, the extra amount is deducted from your Social Security or Railroad Retirement Board payment. If Medicare or the RRB bills you for the extra amount rather than deducting it from your Social Security or RRB payment, then you must pay the extra amount to Medicare or the RRB, not your Part D plan. If you don’t pay the extra amount, then you could lose your Part D drug coverage. You may not be able to enroll in another Part D plan right away, and you may have to pay a late enrollment penalty.

The media is full of advertisements for Medicare Part D carriers, and you need to choose your carrier very carefully. You need to check around and do some legwork to see which Part D drug plan best meets your needs, but all of them must offer benefits which are at least as good as the standard Medicare Part D benefit as specified by law. There are programs to help people with limited resources to pay for their prescription drugs—Medicare provides a subsidy for people whose yearly income and resources are below certain limits, and many states have assistance programs that help some people pay for prescription drugs based on financial need.

However, the coverage from different carriers varies widely, and the carriers do not cover all prescription drugs. Different plans generally cover different sets of drugs—the list of drugs covered under any particular plan is known as the formulary. Your particular prescription drug may be on the formulary of one carrier, but not on the formulary of another. If you already know what drugs you require, you can check to see which insurance plan covers which drugs, and choose the one that covers the drugs you need. The prices of drugs can change even on a weekly basis, and plans can remove drugs from their formularies or change their tiers or cost-sharing levels at a moment’s notice. In addition, many Medicare Part D insurance plans have networks of pharmacies, and if your pharmacy is not in the network your plan may not cover anything.

Medicare Part D plans generally do not cover non-prescription (over-the-counter) drugs, drugs used to promote fertility, drugs used for cosmetic purposes, prescription vitamins and minerals, drugs like Viagra used to treat erectile dysfunction, or drugs used for treatment of anorexia, weight loss, or weight gain. Drugs purchased outside the USA and its territories cannot be covered. “Off-label use” of a drug cannot be covered either. Some drugs are already covered under Medicare Part A or B (such as flu shots), and these drugs cannot be covered under Part D. If your particular drug is not on your plan’s formulary, you can ask to have it covered, or if it is covered but its cost is high you can ask for a lower copay. You generally need a doctor’s supporting statement for the exception to be approved. If the drug that you have been taking is suddenly removed from the formulary or if its cost-sharing is significantly increased, you can apply for an exception.

The plan may have coverage rules for certain drugs. Before you can fill certain prescriptions, your prescriber may have to show that the drug is medically necessary before the plan will cover it. Sometimes there can be limits on how much medicine you can get at a time. You might be required to try one or more similar, lower-cost drugs before the plan will cover the prescribed drug. Before the pharmacy fills your prescriptions, your Medicare drug plan and pharmacy will perform safety checks for drug interactions or incorrect dosage. The will also check for possible unsafe amounts of opoids.

Medicare drug plans must cover all commercially-available vaccines (like the shingles, meningitis, diphtheria, and the tetanus vaccines) when medically necessary, except for vaccines such as the flu, pneumonia, or hepatitis vaccines that are covered under Medicare Part B. The cost of the vaccines generally depends on where you get them—generally the cost is lower if you get the vaccine at a network pharmacy rather than at your doctor’s office.

When you go to the pharmacy to pick up your drugs, you show them your Part D membership card, and the pharmacy will automatically bill the plan for Medicare’s share of the covered prescription drug cost, and you will be asked to pay your share of the cost. You do not need to submit any claims or fill out any paperwork—all this is automatic.

You can get Medicare Part D in two different ways, one by adding it to your original Medicare Plan (Parts A and B), or you can add it to your Part C (Medicare Advantage) plan, provided that the Part C plan that you have does not already offer prescription drug coverage. You certainly do not need Part D if your Medicare Advantage Plan already provides prescription drug coverage, and the rules wouldn’t allow an insurance carrier to sell you a Part D policy in such a situation in any case. If you have employer or union coverage while you are Medicare you need to check with your benefits administrator before you make any changes or sign up for other coverage. If you sign up for other coverage, you could lose your employer or union health and drug coverage. If this happens, you may not be able to get your employer or union coverage back.

The enrollment rules for Medicare Part D can be rather tricky. You can enroll in a Medicare Part D drug plan anytime during your Medicare initial enrollment period, when you first become eligible for Medicare itself—this is anytime during the seven-month period between three months before you turn age 65 and ending 3 months after you turn age 65. This is the best time to join, and you won’t have to pay any penalty, even if you have never had prescription drug coverage before.

Otherwise, you will have to wait to enroll in Medicare Part D during the yearly election period, which is October 15 through December 7 (about a month earlier than it has been in previous years). Your coverage will begin on January 1 of the following year. If you and your spouse are both eligible for Part D, each of you will have to enroll separately—your Part D plan covers only your drug costs, not those of your spouse. If you are already enrolled in a Part D plan, you can switch or drop your plan during this period.

If you are enrolled in a Medicare Advantage plan, you can switch to Original Medicare and join a Part D plan during the Medicare Advantage Open Enrollment period, which lasts from January 1 to March 31.

If you have to pay a premium for Part A and enroll in Part B for the first time during the General Enrollment Period, you can also join a Part D plan from April 1 to June 30. Your coverage will begin on July 1.

You can switch to a new Part D plan or join a Medicare Advantage plan that offers drug coverage simply by joining another plan during one of the times listed above. Your old drug coverage will end when your new drug coverage begins. You don’t need to formally cancel your old plan.

Generally, you must stay enrolled in your Part D plan for the entire year. But if you move or lose other insurance, you may qualify for a Special Enrollment Period, and you may be able to make changes to your plan mid-year if you qualify.

A new wrinkle was added in 2011. Starting December 8, 2011 you can switch to a 5-star Medicare Prescription drug plan at any time during the year. But you can only do this once every year.

Like Medicare Part B, there is a penalty for delaying enrollment in a Medicare Part D prescription drug plan. For every month that you delay enrollment in Medicare Part D, there is a permanent penalty of one percent of your monthly premium. However, this penalty does not apply to anyone who already has prescription drug coverage through a job, via a retirement plan, or through a spouse’s insurance plan. In order to take advantage of this exemption, one needs to make sure that their current prescription drug coverage meets Medicare standards. This is known as creditable prescription drug coverage. If one’s current drug coverage does not meet these standards, the Part D late enrollment penalty may be applied. Things like pharmacy discount cards, free clinics, or manufacturer’s pharmacy assistance programs are not considered as being prescription drug coverage and cannot count as creditable coverage.

You should not go 63 days or more in a row without having creditable drug coverage or being in a Medicare drug plan, or else you could be hit with a late enrollment penalty when you do sign up for a Part D drug plan. If you are participating in a drug plan through a current or former employer or through a union, or through health insurance coverage, your plan must tell you every year if your drug coverage is creditable coverage.

The cost of the late enrollment penalty depends on how long you didn’t have creditable drug coverage. Currently the late enrollment penalty is calculated by multiplying one percent of the “national base beneficiary premium” (which was $33.06 in 2021) by the number of full, uncovered months that you were eligible but didn’t enroll in Part D and didn’t have any other creditable drug coverage. This amount is added to your monthly premium. Since the “national base beneficiary premium” can increase each year, the penalty amount may also increase each year.

If you are employed and you already have creditable prescription drug coverage through your employer’s health insurance plan, there is probably no reason why you would want to purchase a Medicare Part D drug plan, and you are certainly not required to do so. In fact, if you are employed and have prescription drug coverage from your employer, before you sign up for a Part D drug plan, you should check with your employer’s benefits specialists before you make any changes in your coverage. If you drop your employer’s prescription drug coverage, you may not be able to get it back. In addition, you may not be able to drop your employer’s drug coverage without also dropping your employer health (doctor and hospital) coverage as well. If you drop coverage for yourself, you may also have to drop coverage for your spouse and dependents as well. However, if you do lose your job or become unemployed, you will have the right to purchase a Medicare Part D plan to replace this lost coverage without having to pay any sort of late enrollment penalty.

If you lose employer or union health coverage after your employment ends, you often have the option under COBRA to temporarily keep your employer or union group insurance coverage (but usually at extra cost). If your COBRA includes creditable prescription drug coverage, you will have a special enrollment period to join a Medicare drug plan without paying a penalty when that COBRA coverage ends.

Medigap insurance policies that provide prescription drug coverage can no longer be sold, but some earlier Medigap policies did indeed provide prescription drug coverage, and if you have one of these earlier policies, you may keep it if you so desire. However, most Medigap drug coverage is not creditable, and you will probably have to pay a late enrollment penalty if you do join a Part D drug plan at a later time. You can’t have drug coverage in both Medigap and your Part D drug plan at the same time. If you join a separate Part D plan, tell your Medigap insurance company so that the can remove the drug coverage and adjust your premium .

What happen if you want to change your Mediare Part D coverage? If you want to change your Medicare Part D drug coverage, you can switch to a new Medicare Part D drug plan simply by joining another drug plan during the prescribed yearly election period listed above. When you do switch, you do not need to formally cancel your old Plan D or send them anything—your old Medicare drug plan coverage will automatically end when your new drug coverage begins. However, if you want to drop your Part D drug plan and do not want to join a new plan, you do need to contact your plan or call Medicare and formally disenroll. If you have dropped your Part D drug plan and you decide you want to join another Medicare drug plan at a later time, you will have to wait for the annual enrollment period and may have to pay a late enrollment penalty.

In most cases, you must stay enrolled in your Part D drug plan for the entire calendar year starting on the date your coverage began. However, if you move out of the service area, if you lose other creditable drug coverage, or if you live in an institution, you may be able to join, switch, or drop Medicare drug plans during a special enrollment period. Also, if your Medicare prescription drug plan decides to stop participating in Medicare or chooses to stop providing service in your area, your plan will send you a letter informing you of these changes, and you will have the opportunity to join a different Medicare prescription drug plan without penalty. But if you don’t join another Part D plan you will not have Medicare prescription drug coverage.

Like most prescription drug plans, Medicare Part D does not pay the entire cost of your drugs. When you first go to the pharmacy, you will have to pay the entire cost of your prescription drugs until you have satisfied your plan’s yearly deductible (which is $435 in 2020 for the standard Part D coverage). Once the deductible is met, Medicare will pay some (but not all) of the cost of your prescription drugs. The standard Medicare Part D benefit requires that the beneficiary pay a coinsurance of 25 percent of the cost of the drugs, but some Part D plans use a tier system under which a pre-established co-pay is defined for each drug on the plan’s formulary. Generally the lowest tier includes only the least-expensive generic drugs, whereas the next highest tier covers some of the less-costly brand-name drugs, with the very highest tier covering the most expensive brand-name drugs. The co-pay can be as low as $5 or as high as $50.

Some Medicare Part D plans offer a zero deductible, but usually at extra premium cost.

Now for the controversial “donut hole” that you may have heard about. Under the defined standard Medicare Part D program, there is a large gap in coverage between the initial coverage limit and the catastrophic coverage threshold. Within the gap, the beneficiary has to pay 100 percent of the cost of prescription drugs before catastrophic coverage kicks in. This can add up to a lot of money out of your pocket—sometimes thousands of dollars.

Here’s how it works. In 2010, the rules say that after you have met your $320 deductible and after you have purchased the next $2610 worth of prescription drugs, you hit the donut hole and you are responsible for paying the entire cost of the next drugs that you buy, until you have spent $4700 out of your own pocket (known as the out-of-pocket maximum). After that, Medicare Part D kicks back in again (known as catastrophic coverage), paying most (at least 95 percent) of your drug costs for the rest of the year. Bear in mind that this scheme is on a yearly basis, and next year you may run into the same donut hole again. In addition, the amount of the deductible and the amount of the out-of-pocket maximum generally increase every year due to medical inflation.

Once in the donut hole, it can be tough to get out. The purchases of drugs that are not on the carrier’s formulary do not count for getting you out of the donut hole. The cost of drugs purchased outside the United States (e.g. in Canada), as well as costs paid by other insurance also do not count for getting you out of the donut hole, either

Another gotcha is the fact that the full price of the prescription drugs counts against the initial coverage limit, not just the beneficiary’s out-of-pocket cost sharing. For example if a drug costs $300 and the beneficiary’s co-payment is $40, the full $300 counts towards the initial coverage limit. However, once you are in the donut hole, the amount of money you spent out of your own pocket (including the deductible) while you were within the initial coverage limit counts for getting you out of the donut hole. The calculations involved in figuring out the Plan D donut hole can be quite complicated, and generally require a computer program.

Here’s an example of a donut hole calculation, valid for the year 2012. Suppose a subscriber is in a Medicare Part D plan that offers the “standard benefit”. Here’s what happens:

Standard Benefit FOR 2012

Beneficiary pays the first $320 (the deductible)

Beneficiary pays 25% of the next $2,610 (25% of $2,610 = $650.00)

            (Initial Benefit Period)

Donut Hole "Threshold" = $2,930

That is, when the beneficiary and the plan have spent ($320 + $2,610 = $2,930)

Beneficiary pays 100% of the next $3,730.00

(The "Donut Hole")

"Catastrophic Coverage" begins after the beneficiary has spent $4,700 (this is the total out-of-pocket spending requirement)

  ($320 + $650 + $3,730 = $4,700)

                                     OR, put another way:

Total spending (For beneficiary & the plan) to reach Catastrophic Coverage:  $6,660

($320 + $2,610 + $3,730 = $6,660)

Minimum cost sharing in Catastrophic Benefit Period:  $2.25 (Generic) and $5.60 (Brand)

Bear in mind that these numbers will change on a yearly basis, generally ratcheting upward as medical inflation continues to take its toll.

Some Part D providers do offer some donut hole coverage, but at extra cost, sometimes doubling the premium. The most common forms of gap coverage cover generic drugs only. A larger percentage of Part D plans don’t offer any donut hole coverage at all, and those that do often cover only some brand name drugs or even only some generic drugs.

Under the provisions of the 2010 Patient Protection and Affordable Care Act, the health care reform law passed by Congress and signed by the President, it was planned that the “donut hole” would gradually be eliminated in stages over the next few years. Those people who entered the coverage gap in 2010 received a payment of $250 toward their drug costs, and starting in 2011 they will never pay more than about 50 percent of the cost of brand-name and biologic drugs or no more than 86 percent of the plan’s cost of generic drugs that they buy while in the gap. What they pay (as well as the 50% discount paid by the drug company) counts as out-of-pocket spending, and helps the patient get out of the coverage gap. For 2019, once you and your plan have spent $4130 combined on drugs (including the deductible), you will pay no more than 25 percent of the cost of prescription drugs until your out-of-pocket spending is $6550. Once your out-of-pocket spending reaches $6550 you automatically get “catastrophic coverage”, during which you will pay no more than 5 percent of the cost of covered drugs for the rest of the year.

Over the next ten years, patients received more discounts for generic drugs as well as brand-name drugs until the gap finally fully closed in 2020. However, these additional benefits will not come without a cost--starting in 2011, people with higher incomes (the same as those listed above for Medicare Part B—over $87,000 for singles and over $174,000 for married couples for year 2020) has to start paying higher premiums for Part D drug coverage.

The donut hole finally closed in 2020, which means that when you enter the coverage gap you will be responsible for 25 percent of the cost of your drugs. In the past, you were responsible for a higher percentage of the cost of your drugs while in the coverage gap. Although the donut hole has closed, you may still see a difference in cost between the initial coverage period and the donut hole. For example, if a drug’s total cost is $100 and you pay your plan’s $20 copay during the initial coverage period, you will be responsible for paying $25 (25 percent of $100) during the coverage gap

Medicare Supplementary Insurance Policies—“Medigap”

Medigap is the name given to Medicare supplemental insurance policies that are sold by private insurance companies to fill in the “gaps” in the Original Medicare Plan (Part A and Part B) coverage. Medigap insurance typically pays for expenses that Medicare does not pay because of deductibles, copayments, or coinsurance amounts or other limits under the Medicare program. These Medigap policies are not government-sponsored and are sold and administered by private insurance companies. However, Medigap policies are standardized by CMS and these policies all have specified sets of benefits so that you can compare them easily.

If you are on Original Medicare and you have a Medigap policy, Medicare will pay its share of the Medicare-approved amounts for covered healthcare costs, then the Medigap policy will pay its share. Typically Original Medicare will pay about 80 percent of your medical costs, and a Medigap will help pay for some of the rest. Just as with Original Medicare, you don’t need to submit claims to your Medigap insurance company—your doctor and other healthcare providers must submit such claims to the appropriate carrier or fiscal intermediary for you. Medigap plans (with the exception of Medicare SELECT) do not use networks, and you can use any doctor or provider who accepts Medicare.

Medigap insurance policies are closely coupled to Original Medicare itself, and will only cover services that Original Medicare will also cover—all that Medigap does is to aid in covering some of the deductibles, copayments, and coinsurance that Original Medicare asks the patient themselves to pay for. Medigap insurance policies will not cover medical services that Original Medicare itself does not cover, such as long-term care, vision or dental care, hearing aids, cosmetic surgery, health club memberships, or private-duty nursing care. Medigap policies will not pay for services that Medicare does not regard as being medically necessary, and payments are generally based on the Medicare-approved charge. If your medical provider does not participate in Medicare, your Medigap policy will not pay anything either. If you are married and both you and your spouse are on Medicare, each of you must buy separate Medigap policies--your Medigap policy won’t cover any health care costs for your spouse.

In order to purchase a Medigap policy, you need to be already enrolled in both Medicare Part A and Medicare Part B. When selecting a Medigap policy, you need to be especially careful, since there is a lot of deception and misinformation out there, and there are some fly-by-night insurance operations that will try to sell you policies that offer substandard or deficient coverage. You need to make sure that the insurance plan you are considering is clearly identified as “Medicare Supplement Insurance”, which means that it has been vetted and approved by Medicare and meets certain minimum standards.

Medigap offerings have been standardized since 1992, but some seniors who purchased Medigap policies before that date may still be on non-standard plans, and they may keep them if they so choose. Some employers may provide Medigap policies to their retirees, but very often retiree medical coverage is not at all like Medigap, and in such cases you need to go onto the insurance market and purchase your own Medigap policy.

The enrollment rules for Medigap are even trickier than are the rules for enrolling in Medicare Part B, and you need to be extremely careful. Here are the rules:

The best time to buy a Medigap policy is during your Medigap Open Enrollment period. This period lasts for 6 months and begins on the first day of the month in which you are both age 65 or older and enrolled in Medicare Part B. Do not confuse this with the Open Enrollment period for Medicare itself. During the Medigap Open Enrollment period, you are guaranteed the right to buy any Medigap policy regardless of your health history, and the insurance carrier cannot turn you down or charge you extra if you have a pre-existing medical condition. This is known as a guaranteed issue right (also called “Medigap protection”) . Under federal law, it would be illegal for an insurance carrier who offers Medigap policies to subject you to medical underwriting, provided that you apply for coverage during your Open Enrollment period. You would be well advised to buy your Medigap policy during your Medigap Open Enrollment period, since after this period is over your option to buy a Medigap policy may be limited and it may cost more. Some states have additional open enrollment periods.

If you delay enrolling in Part B because you already have group health coverage through you or your spouse’s employment, your Medigap Open Enrollment period will not start until you do sign up for Part B.

You can use your guaranteed issue rights more than once during this six-month Medigap Open Enrollment period. For example, you might change your mind about a Medigap policy you bought, cancel it, and buy any other Medigap policy within six months after enrolling in Medicare Part B. Some insurance companies who sell Medigap policies also offer an additional 6-month period prior to the start of one’s Medigap Open Enrollment period, under which you can apply for Medigap coverage that will not actually be effective until the actual Medicare Part B effective date, which effectively gives an individual a 12-month period in which he/she can sign up for a Medigap policy without medical underwriting.

Although an insurance company must sell you a Medigap policy if you apply for it during your Medigap open enrollment period and cannot charge you more for a Medigap policy because of your health problems, in some states a Medigap carrier is allowed to require a waiting period of up to 6 months before covering treatment of any of your pre-existing medical conditions. A pre-existing condition is defined as one that was treated or diagnosed in a 6-month period before the date the coverage starts under the Medigap policy. However, Original Medicare would still cover the pre-existing condition even if your Medigap policy won’t cover any of the deductibles, coinsurance or copayments incurred during the treatment of your pre-existing condition. After this pre-existing condition waiting period is over, the Medigap policy will start covering the condition that was excluded.

However, you might be able to shorten the waiting period for pre-existing condition coverage or avoid the waiting period altogether if you applied for your Medigap policy during your Medigap Open Enrollment period and you recently had other health insurance (such as an employer-provided group health plan or a retiree medical plan) before applying for the Medigap policy (termed creditable coverage). If you had at least 6 months of prior creditable coverage, the Medigap carrier can’t make you wait before it covers your pre-existing condition. There are many types of healthcare coverage that can count as creditable coverage for Medigap policies, but these will only count if you didn’t have a break in coverage for more than 63 days.

It is always wise to apply for a Medigap policy during your Medigap Open Enrollment period, because at other times outside this period, you might have a hassle over pre-existing conditions or other factors, and the Medigap plan managers do not necessarily have to accept your application. In addition, even if the insurance company accepts your application for a Medigap policy, the carrier could charge you more if you have a pre-existing medical condition or they could impose waiting periods before they will provide any coverage of medical problems arising out of your pre-existing conditions.

However, there are certain circumstances under which you are guaranteed the right to purchase a Medigap policy outside of your Medigap Open Enrollment period. However, your guaranteed issue rights can vary from state to state, and the rules can be quite complicated. In some cases, you may have certain Medigap protections that give you the right to buy a Medigap policy, but in other cases you may not be able to buy any Medigap policy at all.

Many of these guaranteed issue rights involve situations under which you already had medical insurance coverage (say through your employer) and your coverage ends for some reason. If you are still working and have group health coverage through an employer or a union, you would certainly go ahead and sign up for Medicare Part A when you reach age 65, but you might want to delay signing up for Part B. This is because the employer plan often provides coverage similar to or perhaps even better than Part B, even if combined with a Medigap policy. In fact, you wouldn’t be able to buy a Medigap policy even if you wanted to without already having Medicare Part B. When your employer coverage ends, either by retirement, by quitting, or by getting laid off, you will be able to enroll in Part B without a late enrollment penalty, and your Medigap Open Enrollment period will start when you are ready to take advantage of it.

However, there is a gotcha here--if you went ahead and enrolled in Medicare Part B while you still had employer medical insurance coverage, your Medigap open enrollment period would have started at the same time you initially enrolled in Part B, and unless you bought a Medigap policy before you needed it, you could miss your open enrollment period entirely. For this reason, people who are still working and who have signed up for Medicare Part B often go ahead and take out a Medigap policy at the same time (even though they don’t need it), lest they miss their Medigap Open Enrollment window and end up being excluded from Medigap because of a pre-existing medical condition. This is perhaps yet another good reason to avoid signing up for Part B while you are still working and are being covered by your employer’s group health plan.

However, the rules are different if you had signed up for Medicare Parts A and B while you were still working, and you later drop or lose your employer healthcare coverage. This can happen because of job loss, because your employer stops offering medical insurance at all, or simply because you decide that your employer’s plan is becoming too expensive. But you need to apply for a Medigap policy no later than 63 calendar days after your previous coverage ends and you will probably be asked to provide proof of the loss of your healthcare coverage. However, you need to be careful—state laws vary in this regard. Also, if you are on Medicare and you lose your job and elect to take COBRA coverage, you can either buy a Medigap policy right away or wait until your COBRA coverage ends.

In addition, if you are retired and are on Medicare, and your employer’s retirement plan eliminates your group coverage, you would be eligible to purchase a Medigap policy to replace this coverage.

Can I buy a Medigap policy if I participate in a Medicare Advantage plan? The answer is no, you can’t, and there is probably no reason why you would ever want to. Medigap insurance is incompatible with Medicare Advantage Plans--you can have one or the other, but not both. If you already have a Medicare Advantage Plan, it probably already fills in most if not all of the gaps in Original Medicare, and you certainly wouldn’t need a Medigap policy—it would actually be illegal for an insurance company to sell you one in such a situation.

However, if you already have a Medigap policy and you decide to subscribe to a Medicare Advantage plan, you may still keep your Medigap policy if you so desire, but it would not be worth much of anything to you--it would not cover any of your Medicare Advantage Plan deductibles, copayments, or coinsurance. About the only thing that your Medigap policy would cover is the right to get back into the plan if you decide to drop out of the Medicare Advantage plan and rejoin Original Medicare. Consequently, you may want to hold on to your Medigap policy (and pay the premiums) until you are sure that you are happy with your Medicare Advantage plan, because in most cases you won’t be able to get your old Medigap policy back. Before you go ahead and drop your Medigap policy, you should talk to your state’s insurance authorities and your current Medigap insurance carrier. Your rights to buy a Medigap policy at a later time will vary from state to state.

However, if you are in a Medicare Advantage plan, and you decide that you want to leave your plan and return to Original Medicare, you are guaranteed the right to buy any Medigap policy offered for sale in your state. In addition, if your Medicare Advantage carrier is leaving Medicare, if it stops giving care in your area, or if you move out of the plan’s service area, you have a guaranteed right to purchase a Medigap policy if you decide to return to Original Medicare rather than buy into another Medicare Advantage plan. But you have to apply for a Medigap policy no later than 63 days after your Medicare Advantage coverage ends.

If you join a Medicare Advantage plan for the first time, and you find that you are not happy with it, you have special rights to buy a Medigap policy if you return to Original Medicare within 12 months of joining. If you joined a Medicare Advantage plan when you were first eligible for Medicare, you can choose from any Medigap policy that is offered for sale in your area.

Medigap policies sold before January 1, 2006 sometimes also offered prescription drug coverage, but following the introduction of Medicare Part D in 2006, all new Medigap policies are prohibited from covering drugs--you have to get your drug coverage by purchasing a separate standalone Part D drug plan. But if you already held a Medigap policy that included drug coverage, you can keep that plan if you so desire and it would still cover your prescription drugs. You could still keep that Medigap policy even if you went ahead and signed up for a separate Medicare Part D plan, but you must tell your Medigap insurance company what you have done and they will remove the prescription drug coverage from your Medigap policy—you can’t have both types of drug coverage at the same time.

If you are on Original Medicare and already have a Medigap policy that does not provide prescription drug coverage, you can add a Medicare Part D plan without changing your Medigap policy. If you had enrolled in Medicare Part D by May 15, 2006, you were guaranteed the right to switch over to a new Medigap policy, one that does not have prescription drug coverage. If you had enrolled in Part D after that date, the opportunity to switch over to a new Medigap policy lacking drug coverage is entirely at the discretion of the private insurance company issuing the replacement policy, but the beneficiary may choose to keep their current Medigap policy by removing drug coverage from their current Medigap policy and retaining all the other benefits.

Most Medicare beneficiaries who hold a Medigap policy that provides drug coverage and then decide to enroll in a standalone Part D plan after May 15, 2006 might have to pay the late enrollment penalty described above. The only exception is if their Medigap policy’s drug coverage met creditible coverage criteria established by CMS, that is, that it provided coverage that was least as good as or better than that provided by standard Medicare Part D. Most Medigap policies did not meet these criteria. This means that a beneficiary who delays enrollment in a Part D plan in favor of keeping a Medigap plan that covers prescription drugs faces late enrollment penalties for Part D if that Medigap plan’s drug coverage was not as good as Part D’s standard benefit.

Can you switch from one Medigap plan to another one? If you move out of your Medigap insurance carrier’s service area, or if your carrier goes out of business or stops offering Medigap insurance, you have a guaranteed right to buy another Medigap policy to replace the original one. But perhaps you are unhappy with your current Medigap policy and want to exchange it for another one. Perhaps you have found that you have been paying for benefits you don’t really need. On the other hand, maybe you have found that you actually need more benefits than your current plan provides. Perhaps you feel that your current Medigap plan is too expensive, or perhaps you are unhappy with the insurance company itself.

In such cases, if you want to make changes in your Medigap insurance policy, you might be out of luck. In most cases, you don’t have any rights under Federal law to switch Medigap policies unless you are still within your 6-month Medigap Open Enrollment period or are eligible under a specific circumstance for guaranteed issue rights, although some state laws may provide you with some guaranteed issue rights. Whether or not you can actually get a new Medigap policy will often depend entirely on the whim of the insurance carrier.

It is entirely up to each medical insurance company to decide whether it will offer beneficiaries who have existing policies with the opportunity to purchase a new policy--they could use medical underwriting to charge extra for pre-existing conditions or they could even refuse to issue a policy at all. Nevertheless, some insurance companies have fairly liberal rules about letting a person switch from one policy to another policy that is offered by the same company. And even if your insurance company won’t let you switch, perhaps another company might agree to sell you a new Medigap policy.

If you do decide to switch Medigap policies and the carrier accepts your application, you will have a 30-day “free look” period to review the new policy and see if you are happy with it and want to keep it. On the application form for a new Medigap policy, you will have to promise that you will cancel your original Medigap policy once your new policy becomes effective, but you will have 30 days after the start of your new policy to do this. During this 30-day period, you shouldn’t cancel your original Medigap policy until you decide that you are happy with the new one, because you probably won’t be able to get your old policy back after you cancel it. This means that you will be paying premiums to both insurance companies for a month, but this could actually help you to avoid making an expensive mistake. Once you have decided that your new policy is satisfactory, go ahead and cancel the old one. You can’t have two separate Medigap policies at the same time for longer than this “free-look” period.

Unlike Medicare Advantage plans, there is no government-imposed open enrollment period for making changes in Medigap insurance coverage--in principle, you could drop or change your Medigap coverage at any time in the year. However, most people who want to make a change will probably want to do this before the expiration date of their current Medigap policy, which is usually at the end of the year.

There are no Medicare-imposed requirements for how long you have to wait between the time you buy your first Medigap policy and the time you can switch to a new one. However, if you have had your current Medigap policy for less than six months, even if the insurance company agrees to issue you a new Medigap policy, it may be able to make you wait up to six more months before it will cover any of your preexisting conditions. However, if your current Medigap policy has been in effect for more than six months, and if your new policy offers the same or lesser benefits than the original one, the new policy must wave any preexisting condition time periods, waiting periods, or probationary periods. But if the new Medigap policy that you buy offers additional benefits not covered by your original policy, the new carrier may legally require that you wait up to six months before any coverage of these new benefits begins, regardless of how long you have held your current Medigap policy.

Different states have different laws governing your rights to switch Medigap policies. For example, in California, once you have purchased supplementary coverage, you have the opportunity every year during your birthday month to switch to a like or lesser plan without medical underwriting. This is called the “birthday rule”, and could be used to lower your premium if you are able to find a carrier that offers exactly the same coverage for a lower price. However, you still don’t have an automatic right to purchase better coverage without medical underwriting.

If you have an older Medigap policy that you bought before 1992, in the era before Medigap was standardized, you don’t necessarily have to switch to one of the newer standardized Medigap policies if you don’t want to, and you can keep your older policy if you are happy with it. Many people are indeed happy with their older, non-standardized Medigap policies, and have kept them. However, if you buy a newer Medigap policy, you would have to drop the older one, and you won’t be able to go back to your original policy, because these older Medigap policies can no longer be sold.

Can your Medigap insurance carrier drop you at renewal time? If you bought your Medigap policy after 1992, your Medigap policy is guaranteed renewable, and the insurance company can’t drop you unless you stop paying the premium. They could also drop you if they found out that you lied on your Medigap policy application, or if the insurance company itself goes bankrupt or insolvent. But they can’t drop you simply because your health has changed. However, if you bought your Medigap policy before 1992, some state laws might not have required that these Medigap policies be guaranteed renewable. This means the insurance company could refuse to renew your policy if your health has changed. But if this happens, you have the right to buy another Medigap policy to replace it.

Even though any standardized Medigap policy is guaranteed renewable, there is no guarantee that the premium won’t increase at renewal time. Generally, the premium increases every year because of medical inflation, but your premium won’t go up just because your health has changed. The amount of the premium increase will probably depend on what kind of policy you have—whether it is community-rated, issue-age rated, or attained-age rated. The owners of community-rated Medigap policies (also known as “no-age-rated” policies) all pay the same premium price regardless of age, but everyone’s premium will go up if the community’s rates go up—an insurance company may raise your premium as often as once a year on a class basis, but you rates won’t go up simply because you got older. Other policies have premiums based on the age at which the policyholder first purchases the policy (sometimes also called “entry age-rated” policies)—a 65-year-old will pay a lower premium than an 80-year-old, but once purchased the price doesn’t increase just because one gets older, although premiums may go up because of medical inflation. The premiums of some Medigap policies will increase as the policyholder gets older (known as “attained age” policies)—typically ratcheting up in price every one, three, or five years, this increase occurring in addition to price increases linked to health care inflation. If you have an “attained-age” policy, the company may raise your premium on your birthday. Premiums for “attained age” policies may be low for younger buyers, but they will go up fairly rapidly as you get older. They may be the least expensive at first, but they can eventually become the most expensive as you get older. The best options are probably issue-age and community-related policies—they may cost more at the time you buy them, but they may cost less in the long run as you get older.

There are 12 standard Medigap plans, labeled A through L, that offer different levels of health coverage—generally the level of coverage (and the premium cost) increases as you go up in the alphabet. Plan A is a bare-bones plan that offers a minimal set of basic benefits that helps to cover some of the Medicare Part A and part B coinsurance costs (but not the deductibles!). Plans B through L add additional benefits to this basic package, the level of coverage generally increasing as one advances through the alphabet, but generally also with progressively increasing premium cost. Some of the plans offer high-deductible options for lower premiums. Each insurance company decides which Medigap policies it wants to sell, and a given insurance carrier may not actually offer all of the types. However, any insurance company that offers any type of Medigap policy must offer Plan A, which is the most basic of the Medigap plans. As of June 1, 2010, if an insurance company offers any other Medigap policy, they must also offer either Plan C or Plan F. However, individual state laws can decide which and how many of these plans are offered for sale to its residents, and not all of these plans are available in every state.

Even though different insurance companies sell these policies, the benefits of each standard Medigap plan are always the same. All the standardized Medigap policies that insurance companies offer must provide the same benefits— for instance, all Plan C Medigap policies have the same benefits, no matter what company sells the plan. This could mean that the only difference between Medigap policies sold by different insurance companies is the premium cost. There can be a big difference in the premiums that different insurance companies charge for exactly the same coverage.

All of the standardized Medigap plans offer a basic set of benefits that supplement Medicare Part A and Part B, listed as follows:

Basic Medigap Benefits:

Medicare Part A coverage:

• Pays the coinsurance for hospital days 61-90 ($256 in 2008) and 91-150 ($496 in 2007)
• Pays the coinsurance for each day 91-150 ($512 in 2008) (up to 60 days in your lifetime).
• Hospice Care coinsurance or copayment
• Pays the cost of 365 extra hospital days in your lifetime, once you've used all of your Medicare hospital benefits

Medicare Part B coverage:

• Generally, pays all coinsurance and co-payment amounts after your meet the yearly deductible for Medicare Part B
• Pays for the first three pints of blood

All of the Medigap policies listed below cover the services listed above, but some of them provide additional benefits as well, as listed below

Medigap Plan A

• Basic Medigap Benefits

Medigap Plan B

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible for each benefit period for hospital services

Medigap Plan C

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home coinsurance costs: It pays your cost ($128 in 2008) for days 21-100 in a skilled nursing home
• Pays the Medicare Part B Deductible:
• Foreign Travel Emergency
• 80% of the cost of emergency care outside the U.S.
• Up to $50,000 during your lifetime
• You pay a yearly deductible of $250

Medigap Plan D

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home coinsurance Costs
• Foreign Travel Emergency

Medigap Plan E

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home Costs
• Foreign Travel Emergency
• Preventive Care: Up to $120 per year for preventive services not covered by Medicare

Medigap Plan F*

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home Costs
• Pays the Medicare Part B Deductible
• Pays Medicare Part B Excess Charges: Pays 100% of the difference between your doctor's charge and the Medicare approved amount, if your doctor does not accept assignment
• Foreign Travel Emergency

Medigap Plan G

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home Costs
• Medicare Part B Excess Charges: Pays 80% of the difference between your doctor's charge and the Medicare approved amount, if your doctor does not accept assignment
• Foreign Travel Emergency
• At-Home Recovery

Medigap Plan H

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home Costs
• Foreign Travel Emergency

Medigap Plan I

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home Costs
• Pays Medicare Part B Excess Charges: Pays 100% of the difference between your doctor's charge and the Medicare approved amount, if your doctor does not accept assignment
• Foreign Travel Emergency
• At-Home Recovery

Medigap Plan J*

• Basic Medigap Benefits
• Pays the Medicare Part A Hospital Deductible
• Skilled Nursing Home Costs
• Pays the Medicare Part B Deductible
• Pays Medicare Part B Excess Charges: Pays 100% of the difference between your doctor's charge and the Medicare approved amount, if your doctor does not accept assignment
• Foreign Travel Emergency
• At-Home Recovery
• Preventive Care

Medigap Plan K**

• Basic Medigap Benefits, plus
• 100% of Part A coinsurance plus coverage for 365 days after Medicare benefits end
• 50% of hospice cost-sharing
• 50% of Medicare-eligible expenses for the first three pints of blood
• 50% Part B coinsurance after you meet the yearly deductible for Medicare Part B, but 100% coinsurance for Part B preventive services
• Pays 50% of Skilled Nursing Home Coinsurance
• Pays 50% of Medicare Part A Hospital Deductible
• Annual out of pocket limit of $6220 in 2021.

Medigap Plan L**

• Basic Medigap Benefits, plus
• 100% of Part A coinsurance plus coverage for 365 days after Medicare benefits end
• 75% hospice cost-sharing
• 75% of Medicare-eligible expenses for the first three pints of blood
• Pays 75% Part B coinsurance after you meet the yearly deductible for Medicare Part B, but 100% coinsurance for Part B preventive services
• Pays 75% of Skilled Nursing Home Coinsurance
• Pays 75% of Medicare Part A Hospital Deductible
• Annual out of pocket limit of $3110 in 2021.

*Plans F and J also have a "high deductible option." If you choose the "high deductible option" on Medigap Plans F and J, you will first have to pay a $2000 deductible in 2010 before the plan pays anything. This deductible amount can go up every year. High deductible policies have lower premiums, but if you get sick, your costs will be higher.

**The basic benefits for plans K and L include similar services as plans A-J, but the cost-sharing for the basic benefits is at different levels. The annual out-of-pocket limit increases each year for inflation.

The most popular Medigap plans are C and F. It is important to compare Medigap policies, because costs can vary widely. You need to search out the plan that is best for you. The American Association of Retired Persons (AARP) issues recommendations for Medigap policies, although the AARP does not actually sell insurance policies themselves. The plans recommended by the AARP carry the AARP name and the UnitedHealthcare insurance carrier that actually issues them pays a fee to AARP for the use of the AARP trademark.

In addition to the standard A-L Medigap policies, Medicare SELECT is a type of Medigap policy that can cost less than standard Medigap plans. Any of the standardized Medigap policy can be sold as a “Medicare SELECT” policy. However, Medicare SELECT plans are sort of like HMOs or managed care programs, in which you are required to use “in-network” doctors and hospitals, and the insurance carrier will only pay full benefits if you get your medical care from providers who are in the insurer’s designated network. In addition, plan participants will also need to get a referral from their primary care physician in order to see a specialist or to be admitted to the hospital for anything other than an emergency. If you venture outside the network, your SELECT plan might not pay the full amount or might even deny payment altogether. However, if you don’t use a Medicare SELECT doctor or hospital, basic Medicare will still pay its share of the costs (assuming that the provider accepts Medicare in the first place), but your Medicare SELECT policy will probably pay nothing. In addition, the Medicare SELECT option is not available in all areas. If you buy a Medicare SELECT policy, you have the right to change your mind within 12 months and switch to a standard Medigap policy. If you have a Medicare SELECT policy and you move out of the policy’s area, you have a guaranteed issue right to buy a Medigap Plan A, B, C, F, K, or L.

Since Medigap is private insurance and is not sponsored by the government, the rules governing the sales and offerings of different varieties of Medigap insurance policies can vary from state to state. States such as Massachusetts, Minnesota, and Wisconsin require Medigap insurance to provide additional coverage beyond that which is defined in the standardized Medigap plans.

The 2008 Medicare Improvements for Patients and Providers Act (known as MIPPA) has introduced major changes in how Medigap will work, and some of the standardized Medigap plans are going away and some new ones are being created. Starting June 1, 2010, Plans E, H, I, and J are no longer be available to buy. It turns out that the “Preventive Care” and the “At-home Recovery” Medigap benefits were only very rarely used by policyholders and are being eliminated. This made Plans D and E identical, so Plan E was eliminated. In addition, the advent of Medicare Part D drug coverage has caused Plans H, I and J to become redundant to other Medigap plans, so all of them were eliminated as well. These plans can no longer be sold to new policy applicants, but if you already had one of these earlier plans, you may keep it if you so desire.

Medigap Plans D and G that became effective on or after June 1, 2010 have different benefits than D or G plans sold before that date. In addition to these changes, hospice care coverage was added to all policies, effective on or after Jun 1, 2010. Also there were some changes in the benefits offered by Plans A, B, C, D, F, and G. Also, Medicare Part A care benefit co-insurance coverage was added to all new Medicare Supplement plans, and benefits that are now being covered by Original Medicare (such as preventive care) were removed from all Medigap plans. The Part B excess charge benefit in Plan G is increased to 100 percent.

In addition, beginning in the year 2010 there are two new Medigap plans offered-Plans M and N. They offer a lower-premium alternative to existing Medicare Supplement plans, albeit at the cost of increasing the amount of cost-sharing imposed on the patient in the form of additional copayments and deductibles. Plan M increases patient cost-sharing by splitting the Medicare Part A deductible 50/50 between the patient and the insurance company. Plan N does not cover the Medicare Part B deductible at all, but there are no doctor’s office copays or coinsurance after you meet the Part B deductible. Plan N will be similar to Plan D, but there will be a $20 copayment for doctor visits and a $50 copayment for emergency room visits. It is currently projected that the co-pay system will take effect after the Part B deductible is met. Neither plan N nor N cover the first 3 pints of blood, and they do not cover the Medicare Part B deductible nor the Part B excess charges. However, they both provide foreign travel emergency coverage.

The result of these benefit changes is the creation of a whole bunch of new standardized 2010 Medigap plans—revised Medigap Plans D and G and two brand new Medigap Plans M and N. MIPPA authorized the adoption of a new National Association of Insurance Commissioners (NAIC) Medicare Supplement Model Regulation for these new plans. The model provides for a new set of standardized Medicare Supplement insurance plans that are designed to be better aligned with today’s health care environment. All Medigap policies sold after Jun 1, 2010 must adopt standards and rules adopted by NAIC and approved by CMS. However, those Medigap policyholders who currently have any of these older plans may keep them if they so desire, and are not required to switch to any of these newer plans if they don’t want to. However, Medigap policyholders who want to replace their standardized plan with one of these new plans might be subject to medical underwriting if the insurance carrier so requires, which means that a preexisting medical condition could result in a higher premium or even a denial of coverage. So your ability to subscribe to one of these new plans without medical underwriting will be entirely at the whim of the insurance company.

Medigap plans sold to people who are new to Medicare are no longer allowed to cover the Part B deductible. Because of this, Plans C and F are not available to people who were newly eligible for Medicare on or after January 1, 2020. But if you were previously in Medicare and already had one of these plans, you may keep your plan. In addition, if you were eligible for Medicare before January 1, 2020 but not yet enrolled, you may be able to buy one of these policies.

SecureHorizons MedicareDirect

I retired from Lucent Technologies at age 62, when I agreed to accept their early retirement offer. After retirement, I got my medical insurance through Lucent’s retirement plan, and the premiums, coinsurance, and copays kept going up year after year. Then, Lucent abruptly dropped its subsidy for spousal coverage, and my monthly costs shot way up, taking a hefty bite out of my pension check. If these trends continued, I worried that I would soon be paying Lucent to retire, rather than the other way around.

So I was actually glad when I and my spouse were able to go onto Medicare. When we went on Medicare, I retained the Lucent retirement insurance plan rather than getting a Medigap policy. The Lucent retiree plan was secondary to Medicare. The Lucent plan that I chose was known as a Traditional Indemnity policy, which supposedly reimbursed medical providers for each service received on a case-by-case basis. It was not at all like a Medicare supplementary insurance policy. It was a sort of catastrophic insurance plan, which covered little or none of the costs that Traditional Medicare did not cover. I don’t think that it ever paid anything. All other choices that Lucent offered to the retirees were much more expensive and used networks.

But there was a major change made for year 2009. Lucent dropped the Traditional Indemnity option for their retirees, and forced them to switch to a new plan known as SecureHorizons MedicareDirect. It is a Private Fee For Service Medicare Advantage plan, administered by the UnitedHealthcare Insurance Company. The SecureHorizons MedicareDirect plan also provides prescription drug coverage, but the coverage is thru a different company named Medco. Medical and prescription drug coverage could not be elected independently. .

The 2009 SecureHorizons MedicareDirect coverage had an annual deductible of a flat $290 per participant. After payment of the deductible, there would be a $15 co-payment per visit to a primary care physician. Emergency department services required a $50 co-payment. Most other services (in hospital or out of hospital) require 20 percent coinsurance after deductible. There is 100 percent coverage for home healthcare. The plan covers emergency out-of-state or international emergencies. The annual out-of-pocket maximum was set at $1500, which did not include the deductible. This would help me to protect against runaway out-of-pocket expenses.

The deductibles and copayments seemed to be not much different than those offered by traditional Medicare, and the only real advantage of this new PFFS plan that I could see was the cap on annual out-of-pocket expenses. However, the monthly Two-Person, Two-Medicare premium was $110.64 for 2009, which would be quite cheaper than any Medigap policy. Sounded attractive--should I opt for it?

I first needed to verify if my medical providers were deemed providers under the plan. My doctor told me that the University of Chicago Hospitals doctors that I had been using currently do accept the SecureHorizons MedicareDirect plan’s coverage, but he warned me that this might change in the future. Based on all that I had heard about Medicare Advantage plans, and fearing that my providers at the University of Chicago Hospitals could drop out of the SecureHorizons MedicareDirect program at any time, and that I would have to chase all over town looking for someone else who would take the plan, I thought I might need to bail on Lucent.

Based on these fears and concerns, I formally declined Alcatel-Lucent’s new SecureHorizons MedicareDirect insurance, which effectively meant that I was now no longer getting any medical insurance at all from my previous employer. This meant that I had to go on the market and purchase a Medigap policy, along with Part D drug coverage, both for me and for my spouse.

But it had been a couple of years since I had enrolled in Medicare Part B, and I had long ago missed my Medigap open enrollment window. Did I still have a guaranteed issue right to buy a Medigap policy? Could I be charged extra for a Medigap policy because of a preexisting condition, or could I perhaps even be refused coverage altogether? Although my Medigap open enrollment window had already closed, retirees who no longer had access to Alcatel-Lucent’s Traditional Indemnity option were considered as losing their current Alcatel-Lucent group plan coverage and would therefore be eligible for guaranteed issue Medicare Supplement coverage, which means that they would be entitled to purchase a Medigap plan without medical underwriting and freedom from preexisting condition exclusions. Lucent recommended that retirees should advise the Medicare Supplement plans they are considering of the situation with their current group coverage.

The first thing that I needed to do was to get a certificate of creditable coverage, one that would give me a guaranteed right to buy a Medigap policy without medical underwriting. This was supposed to provide proof of prior coverage to a new group health plan or health insurance provider. These certificates of creditable coverage are supposed to be provided automatically by the plan or issuer when an individual loses coverage under the plan. The certificate of creditable coverage is supposed to contain information about the length of time my spouse and I had coverage as well as the length of any waiting period for coverage that applied to us. In the absence of such a certificate, I could provide pay stubs, explanation of benefits letters, or letters from a doctor.

Lucent did indeed send me a HIPAA (Health Insurance Portability and Accountability Act) notice informing me of the loss of my Alcatel-Lucent coverage when I formally dropped the company’s retirement medical insurance plan. I chose an AARP Type F Medigap policy, one for me and one for my spouse. These are actually provided by UnitedHealthcare, the same company which offered the SecureHorizons MedicareDirect plan that I had just turned down. I applied on November 15, the beginning of the annual enrollment period. It took quite a while for CMS to give its approval for me to buy these Medigap policies, but the approval finally came through in December, just before the Medigap annual enrollment period was set to expire. Apparently, the HIPPA notice was sufficient to serve as notification of the loss of Alcatel-Lucent medical coverage to the AARP plan when I sought to sign up for coverage there. Although my spouse and I have separate policies, they are billed together.

I also tried at the same time to get a Medicare Part D drug plan for both me and my spouse through AARP, but I got a letter in December saying that CMS had denied permission because some documentation was not received. There was some paperwork screwup somewhere, I suppose. It seems that you need to ride herd on AARP to make sure that they do the paperwork correctly. No big loss, I thought, since the monthly premium for the coverage would be almost as much as my monthly drug costs. Then in April of 2009 I got a letter from CMS saying that I had been finally approved (but not my spouse). I agreed to sign up, fearful that if I didn’t do so I might be faced with a late enrollment penalty if I wanted to sign up at a later time, or that I might not be able to get drug coverage at all. I even ended up having to pay the premium for the four months during which I had no drug coverage.

In November of 2009, during the next Part D yearly election period, I tried again to get a Medicare Part D drug plan for my spouse. This time I succeed in doing so, but I ended up having to pay a late-enrollment penalty. It was about $3 per month.

References:

1. Medicare and You, 2010, Center for Medicare and Medicaid Services
2. Medicare and You, 2011, Center for Medicare and Medicaid Services
3. Medicare and You, 2012, Center for Medicare and Medicaid Services
4. Centers for Medicare and Medicaid Services—2009—Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare, http://www.medicare.gov/publications/pubs/pdf/02110.pdf
5. Enrolling in Medicare, Medicare: The Official US Government Site for People With Medicare, http://www.medicare.gov/basics/socialsecurity.asp
6. Medicare and Other Health Benefits: Your Guide to Who Pays First, Centers for Medicare and Medicaid Services, http://www.medicare.gov/Publications/Pubs/pdf/02179.pdf
7. I Want to Add Part B to My Medicare. When Can I Do That? Medicare, The Official US Government Site For People With Medicare, http://questions.medicare.gov/cgi-bin/medicare.cfg/php/enduser/std_adp.php?p_faqid=146&p_created=997798859&p_sid=GL7pXOKj&p_accessibility=0&p_redirect=&p_lva=&p_sp=cF9zcmNoPTEmcF9zb3J0X2J5PWRmbHQmcF9ncmlkc29ydD0mcF9yb3dfY250PTcyMSw3MjEmcF9wcm9kcz0mcF9jYXRzPSZwX3B2PSZwX2N2PSZwX3NlYXJjaF90eXBlPWFuc3dlcnMuc2VhcmNoX25sJnBfcGFnZT0xMA**&p_li=&p_topview=1
8. Medigap (Supplemental Insurance) Policies, Medicare: The Official US Government Site For People With Medicare, http://www.medicare.gov/medigap/default.asp
9. Understanding Medicare, Medigap and Medicaid, Maggie Pouncey, AARP, http://www.aarpmagazine.org/family/Articles/a2003-01-21-understandingmed.html
10. Medicare Advantage Plans, Medicare—The Official US Government Site For People with Medicare, http://www.medicare.gov/choices/advantage.asp
11. United States Department of Labor—Continuation of Health Coverage (COBRA), http://www.dol.gov/dol/topic/health-plans/cobra.htm
12. Premiums Jump 14 Percent On Medicare Private Plans, ABC News, http://abcnews.go.com/Business/wireStory?id=9884701
13. Hidden Costs Of Medicare Advantage, Philip Rucker, Washington Post, Oct 15, 2009. http://www.washingtonpost.com/wp-dyn/content/article/2009/10/14/AR2009101403953.html?hpid=topnews&sid=ST2009101403963
14. Medicare Advantage—Questions and Answers, State of Wisconsin, Office of the Commissioner of Insurance, http://oci.wi.gov/srissues/mcques.htm
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16. Medicare Supplemental Insurance (Medigap), Medicare.com, http://www.medicare.com/medigap-insurance/medicare-supplemental-insurance-(medigap).html
17. After The Goldrush: The Marketing of Medicare Advantage and Part D Plans, California Health Advocates, http://www.medicarerights.org/pdf/After_the_Goldrush.pdf
18. Letter from Campbell Johnson at www.Q1Medicare.com, answering question about guaranteed renewability of Medicare Advantage plans.
19. Independent Payment Advisory Board, http://en.wikipedia.org/wiki/Independent_Payment_Advisory_Board
20. New Health Care Law—What’s In It For You, AARP Bulletin, May 2010 Vol 51 No 4.
21. The Medicare Improvements For Patients and Providers Act of 2008, American College of Cardiology, http://www.acc.org/advocacy/MIPPA_summary.htm
22. AARP MedicareRx Plans insured through UnitedHealthcare Annual Notice Of Changes for 2011.
23. Choosing A Medigap Policy—A Guide to Health Insurance for People with Medicare, Centers For Medicare and Medicaid Services, 2010.
24. Medicare Dental Coverage https://www.medicareinsuranceaz.com/does-medicare-cover-dental/
25. What Does a Dentist Do For Your Dental Health, https://livetechspot.com/what-does-a-dentist-do-for-you-dental-health/
26. How To Change My Medicare Plan, https://www.medicareinsuranceaz.com/how-to-change-my-medicare-plan/
27. Does Medicare Cover Dental Care: https://www.healthline.com/health/medicare/does-medicare-cover-dental
28. Medicare and You 2022, CMS