How Does Medicare Work?
Joseph F. Baugher
Last revised October 6, 2018
I am now on Medicare, and the following is a summary of what I have learned about how the system works. Let me add as a disclaimer that I am not a lawyer, nor am I a Social Security employee. If you have a difficult question about Medicare, you should probably contact Social Security or the Center for Medicare/Medicaid Services for a definitive answer.
Medicare is a government-financed medical insurance program that is available to US citizens or permanent residents aged 65 and over. To receive Medicare, you must be a US citizen or legal permanent resident who is at least 65 years old and you must have worked for a minimum of 10 years (40 quarters) 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.
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.
People under 65 can still be eligible for Medicare, but only if they have a qualifying disability. This eligibility for Medicare benefits is tightly tied to eligibility for Social Security Disability Income (SSDI) benefits—in order to qualify for SSDI, one generally has to have been unable to work for at least a year because of a qualifying physical or mental disability. Social Security disability can be very difficult to obtain, and a lot of claims get turned down. If you qualify for SSDI, you automatically get Medicare after you gotten disability benefits from Social Security for two years. Unfortunately, the imposition of this two-year waiting period before a person on SSDI can get Medicare can be a great financial hardship.
Patients who have ALS (amhyotrophic lateral sclerosis), also called Lou Gehrig’s disease, automatically get Medicare the month that their Social Security disability benefits begin.
Medicare is also available to people of all ages with permanent kidney failure who are being treated by dialysis or by a transplant.
Many people continue to work after they reach age 65 and become eligible for Medicare, and are already getting group health insurance coverage from their employer. If you and/or your spouse are still working and are getting group health insurance from the employer, you may find that this insurance is better than what Medicare offers, and you have the option of postponing your enrollment in Medicare and to wait to sign up until you either retire or quit working.
If you do decide to sign up for Medicare while you are still getting employer-based group medical insurance, you will have two different medical insurance carriers at the same time. Whenever you have two different insurance providers, there is a coordination of benefits between the two of them, in order to ensure that they don’t pay in excess of 100 percent of the incurred charges. One will be the primary payer, with the other being the secondary payer. The primary payer will be sent the bill first, and will pay its share of the cost, minus any deductibles, copayments, or coinsurance. The bill then goes to the secondary payer, and they pay their share of what is left. There are certain federal rules that determine whether Medicare or the group insurance policy will be the primary payer on a claim. These are generally based on how many employees are covered under the group plan—if there are more than 20 employees in the plan, Medicare is generally secondary, whereas if there are less than 20 employees, Medicare is generally primary.
Some people have individual health insurance policies (not related to employment) when they become Medicare eligible, and they may keep these policies if they so desire, especially if they happen to offer better coverage that that which Medicare provides. The insurer cannot cancel your individual policy simply because you have become Medicare eligible. However, not all individual insurance policies coordinate with Medicare, and you need to check with your individual insurance carrier how your particular plan coordinates with Medicare, if at all.
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, and each state has different income and resource requirements. Each state may have its own name for the program—in California it is known as Medi-Cal.
Some people can be on both Medicare and Medicaid at the same time. 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. People with both Medicare and Medicaid may also be able to get coverage for service that Medicare doesn’t cover, such as nursing home care, personal care, and home- and community-based services. If you have Medicare and full Medicaid coverage, most of your health care costs are covered--Medicare covers your prescription drugs, and Medicaid may still cover some drugs and other care that Medicare does not cover or only covers partially. If you are on both Medicare and Medicaid, Medicaid is generally secondary and will only pay after Medicare, the employer group health plan, and the Medigap policies have paid.
In some states, you may need to be on Medicare, if you are eligible, before you are eligible for Medicaid. Medicare is working with several states and health plans to create demonstration plans for certain people who have both Medicare and Medicaid.
Medicare is funded by three primary sources of revenue—payroll taxes, insurance premiums, and general federal revenues:
The money paid into Medicare 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.. The other is the Supplemental Medical Insurance (SMI) fund which used to pay for doctor’s bills and for outpatient services, as well as prescription drug expenses. .
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 (known as Medicare Advantage) appeared in 1997 when private insurance carriers were brought into the program. Medicare Advantage uses private insurance carriers to combine both Parts A and B coverage, plus some additional coverage that Traditional Medicare does not provide. Part D came in 2006 when prescription drug coverage was added to the program.
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. 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.
Under Original Medicare, you can go to any doctor or supplier that accepts Medicare or is accepting new Medicare patients, or to any hospital or other facility. There are no gatekeepers, there are no networks, you don’t need to choose a primary care physician, and you can go to any doctor, supplier, hospital, or other facility that is enrolled in Medicare and is accepting new Medicare patients. You don’t need a referral to see a specialist.
But Medicare does not cover everything. It does not cover most dental work, acupuncture, cosmetic surgery, hearing aids or hearing tests not ordered by a doctor, routine eye care related to prescribing eyeglasses, or eyeglasses (but it will cover eyeglasses after cataract surgery). Medicare does not cover the costs of assisted living facilities, or long-term care facilities, but it will pay for a skilled nursing facility or for home health care. It also does not cover items and services that are deemed to be not reasonable or medically necessary. But you may have other coverage (including Medicaid) that will cover these costs, or you may have a Medicare Advantage health plan that will cover some of these services.
Medicare does not pay the total cost for most services and supplies that are covered. Like most private insurance plans, Medicare has annual 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.
Under Traditional Medicare, the deductibles, copayments, and coinsurance can add up to a lot of money. However, Medicare recipients have the option of purchasing supplementary medical insurance policies offered by private companies (known as Medigap) or they can opt to join a Medicare Advantage (Part C) plan, which can provide some assistance in paying the deductibles, copayments, and coinsurance that Traditional Medicare do not cover. In addition, Original Medicare does not cover prescription drug costs, but you can purchase a Part D drug plan to cover some of these costs.
Unfortunately, Traditional Medicare does not offer any sort of annual maximum (or cap) on the amount of money that a participant must pay out-of-pocket, which means that a catastrophic illness or accident could still be very costly to the patient. There has been some thought to adding an annual limit on beneficiary out-of-pocket spending to Traditional Medicare. Some of these proposals involve means-testing, with one’s income being used to determine the value of the out-of-pocket maximum. However, a Medicare participant can opt to acquire a Medicare Advantage (Part C) plan, which offers a cap on the out-of-pocket costs incurred by a patient in a given year. In addition, some Medigap policies also offer caps on annual out-of-pocket costs. These typically offer their subscribers annual out-of-pocket maximums ranging from $1000 to $4000, depending on the plan
You may have heard of the term “assignment”. When a doctor or a provider says that they accept “assignment”, they agree to accept the Medicare-approved amount as full payment for covered services, and they agree to bill you for only the Medicare deductible and the coinsurance, and agree to wait for Medicare to pay its share of the bill. 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.
Some healthcare providers have not agreed to accept assignment for all Medicare-covered services, but they can still choose to accept assignment for certain 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 your 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 service, 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, even though a physician who does not accept assignment may charge you more than the Medicare-approved amount, 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.
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. 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 don’t like the terms of the private contract, you can always choose to go to another provider who does participate in Medicare, But 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, even if it is a for a service that Medicare would ordinarily have covered. A Medicare supplement insurance policy won’t cover any of this either. However, you can’t be asked to sign a private contract in an emergency situation or when you need urgent care.
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.
If you are on Original Medicare, every three months you will get a Medicare Summary Notice (MSN) that lists all the services you received that were billed to Medicare, and tells you if and how much Medicare paid for these services and how much you may owe to the provider. You have the right to file an appeal if there is something on the MSN that you disagree with (for example, a service that you got which was billed to Medicare but Medicare did not pay). The appeal is sent to the company that handles bills for Medicare that is listed on the MSN. You will generally get a decision from the Medicare contractor within 60 days after they get your request, and if Medicare will cover the item or the service, it will be listed on your next MSN.
You might also want to check over your MSN to make sure that Medicare was not billed for services that you did not receive. If you see this on your MSN, this might be the result of a simple error, or this might be evidence that Medicare fraud is taking place. Medicare fraud costs Medicare a lot of money every year. You should first check with your provider to see if a mistake was made. If you have contacted your provider and you suspect that fraud has taken place, you should contact Medicare directly and report it.
The Affordable Care Act and Medicare
There has been some confusion about how the Affordable Care Act (popularly known as “Obamacare”) affects Medicare. Part of the Affordable Care Act is the establishment of something known as the Health Insurance Marketplace, which is a new way for lower-income individuals or for employees of small businesses who don’t have access to employer-based group insurance to get high-quality health insurance at affordable rates, free from restrictions based on preexisting medical conditions.
Medicare is not part of this system. The Health Insurance Marketplace does not offer Medicare Supplemental Insurance, Medicare Advantage plans, or Medicare drug plans. Medicare participants are ineligible to purchase any sort of individual medical insurance policies from the Health Insurance Marketplace, and there is absolutely no reason why they would ever want to. In fact, it is against the law for someone who knows that you are on Medicare to sell you a Marketplace plan.
You might have gotten an individual Marketplace plan to cover you before your Medicare coverage began, and you could keep that plan if you so desire. But it might be a better idea for you to cancel your Marketplace plan once you go onto Medicare. This is because once you become Medicare eligible, you no longer qualify for any Marketplace tax credits to help pay your premiums and you are no longer eligible for the cost-sharing that may be available through the Marketplace.
However, if you are on Medicare and are still employed and your employer offers coverage through the Health Insurance Marketplace, you may be eligible to keep that type of coverage. But you need to check to determine how your employer’s plan coordinates with Medicare.
Part of the Affordable Care Act is a requirement that everyone have minimum essential medical insurance coverage. If they do not, they will have to pay a penalty. As long as you have Medicare Part A (including coverage from a Medicare Advantage plan), you have minimum essential coverage, and you do not have to get any additional coverage. However, under certain circumstances you can have Medicare Part B without having Part A. But if you only have Part B, you are not considered as having minimum essential coverage, and you will have to pay a penalty.
It’s pretty easy to do. You do the enrollment through Social Security.
Some people get Medicare automatically, without having to go through any type of formal application process. If you are already receiving Social Security benefits (some people can start receiving Social Security benefits as early as age 62) or if you are receiving benefits from the Railroad Retirement Board, 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 65th birthday. If you apply for Social Security benefits at age 65, you will also be automatically enrolled in both Medicare Part A and Part B at the same time.
If you are under 65 and disabled, you will automatically get Medicare Part A and B after you have gotten disability benefits from Social Security for 24 months, or certain disability benefits from the Railroad Retirement Board for 24 months. Your Medicare card will be automatically mailed to you after the 25th month of disability payments.
People who have ALS (sometimes called Lou Gehrig’s disease) will get Parts A and B automatically the month their disability benefits began
However, there is a certain “glitch” in the system, one which initially sounded so strange that I at first thought it had to be some sort of urban legend. But it’s actually true—there is an obscure Social Security regulation which requires you to sign up for Medicare Part A when you initially become eligible if you are already receiving Social Security retirement or disability benefits. Currently, you are automatically signed up for Medicare Part A when you turn 65 if you are already receiving Social Security benefits or are on disability. But if you choose to decline Medicare Part A at this time, you would have to pay the government back for all the Social Security benefits you have already received, and you would automatically forfeit all past and future Social Security retirement benefits until you finally do establish Medicare Part A coverage.
A lawsuit challenging the legality of this provision recently failed in court. A federal judge ruled that allowing people to opt out of Medicare Part A without forfeiting Social Security retirement benefits would be contrary to congressional intent, and that the government is under no obligation to provide separate enrollment mechanisms for Social Security and Medicare.
But if you live in Puerto Rico and are already getting benefits from Social Security or the Railroad Retirement Board, you automatically get Part A on the first day you turn 65 or after you have gotten disability benefits for 24 months. But Part B is not automatic--if you want Part B you have to sign up for by completing an application form. If you don’t sign up for Part B at the time you first become eligible, you might have to pay a late enrollment penalty.
If you apply for Social Security benefits at age 65, you will also be automatically enrolled in both Medicare Part A and Part B at the same time. However, if you decide to delay applying for Social Security benefits past age 65, you can sign up for Medicare when you first become eligible. You can do this by visiting your local Social Security office or you may be able to enroll over the telephone. You can enroll in Medicare up to three months before your 65th 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--Medicare will start on the first of the month prior to your 65th birthday if you are born on the first day of the month. However, if you wait until the month you turn 65 or during the last three months of your initial enrollment period to sign up for Medicare, the start date for your Medicare coverage will be delayed.
If you so desire, you could delay or postpone your enrollment in Medicare when you first become eligible. Why would you want to do this? One situation under which you might want to do this if you continue to work after age 65 and you are currently obtaining group medical insurance benefits from your employers that are superior to the benefits offered by Medicare Part A and Part B. Alternatively, you might be married to someone who is getting group medical insurance from their employer. In such a situation, Medicare benefits may actually be of little use to you, and it might be advantageous for you to delay applying for Medicare benefits until you actually need them. The law allows you to do this if you so desire.
In most cases, you can still be on Medicare and also obtain medical insurance benefits from your or your spouse’s employer, and Medicare usually does not clash with employer-provided benefits. But you need to be careful here and you need to check with your company’s benefits experts to see how your employer’s medical insurance coordinates with Medicare. For most large employers, their insurance is primary and Medicare is secondary. The primary payer pays first and pays up to the limits of its coverage, and then they send the remainder of the bill to the secondary payer. This may mean that Medicare will pay little or none of your health care expenses, and it would make little sense for you to apply for Medicare until you really need it. But you need to be careful here—some smaller employer’s (those with fewer than 20 employees) health plans are actually secondary to Medicare, which means that Medicare pays first. This means that you could be stuck with large medical bills if you don’t have Medicare. In such a case, you would be well advised to go ahead and enroll in Medicare when you become eligible.
If you are under 65 and have Medicare coverage due to a disability, and also have group health plan coverage based on your family member’s current employment, and the employer has 100 or more employees, the group health plan pays first and Medicare is secondary. But if the employer has fewer than 100 employees, Medicare pays first and the group health plan is secondary.
A health savings account (HSA) is a tax-advantaged medical savings account that is available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). The funds contributed to an account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account (FSA), HSA funds roll over and accumulate year to year if they are not spent. HSAs are owned by the individual, which differentiates them from company-owned Health Reimbursement Arrangements (HRA) that are an alternate tax-deductible source of funds paired with either high-deductible health plans or standard health plans.
In particular, if you have a high-deductible employer-provided health plan with a Health Savings Account (HSA) that is funded by pre-tax dollars, IRS rules say that you can’t continue to contribute to your HSA if you are also enrolled in Medicare Part A and/or Part B. If you continue to contribute to your HSA after your Medicare coverage starts, you may have to pay a tax penalty. In such a case, it may be advantageous for you to delay enrollment in Medicare so that you can continue to take advantage of these tax savings. However, you may use money that is already in your HSA account after you enroll in Medicare to help pay for deductibles, premiums, copayments, or coinsurance.
Remember that obscure Social Security regulation that requires you to take Medicare Part A if you are already receiving Social Security benefits when you first become Medicare eligible? This means that an employee who opts out of taking Medicare Part A in order to maintain eligibility to continue to make tax-free Health Savings Account payments would also stop receiving Social Security benefits and would be required to repay any Social Security benefits already received. This strange rule probably affects very few people, since in most cases, the amount of the Social Security benefits that are received would greatly exceed any of the benefits realized by making tax-deductible contributions to an HSA. So for most people, there is really no good reason for declining to enroll in Medicare Part A when one becomes eligible.
There is legislation pending before Congress that would try to correct this problem by amending the Social Security act to allow eligible individuals to waive enrollment in Medicare Part A and automatically enroll is a “Medicare Alternative Voucher Program”, under which they would receive a voucher that could be used as a contribution to a HSA and still be eligible to receive Social Security retirement benefits.
How do you eventually sign up for Medicare if you choose to delay your enrollment past your Initial Enrollment Period? If you or your spouse is currently obtaining group health insurance based on current employment, you could of course go ahead and sign up for Medicare at any time. But if you lose your job or quit, or if you or your spouse’s employer drops their healthcare coverage, you can sign up for Medicare 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.
If you do delay enrolling in Medicare beyond your Initial Enrollment Period and you didn’t qualify for a Special Enrollment Period, you could get hit with a late enrollment penalty. The amount of the penalty will depend on how long you delayed enrolling in Medicare beyond the date when you were first eligible. However, this late enrollment penalty generally applies only if you or your spouse did not have group medical insurance based on current employment at the time you initially became Medicare eligible. If you had delayed enrolling in Medicare because you were already getting your medical insurance through either your own or your spouse’s employment, you would be eligible to enroll in Medicare during the Special Enrollment Period without having to pay any late enrollment penalty.
If you do decide to delay enrollment into Medicare past your initial enrollment period, and you don’t qualify for a Special Enrollment Period because you were not getting any employer-based medical insurance coverage, you may have to wait until the next General Enrollment Period, which is January 1 through March 31 of each year, and you will probably have to pay the late enrollment penalty. Your coverage will not start until July 1 of that year. 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 Part D drug plan.
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 you happened to be on COBRA at the time you initially became eligible for Medicare, you would not be eligible for a Special Enrollment Period when that coverage ends, because you are not considered as having medical coverage based on current employment, and you would be well-advised to go ahead and sign up for Medicare right away as soon as you become eligible. If you went ahead and signed up for Medicare while you were on COBRA, your COBRA coverage will probably automatically end.
But if you are already on Medicare and you lose your employer-based coverage, you could take the COBRA coverage if you choose to do so. But the COBRA coverage may be worth very little to you, because COBRA will always be secondary to Medicare, which means that it will probably pay little or none of your medical expenses. So it might be wise to forget about COBRA if you are already on Medicare.
Suppose you are retired and are receiving medical insurance coverage through your former employer’s retirement plan at the time you become Medicare eligible. In this case also, you are not considered as having medical insurance based on current employment, so you should go ahead and sign up for Medicare as soon as you become eligible, lest you get hit with that late enrollment penalty. Furthermore, your retiree medical insurance automatically becomes secondary to Medicare as soon as you become Medicare eligible, so if you don’t have Medicare you could be hit with catastrophic medical bills if you get sick.
Suppose you are not working (or your employer doesn’t offer medical insurance benefits) and you have purchased individual health insurance coverage (for example through the Health Insurance Marketplace). In this case also, you are not considered as having medical insurance based on current employment, and would be well-advised to go ahead and sign up for Medicare as soon as you become eligible, lest you get hit with that late enrollment penalty. You could choose to keep your individual policy once you are on Medicare, but you should check to see how it coordinates with Medicare. If your policy is secondary to Medicare, it may pay little or none of your medical expenses, and you might be wise to cancel it.
Suppose you are married to someone who is currently employed and who is getting good medical insurance through their job. You are already covered through your spouse’s medical insurance plan. Do you go ahead and sign up for Medicare when you turn 65, even though you probably don’t need it? But suppose you don’t have enough work credits on your own to be eligible for premium-free Medicare Part A, which means that you would have to pay a steep premium for Part A if you do go ahead and sign up for Medicare. In addition, suppose that your spouse is only 60 years old and is too young to be eligible for Medicare, so you can’t obtain Medicare through your spouse’s work record, which would probably mean that you would have to pay that steep premium if you went ahead and signed up for Medicare on your own. What do you do? There is a Social Security regulation that says that Medicare eligibility for the age 65 or over spouse begins when their working spouse attains age 62. So as soon as your working spouse turns 62, you can go ahead and apply for Medicare Part A, and if you can prove that you were insured for the whole time, you would be eligible at that time for free Medicare Part A and would not be penalized for the period during which you were eligible for Medicare but didn’t enroll.
Medicare currently has four parts: Part A, Part B, Part C, and Part D. When you first sign up for Medicare, you will automatically be enrolled in Part A of the Original Medicare Plan, and you have the option to enroll also in Part B. In addition, you now have the option to enroll in Part D (the prescription drug plan) unless you specifically choose to join a Medicare Advantage Plan (Part C). Furthermore, you have the option to purchase Medicare supplemental policies (sometimes called Medigap) from private insurers to cover some of the deductibles and copayments that Original Medicare does not cover.
Here are the details.
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.
Medicare Part A pays for inpatient hospital costs, skilled nursing facility care, hospice care, and some home health care. It also covers inpatient care in a religious nonmedical health care institution. 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).
Medicare Part A pays all covered hospital costs except for an annual deductible (which was $1340 in 2018) for the first 60 days in the hospital. For the first 60 days of a hospital stay, there is no coinsurance, but for hospital stays that last beyond 60 days the patient will have to pay a co-insurance amount of $335 per day for a hospital stay of 61-90 days, and $670 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.
Medicare Part A covers semi-private rooms, meals, general nursing and drugs as part of the inpatient treatment, as well as other hospital services and supplies. But Medicare will not cover a private room (unless medically necessary), nor will it cover private-duty nursing, a television or telephone in your room (if there is a separate charge for these items), or personal care items such as razors or slipper socks. Doctor bills incurred while in the hospital are covered by Medicare Part B.
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).
Part A also pays for skilled nursing care or rehabilitation facility stays, but such stays must be related to a diagnosis that occurred during an inpatient hospital stay of at least 3 days in length. To qualify for care in a skilled nursing facility, your doctor must certify that you need daily skilled care in things such as intravenous injections or physical therapy. Medicare will cover the cost of semi-private rooms, meals, skilled nursing and rehabilitative services, and other medically-necessary services and supplies furnished in a skilled nursing facility, Under the rules in effect for 2018, you pay nothing for the first 20 days in a skilled nursing facility for each benefit period, but you pay a coinsurance of $167.50 per day for days 21-100 of each benefit period, and you pay all costs for each day after day 100 in a benefit period.
Just because you are in the hospital does not necessarily mean that you are an inpatient. You only become an inpatient if the hospital formally admits that you are an inpatient, after a doctor orders it. You are considered as still being an outpatient if you have not been formally admitted as an inpatient, even if you are getting emergency services, if you are considered as being under observation, if you are undergoing outpatient services or are undergoing lab tests or X-rays. Under current Medicare payment policy, in order for Medicare to cover the cost of skilled nursing care or rehabilitation facility services, the beneficiary must have had a previous inpatient hospital stay lasting for at least three days. It turns out that many beneficiaries have been admitted to the hospital for observation, rather than as inpatient status, and if they subsequently receive skilled nursing facility services, they are shocked to find that Medicare will not pay any of the cost of these services. You or a family member should always ask the hospital if you are an inpatient or an outpatient, since this could affect what you will have to pay out-of-pocket and can affect whether you will qualify for Part A coverage in a skilled nursing facility. Many patients are unaware of the difference between observation and inpatient status, and there is legislation pending in the House of Representatives to eliminate this inpatient requirement.
Medicare only covers 190 days of inpatient care in a psychiatric hospital throughout your lifetime. If you require more time, there is no lifetime limit for mental health treatment you receive as an inpatient in a general hospital.
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 a 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 items and services needed for pain relief and symptom management, 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 or assisted-living? Medicare does not pay for long-term care or for assisted living. Long-term care includes non-medical care for people who have a chronic illness or a disability, and it provides support services such as assistance in the activities of daily living like dressing, going to the bathroom, or bathing. This type of long-term care is not considered to be medical in nature, it is often called custodial care, and it is provided by people who are not considered as being medically skilled. Such care may be provided at home, in the community, in assisted living facilities, or in nursing homes. Long-term care can be very expensive, and many people are either forced to use their own resources to pay for this care, or they opt to purchase long-term care insurance policies. Medicaid can help people with limited income and resources to pay for nursing home care.
The deductibles, copays, coinsurance, and limitations on the coverage for long-term stays in a hospital or in a skilled nursing facility can add up to a lot of money. 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. For this reason, many Medicare recipients purchase Medicare Advantage policies, which provide caps on the out-of-pocket medical expenses incurred by a patient in a given year. In addition, some Medicare supplemental insurance policies (known as Medigap) offer caps on these annual out-of-pocket expenses.
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. So there is really no good reason to delay enrolling in Medicare Part A, because it is free for most people.
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 $232 for 2018. For someone with less than 30 quarters, the monthly premium is $422 for year 2018. It turns out that 99 percent of Medicare users do not have to pay premiums for Part A.
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.
In most cases, if you are not eligible for free Part A and choose to buy it, you must also agree to take Part B, and pay both premiums. However, if you have limited income and resources, there are state programs which will help you to pay for Part A and/or Part B.
Can you sign up for Medicare Part A and then disenroll from it at a later time? Why would you ever want to do this, since Medicare Part A is free for most people? One possible situation under which you might be tempted to disenroll from Medicare Part A is if you return to employment and your employer offers a Health Savings Account, into which you can make pre-tax contributions. IRS regulations do not allow you to make such contributions if you are on Medicare Part A, so it might be advantageous for you to drop Medicare Part A so that you can take advantage of these tax savings. But if you do drop Medicare Part A, remember that you will have to pay back all of the money you have received from Social Security, as well as any Medicare benefits that were paid on your behalf. So, unless the tax benefits you get exceed the benefits that you got from Social Security or from Medicare, it makes absolutely no sense for you to bail out of Medicare Part A.
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 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, cervical and vaginal cancer screenings, prostate cancer screenings, colorectal cancer screenings, and cardiovascular will also cover hepatitis C screening tests and as well as HIV screening. Medicare Part B will also cover diabetes screenings, diabetes self-management training, as well as diabetes testing supplies. Some home health services are covered, plus emergency ambulance services when you need to be transported to a hospital for medically necessary services. In some cases, Medicare may also pay for medically necessary non-emergency ambulance transportation if you have a written order from a doctor stating that such transportation is medically necessary. Emergency room services are also covered. Part B will also cover treatment for some mental health conditions such as depression, anxiety, or substance abuse. Part B would also cover medical equipment like canes, walkers, wheelchairs, and mobility scooters. It will also cover prosthetic items such as artificial limbs, braces, and some types of breast prostheses. 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. Medicare Part B also covers one flu shot per season, as well as glaucoma tests, hearing and balance exams ordered by a doctor, hepatitis B shots, hepatitis C screening, HIV screening, as well as kidney dialysis services and supplies.
Medicare Part B will cover a one-time screening abdominal aortic aneurysm ultrasound screening for people at risk, but you must get a referral from your doctor or other practitioner. You pay nothing for the screening if the provider accepts assignment.
Medicare Part B will also cover cervical and vaginal cancer screening, given once every 24 months, and you will pay nothing if the provider accepts assignment. Medicare will also cover chemotherapy given in a doctor’s office, freestanding clinic, or in a hospital outpatient setting. You will have to pay a copayment if the chemotherapy is given in a hospital outpatient setting. For chemotherapy given in a doctor’s office or freestanding clinic, you will pay 20 percent of the Medicare-approved amount, and the Part B deductible will apply.
Medicare Part B will also cover one alcohol misuse screening per year for adults who use alcohol but who don’t meet the medical criteria for alcohol dependency. If your doctor determines that you are misusing alcohol, you can get up to four brief face-to-face counseling sessions by a qualified primary care doctor per year. You will pay nothing for this if the doctor accepts assignment. Medicare will also cover smoking and tobacco-use cessation counseling. It will also cover sexually-transmitted infection screening and counseling.
Medicare Part B also provides limited coverage of chiropractic services. For example, it will cover manipulation of the spine to correct a subluxation. You will pay 20 percent of the Medicare-approved amount, and the Part B deductible applies.
Medicare Part B will pay for a health care provider’s help in managing two or more chronic conditions that are expected to last at least a year. Medicare will also cover a three-month trial of Continuous Positive Airway Pressure (CPAP) therapy if you have been diagnosed with obstructive sleep apnea.
Medicare Part B will cover diabetes prevention programs, in which a patient with prediabetes can be advised on how to delay or prevent type 2 diabetes.
Medicare generally does not cover health care while you are traveling outside the USA. There are some exceptions, including cases where Medicare will cover services you get while onboard a ship within the territorial waters adjoining the land areas of the USA. However, there are certain rare cases in which Medicare will cover the services you get in a foreign country. Examples are when you are in the USA when an emergency occurs, and a foreign hospital is closer than the nearest USA hospital that can treat you or if are traveling through Canada when you get sick, and the Canadian hospital is closer than the nearest USA hospital.
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, such as the injections you get in a doctor’s office. Examples are flu shots, hepatitis B shots, and pneumococcal shots. . Other types of drugs given in a hospital outpatient setting (sometimes called “self-administered drugs” or drugs that you would take on your own) are not covered by Part B. Medicare Part B will not cover shingles shots. In order to have these drugs covered, the patient would need to have Medicare Part D or some other prescription drug plan.
During the first 12 months that you have Part B, you can get a “Welcome to Medicare” preventive visit. This visit includes a review of your medical and social history related to your health, and education and counseling about preventive services, including certain screenings, flu and pneumococcal shots and referrals for other care. 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. The 2008 Medicare Improvements for Patients and Providers Act (MIPPA) waived 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. This means that you pay nothing for the “Welcome to Medicare” visit if the provider accepts assignment.
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 had 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 (sometimes known as a “wellness” visit) and many preventive services without having to pay a deductible or coinsurance. Your first yearly wellness visit cannot take place within 12 months of your enrollment in Part B or within 12 months of your “Welcome to Medicare” preventive visit. However, you don’t need to have had a “Welcome to Medicare” preventive visit in order to qualify for a yearly “wellness” visit. You pay nothing for the yearly “wellness” visit if the provider accepts assignment. Medicare Part B covers voluntary Advance Care Planning as part of the yearly “wellness” visit. This is planning for care you would want to get if you become unable to speak for yourself.
Initially, outpatient psychological services covered under Part B were subject to 50 percent coinsurance. 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. MIPPA allows Medicare to cover such services if they are recommended by the US Preventive Services Task Force.
Medicare Part B has an annual deductible of $183 per year in 2018. After you have met the deductible, you generally pay 20% of the Medicare-approved amount for most doctor services (including most doctor services while you're a hospital inpatient), outpatient therapy, and durable medical equipment. 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. 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
The deductible, the copays, and the coinsurance under Part B can add up to a lot of money, and many people purchase Medicare supplemental insurance policies (known as Medigap) to help handle some of the deductibles and co-pays that Part B does not cover. Alternatively, some Medicare recipients enroll in a Medicare Advantage plan which can also help to defray some of these costs.
Unfortunately, there is no cap on the amount of money that a Part B recipient must pay out-of -pocket for services during a given year, which means that a catastrophic illness or accident could be very expensive for them. However, there is no cap on the amount of money Medicare Part B will pay for covered hospital services in any given year. 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 annual 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 $1980 in 2017. Once the beneficiary has reached the $1990 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”.
If you have limited income and resources, there may be state programs to help pay your Medicare costs if you meet certain conditions. These programs are generally known as Medicare Savings Programs, and they may help to pay for Part A and/or Part B premiums, deductibles, coinsurance and copays. The names of these programs and how they work may vary from state to state. In order to qualify, there are rather severe means tests applied to your income and resources, but these vary from state to state. In most cases, in order to qualify for a Medicare Savings Program, you have to have Medicare Part A and have a monthly income less than $1333 and resources less than $7160 (for a single person) or a monthly income less than $1799 and resources less than $10,750 (for a married couple).
Unlike Part A, there is a monthly premium for Part B. The standard monthly Part B premium for most people was $134 in 2018.
However, most Medicare Part B participants who get Social Security benefits and who had the Part B premium withheld from their Social Security benefits continued to pay the same Part B premium amount that they paid in 2015, which was $104.90. This is known as the “hold harmless” provision, which requires that any increase in Part B premiums must be lower than the increase in their Social Security benefits. After several years of no or very small cost-of-living Social Security increases, this meant that people on Medicare Part B who had been getting Social Security benefits saw no increases in their Medicare Part B premiums. This affected about 70 percent of all Medicare Part B participants. But Social Security benefits will increase by two percent in 2018 due to the cost of living adjustment. So some beneficiaries were held harmless against Part B premium increases will see a premium increase in 2018.
Medicare Part B enrollees not subject to the “hold harmless” provision include beneficiaries who do not receive Social Security benefits, those who enrolled in Part B for the first time in 2018, those who are directly billed for their Part B premium, those who are dually eligible for Medicaid and have their premium paid by state Medicaid agencies, and those who pay an income-related premium. These groups represent approximately 30 percent of total Part B beneficiaries. The 30 percent of all Part B enrollees who are not subject to the “hold harmless” provision will pay the full premium of $134 per month in 2018. Part B enrollees who were held harmless in 2016 and 2017 will see an increase in the monthly Part B premium from the roughly $109, on average, they paid in 2017. An estimated 42 percent of all Part B enrollees are subject to the hold harmless provision in 2018 but will pay the full monthly premium of $134, because the increase in their Social Security benefit will be greater than or equal to an increase in their Part B premiums up to the full 2018 amount. About 28 percent of all Part B enrollees are subject to the hold harmless provision in 2018 and will pay less than the full monthly premium of $134, because the increase in their Social Security benefit will not be large enough to cover the full Part B premium increase.
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. Social Security will use the income reported two years ago on the income tax return to determine the premium—if one had filed an individual tax return with an annual income of more than $85,000 (or a married joint return more than $170,000), then the higher premium will apply. This affects less than 5 percent of people with Medicare, so most people do not need to pay a higher premium. Each year, Social Security will notify you if you are required to pay more than the standard premium.
Here’s the official table for 2018
You Pay in 2018
If Your Yearly Income in 2016 was
$85,000 or less
$170,000 or less
You Pay in 2018
If You Are Married but You File a Separate Tax Return From Your Spouse and Your Yearly Income in 2016 was
$85,000 or less
You can pay the monthly Medicare Part B premium directly to CMS, or if you get Social Security, Railroad Retirement Board, or Office of Personnel Management benefits, you can make arrangements to have the premium deducted from your benefit payment. You can also arrange for an automatic deduction of your premium payment from your bank savings or checking account each month.
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. You are not required to sign up for Part B at the same time you sign up for Part A, and you might have perfectly valid reasons for not doing so. In order to make sure that your Medicare Part B coverage start date is not delayed, you should apply for Medicare Parts A and B three months before the month you turn 65. If you wait to enroll in Medicare until the month you turn 65, or if you wait until the last 3 months of your Initial Enrollment Period, your Medicare Part B coverage start date will be delayed.
If you are already getting Social Security benefits, you will automatically get both Part A and Part B 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 65th birthday. But you might not want to take Part B (and pay the premium). 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.
Why wouldn’t you want to sign up for Part B when you initially enroll in Medicare? You might actually have perfectly valid reasons for not doing so. This will generally depend on whether or not you or your spouse are still working at the time you first become eligible for Medicare and still have access to employer-provided group medical insurance coverage. 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. You could also delay signing for Part A, but most people don’t do this because Part A is free.
The rules under Medicare Part A, which forbid Social Security payments to eligible people who either do not sign up or who drop out of Medicare Part A, do not apply to Medicare Part B. So there is no Social Security penalty for delaying enrollment in Medicare Part B.
But 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. 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.
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. If you didn’t sign up for Part B when you were first eligible for Medicare, you might have to pay a late enrollment penalty if and when you sign up for Part B at a later time. This penalty will last as long as you have Part B. Your monthly Part B premium will go up ten percent for each full 12-month period that you could have had Part B but didn’t sign up for it. You will pay this higher premium as long as you have Part B.
But the late enrollment penalty generally applies only if you didn’t have any other employer-based medical insurance when you first became Medicare eligible. If you have employer-based medical insurance, it might make sense for you to delay enrollment in Part B and avoid paying the premium, since you can sign up for it at a later time penalty-free. But 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—if you don’t do so, you would have no coverage at all for your doctor’s bills and might get hit with the late enrollment penalty described above when you finally do sign up.
If you are on Medicare Part A but you delayed signing up for Part B because you already had adequate employer-provided medical insurance, and 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. You can sign up for Part B at 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. But if you don’t enroll in Part B during this 8-month Special Enrollment Period, you will have to wait until the next General Enrollment Period and might have to pay that late enrollment penalty.
If you lost your employer group health plan and have elected to continue to receive group health benefits under the provisions of COBRA for a limited period of time under circumstances of voluntary or involuntary job loss, you should still go ahead and enroll in Medicare Part B during the 8-month Special Enrollment Period that begins the month after your employment ends. 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. If you already have COBRA coverage when you enroll in Medicare, your COBRA will probably end. But if you become eligible for COBRA after you have already enrolled in Medicare, you are allowed to take the COBRA coverage if you so desire. However, your COBRA coverage will always be secondary to Medicare, so you certainly should make sure you have Medicare Part B.
If you have TRICARE (which is insurance for active-duty military personnel, military retirees, and their families) you must enroll in Medicare when you are first become eligible. But if you are on active duty, or are the spouse or dependent child of an active-duty service member, you do not have to enroll in Part B to keep your TRICARE coverage, so long as the service member remains on active duty. But before the active-duty service member retires, you must enroll in Part B to keep TRICARE without a break in coverage. After the active-duty service member retires, TRICARE coverage becomes TRICARE for Life, which acts as a supplement to Medicare, and TRICARE becomes secondary to Medicare. Medicare pays first for Medicare-covered services, and TRICARE will pay the Medicare deductibles and coinsurance amounts for any service that TRICARE covers that Medicare does not cover. So if you are on TRICARE and retired, you would be well-advised to have Medicare Part B
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.
What if you don’t have access to employer-based group health insurance? Perhaps you are self-employed and have purchased an individual health insurance policy, and you are perfectly happy with it. If so, you can enroll in Medicare when you become eligible and still keep your individual health insurance policy. In such a case, your individual policy will still be the primary payer of you medical costs, and Medicare will be secondary. So maybe you might choose to delay enrollment in Medicare Part B, since you really don’t need it yet. But what happens if you lose your individual health insurance policy? This could happen either because your health has changed, or because your insurance carrier no longer offers the policy. Do you now have access to a Special Enrollment Period during which you can apply for Medicare Part B to replace the lost coverage? Unfortunately, the rules are different for people who hold individual health insurance policies, because they are not considered as having medical insurance based on current employment. This means that if you lose your individual health insurance policy, you will have to wait for the next general enrollment period before you can sign up for Part B. This means that you could go for several months without coverage for your doctor bills or outpatient services, and may have to pay that late enrollment penalty.
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. During this period, you are guaranteed the right to purchase any available Medicare Supplementary policy, no matter what your previous health history is or if you have a preexisting medical condition. The practice of charging higher rates, imposing waiting periods, or denying coverage altogether based on one’s medical history is known as medical underwriting. Once this Medigap Open Enrollment Period starts, it cannot be delayed or repeated. If you miss your 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.
However, the limitations on Medigap enrollment described above generally apply only to those Medicare Part B recipients who are not getting group medical coverage from their employer or union. But if you had signed up for Medicare Part B while you were still employed and were getting group medical coverage from your employer or union, you probably don’t really need a Medigap policy. You would probably be wasting your money if you went ahead and bought a Medigap policy, and you don’t have to purchase one if you don’t want to. In this situation, you don’t have to worry about this six-month limit, and you can wait until your employment coverage actually ends before you need to apply for a Medigap policy. You will have a guaranteed right to buy any Medigap policy without undergoing medical underwriting when your employer coverage ends, either by retirement, by quitting, by getting laid off, or by your employer dropping its medical insurance altogether. 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.
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 will be 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.
You can certainly have Medicare Part A without having Medicare Part B, but can you get Part B without having Part A? The answer is, yes you can, but only under rather limited circumstances. As soon as you sign up for Medicare, if you have 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 automatically get premium-free Part A and you cannot turn it down. And there is probably no reason that you even would want to turn down Medicare Part A, because it is free. However, if you don’t meet these requirements for premium free Part A when you reach age 65, you can still get Part A if you agree to pay a premium. But suppose you don’t want to pay the premium, which means that you won’t get Part A. But you can still get Part B when you reach age 65, because there is a premium that must be paid, But if you just have Part B without having Part A you will not be able to get any Medicare Supplement or Medicare Advantage plans without having both A and B.
Furthermore, if you only have Medicare Part B, you are not considered as having minimum essential coverage under the Affordable Care Act. This means that you will have to pay a penalty for not having minimum essential coverage.
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. The program was initially known as Medicare+Choice, but in 2003 it was renamed Medicare Advantage.
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. In addition, some Medicare Advantage providers charge premiums. Medicare Advantage plans assume financial risk if payments from CMS and the premiums do not cover their costs. Since Medicare Advantage plans are assuming the risk from Medicare, this means that 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.
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. If you are covered by a Medicare Advantage plan, your doctors and providers submit their claims to the private insurance carrier, not to Medicare, and the carrier reimburses the provider for each covered service. However, you are still considered as formally being in Medicare, and you have the option each year during the Open Enrollment Period to keep your current Medicare Advantage plan, choose a different Medicare Advantage plan, or return to Original 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, including emergency and urgent care. However, each Medicare Advantage plan may charge different out-of-pocket costs and have different rules on how one gets services.
An especially attractive feature of the Medicare Advantage program is that many of these insurance plans offer additional benefits that Traditional Medicare does not cover, such as dental coverage, hearing and vision care, other health and wellness programs, even health club memberships. Unlike Traditional Medicare, most Medicare Advantage Plans also provide coverage for prescription drugs.
Medicare Advantage plans also offer 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. Once you hit that limit, the plan pays for all covered expenses. However, this yearly maximum out-of-pocket amount is generally different with different Medicare Advantage providers and can change every year, and you need to check carefully with each plan you are considering to see what the amount actually is. By law, the out-of-pocket maximum can be no more than $6700 per year. But in 2013, 48 percent of Medicare Advantage plans had a cap of $3400 or less, according to the Kaiser Foundation.
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 choose, you have the option of adding Medicare 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 actually want to. Alternatively, if you want to keep your Part D drug plan, you would have to choose a Medicare Advantage 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.
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 can’t use a Medigap plan to pay for any expenses you have under a Medicare Advantage plan, and there is probably no reason that you would ever want to purchase one. In any case, if you already 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 already have a Medigap policy and you join a Medicare Advantage Plan, you might want to drop your Medigap policy, since it will not pay for anything. But you might want to hold onto your Medigap policy for a few months until you are sure that you are happy with your new Medicare Advantage plan, because if you drop your Medigap policy, you might not be able to get it back.
These features can make Medicare Advantage plans quite attractive for people who are Medicare-eligible. Many Medicare Advantage customers report that their overall costs are quite a bit lower than they would have been if they had remained in Traditional Medicare and had purchased a Medigap supplementary policy plus a Medicare Part D drug plan. Today, about 20 percent of Medicare-eligible seniors get their care through Medicare Advantage 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. So long as you are in Medicare, you can enroll in a Medicare Advantage Plan no matter how old you are, and the plan cannot charge you a higher premium than other plan members in your area.
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. If you want to join a Medicare Advantage plan, you don’t do the enrollment through the government—you enroll with the private insurance carrier which offers the plan, 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.
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. 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 both a Medigap policy and for 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. 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.
Medicare Advantage plans must follow rules established by Medicare, and must cover all the services that Original Medicare covers, except hospice care and some care in qualifying clinical research studies. Original Medicare will cover hospice care and some costs for clinical research studies, even if you are in a Medicare Advantage plan.
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. Each plan can charge different out-of-pocket costs and may have different rules for how you get services, and these rules can change every year. Coverage and benefits can vary significantly from one plan to another. 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. It is important to closely review a Medicare Advantage plan’s benefits and limitations before you sign up.
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 network, 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 who is not in the plan your costs will be higher--sometimes your services may not even be covered at all.
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 Organization
Medicare Health Maintenance Organization (HMO) plans limit you to doctors and providers in the HMO’s network only, except in an urgent or emergency situation. In most cases, you must choose a primary care physician from among the doctors in the plan’s network. Your 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 from your gatekeeper, neither Medicare nor the HMO will pay for the services. Also, if you get health care from providers that are outside the plan’s network, you may have to pay the full cost.
You will generally need a referral from your primary care physician to see a specialist, and the specialist must be a member of the network. But certain services such as yearly screening mammograms, don’t require a referral. 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.
Most HMO plans provide prescription drug coverage. If your plan doesn’t, you would have to join an HMO plan that does provide prescription drug coverage, or could purchase a Medicare Part D prescription drug policy.
If your doctor or other health care provider leaves the plan’s network, your plan will notify you, and you can choose another doctor in the plan’s network.
· Medicare Point of Service (POS)
Some Medicare HMOs provide their participants with 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.
Similar to the HMO, the POS has a rather small copayment for medical services received from in-network providers, but if you get service from an out-of-network provider, you will probably be asked to pay more. Some POS plans have requirements that you get a referral from your primary care provider before the plan will agree to pay for any out-of-network care. Because there is some flexibility to see non-network providers, the premiums may cost more than those in a standard Medicare HMO plan.
· Medicare Preferred Provider Organization (PPO)
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. PPOs differ from HMOs in that they will allow their policyholders to see providers that are not in their network, but usually at extra cost. However, some states do not allow Medicare PPOs, and even for those that do, Medicare PPOs are often only available in certain areas.
The insurance company pays a specific level of benefits if their network providers are used, and often there are no deductibles and no copayments. Some PPO plans ask you to choose a primary care physician, but you do not need a referral from them to see a specialist or to be admitted to the hospital. 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, some PPOs require that non-emergency hospital visits and outpatient surgery must be pre-approved by the insurer in order to be covered.
Although PPOs will allow you to see any doctor or specialist that you choose, 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. Sometimes, PPO members who use out-of-network providers are obligated to fulfill a deductible before the insurance company will pay anything. Some even require that you bear the entire cost if you use an out-of-network provider. So you could be stuck with major out-of-pocket expenses if you are in a PPO and go out of network.
Most PPO plans cover prescription drug coverage. If you want drug coverage and your PPO plan doesn’t provide it, you would have to join a PPO plan that does offer prescription drug coverage. Alternatively, you could purchase a Medicare Part D prescription drug policy.
· Medicare Private Fee-For-Service (PFFS)
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. But not all medical providers are deemed providers, and it might happen that even those providers who accept Medicare will not accept PFFS insurance. If you do go to a provider who does not accept the terms of your PFFS 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.
Some PFFS plans contract with a network of providers. If your PFFS plan has a network, you can also see any of the network providers who have agreed to always treat plan members. You can still see an out-of-network doctor, hospital, or other provider who accepts the plan’s terms, but you may have to pay more. However, out-of-network doctors, hospitals, and other providers may decide not to treat you even if you have seen them before.
Some PFFS plans offer drug coverage, but some do not. If your PFFS plan does not offer drug coverage, you can join a Medicare Prescription Drug plan.
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 your provider could drop out of the plan at any time with little or no notice.
· Medicare Special Needs Plans (SNP)
Medicare Special Needs Plans (SNP) provide focused and specialized health care for specific groups of people, like those who have both Medicare and Medicaid, those who live in nursing homes or who require nursing care at home, or those who have certain chronic medical conditions such as diabetes, heart failure, or dementia. You can join a SNP at any time if you are eligible.
SNPs usually have networks, and you usually have to get your care and services from doctors or hospitals in the network. You generally need to choose a primary care physician, and you need to get a referral to see a specialist. However, certain services such as yearly screening mammograms do not require a referral. All SNPs must provide Medicare prescription drug coverage.
· Medicare Medical Savings Account (MSA).
Medicare Medical Savings Accounts 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 in an account 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, so if you want prescription drug coverage you will have to join a Medicare Prescription Drug Plan.
These plans are widely advertised in the media, but since they are not standardized, you need to do some legwork to figure out which plan is best for you. First, you need to determine what is the type of Medicare Advantage plan that you are considering—is it HMO, POS, PFFS, PPO or whatever? They work quite differently. Then you need to determine if the plan you are interested in is actually available in your area--not all Medicare Advantage Plans are available in all areas. Then you need to ask yourself if you can deal with the limitations and restrictions imposed by the networks of providers and doctors that most Medicare Advantage plans utilize. Before you sign up for a Medicare Advantage Plan, be sure to check to see if your doctor or hospital is in the plan, and you need to clearly understand what the rules are and determine if you can live within them.
Providers can join or leave your plan’s network at any time during the year. Your plan can also change the providers in the network at any time during the year. You may find to your horror that your doctor or provider is leaving your Medicare Advantage plan’s network, and you will have to scurry around to find another provider that is in the network. Otherwise, you will have to wait until the next open enrollment window to choose a different Medicare Advantage plan or return to Original Medicare. Your Medicare Advantage Plan could even decide to leave Medicare altogether, which means that you will have to join another Medicare Advantage Plan or return to original Medicare. You can choose another plan between October 15 and December 7, and your coverage will begin January 1 of the next year. You also have a special right to join another Medicare plan until February 28, 2019. You may have the right to buy certain Medigap policies within 63 days after your plan coverage ends.
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. You usually will have to pay coinsurance or copayments for the services you get, but your out-of-pocket costs might be lower than in Original Medicare, but your mileage may vary, depending on the type of Medicare Advantage plan that you obtain. But if you are unlucky, your out-of-pocket costs could actually be higher that they would have been if you had remained in Traditional Medicare and had purchased a Medgap policy and a Part D drug plan.
If you are in a Medicare Advantage plan, every year you will get an Annual Notice of Change (ANOC) and an Evidence of Coverage (EOC) from your plan. The ANOC will list any changes in coverage, costs, service area, and more that will be effective starting in January of the next year. The EOC will give details about what the plan covers, how much you pay, and more.
As for Medicare Part B, the enrollment rules for Medicare Advantage plans can be quite tricky and you need to be very careful. 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 Medicare Initial Enrollment Period when you first become eligible for Medicare, which begins 3 months before the month you turn 65, and ends 3 months after the month you turn 65. If you already have Part A and you got Part B for the first time during the General Enrollment Period (which is January 1 through March 31 of each year), you can also join a Medicare Advantage plan during that period. Otherwise, you would have to wait to enroll in a Medicare Advantage plan during the Open Enrollment Period, which is October 15 through December 7 (about a month earlier than it was in previous years). Anyone with Medicare can join a Medicare Advantage Plan during this Open Enrollment Period. Your coverage will begin on January 1 of the following year, provided that the plan gets your application by December 7. If you are getting Medicare due to a disability, you can join a Medicare Advantage plan during the 7-month period that begins 3 months before your 25th month of disability and ends 3 months after your 25th month of disability.
You can typically only switch or leave a Medicare Advantage plan during this annual Open Enrollment Period. In most cases, you must stay enrolled in your Medicare Advantage plan for the entire calendar year, starting from the date your coverage began. However, there are certain situations under which you can join, switch, or drop your Medicare Advantage plan during a Special Enrollment Period (SEP). These include situations where you move out of the plan’s service area, if you have (or lose) Medicaid, if you qualify for (or lose) Extra Help, or if you live in an institution (such as a nursing home). CMS will determine whether you qualify for an SEP. The length of the SEP and the effective date of the new coverage will vary, depending on the reason for the SEP.
If you are already in a Medicare Advantage plan and you want to switch to a different Medicare Advantage plan during the yearly Open 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. 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 if you end up going for two months or more without any sort of prescription drug coverage.
If you had enrolled in a Medicare Advantage plan during the annual Open Enrollment Period listed above, but shortly after the annual enrollment period is over you find that you are unhappy with your plan, you will have until February 14 of the next year to disenroll from that plan. If you do disenroll during this time, you will automatically be returned to Original Medicare, and you can’t change your mind and switch to another Medicare Advantage plan. 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. In any case, the rules do not permit an insurance carrier to sell you a Medigap policy as long as you are still in a Medicare Advantage plan. If you want to buy a Medigap policy after you drop your Medicare Advantage policy, you are guaranteed the right to buy any Medigap policy offered for sale in your state. But you have to apply for a Medigap policy no later than 63 days after your Medicare Advantage coverage ends. If prescription drug coverage was part of the Medicare Advantage plan that you are dropping, you will be allowed to enroll in a Medicare Part D plan during this time. Your coverage will begin the first day of the month after the plan gets your enrollment request.
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 use this special enrollment period only once in a year. In addition, you may lose your prescription drug coverage if you move from a Medicare Advantage Plan that has drug coverage to a 5-star Medicare Advantage Plan that doesn’t. In such a case, you would have to wait until the next Open Enrollment Period to get Medicare Part D drug coverage and might have to pay a late enrollment penalty.
Starting in 2019, between January 1 and March 31 of each year, you can make changes to your Medicare Advantage plan. During this new period, you can change to another Medicare Advantage plan, or you can disenroll from your Medicare Advantage plan and return to original Medicare. If you choose to do so, you are able to join a Medicare Prescription Drug Plan. If you enrolled in a Medicare Advantage Plan during your initial enrollment period, you can change to another Medicare Advantage plan or go back to Original Medicare within the first 3 months you have Medicare. But during this period you cannot switch from Original Medicare to a Medicare Advantage plan, you cannot join a Medicare prescription drug plan if you are in Original Medicare, and you cannot change Medicare prescription drug plans.
You also have some protections when it comes time to renew your Medicare Advantage policy, assuming that you want to keep it. 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.
But what happens if your Medicare Advantage plan stops serving your area or leaves Medicare altogether? If your Medicare Advantage 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 this happens, you will have to join another Medicare Advantage health plan during the Open Enrollment Period or return to Original Medicare. You can always choose another Medicare Advantage plan that becomes effective January 1 if you do so between October 15 and December 7, but if your current plan is non-renewing for the next year you also have a special right to join another Medicare Advantage plan until February 28 of the next year.
If you don’t choose to join another Medicare Advantage plan when you lose your Medicare Advantage policy, you will be automatically returned to Original Medicare. If you do so, 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. If you return to Original Medicare, you can also join a Medicare prescription drug plan, also within 63 days.
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. If you lose employer-provided coverage for yourself, you might also lose coverage for your spouse and dependents. In other cases, you may still be able to use the employer coverage in coordination with the Medicare Advantage plan you chose. Remember that if you drop your employer-provided coverage, you might not be able to get it back.
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. Some Medicare Advantage plans even offer zero premiums. 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. Because Medicare Advantage plans are not standardized, you need to do a lot of homework and leg work before you sign up for one.
Medicare Cost Plans
Medicare Cost Plans (MCPs) are a type of Medicare health plan available in certain areas of the country. They are not formally part of Medicare Advantage, but they are part of Medicare. Some MCPs provide both Part A and Part B coverage, but most of them cover only Part B, with Part A being covered under Traditional Medicare. Some of them also provide Part D drug coverage. These plans have some of the same rules and exceptions as Medicare Advantage Plans, but each plan has its own special rules and exceptions. You need to contact the plan you are interested in to get the full details before you sign up.
MCPs are managed-care plans based on the reasonable costs of delivering Medicare-covered services. Like Medicare Advantage plans, MCPs have networks, and a plan member can save quite a bit of money by using the in-network providers. They are especially useful in providing a managed care option in areas that have few or no Medicare Advantage plans.
Medicare Cost Plans differ from Medicare Advantage plans in how they handle out-of-network coverage--if a MCP member has Medicare Part A and Part B and they go to an out-of-network provider, the services are covered under Original Medicare, under which the member pays the Part A and Part B coinsurance and deductibles, just as if they had Traditional Medicare without a supplemental policy. The advantage that MCPs have over Medicare Advantage plans is that their subscribers have coverage for both in- or out-of-network services. However, the disadvantages that MCP members have over Medicare Advantage customers is that they are faced with the deductibles and the absence of any out-of-pocket maximum that go along with Traditional Medicare.
Another difference is in the enrollment rules. You can join a Medicare Cost Plan anytime that it is accepting new members, and you can leave a Medicare Cost Plan at any time and return to Original Medicare. You can either get your Medicare prescription drug coverage from the plan (if it is offered) or you can join a Medicare Prescription drug plan. Even if the Cost Plan offers prescription drug coverage, you can choose to get drug coverage from a different plan.
According to the General Accounting Office, it turns out that MCP beneficiaries who were in poor health generally had lower average out-of-pocket expenses as compared to those in Medicare Advantage plans. Conversely, beneficiaries in good health generally had higher expenses in MCPs.
Medicare Cost Plans enroll a relatively small number of beneficiaries as compared to Medicare Advantage plans. They are designed to provide a managed-care option in areas that traditionally have had few or no Medicare Advantage plans available. The law says that existing MCPs can only continue to operate until Medicare Advantage plans of sufficient enrollment serve the same area. If this happens, the MCP plan must either discontinue serving that area or else convert to a Medicare Advantage plan itself. But it has often happened that Medicare beneficiaries enrolled in these MCPs actually had multiple Medicare Advantage options available to them. It seems that insurers who manage these MCPs are reluctant to convert to Medicare Advantage since they are worried about assuming additional financial risk, citing planned future reductions to Medicare Advantage payments.
Programs of All-inclusive Care for the Elderly (PACE)
PACE is a Medicare and Medicaid program that is available in certain states. It allows people who would otherwise need a nursing-home level of care to remain in the community. It covers prescription drugs, doctor visits, transportation, home care, hospital visits, and even nursing home stays when necessary. There is never a deductible or copayment for any drug, service, or care provided by the PACE team.
In order to qualify for PACE, you need to be 55 or older, and be certified by your state as needing a nursing home level of care, and to be able to live safely in the community with the help of PACE services.
PACE provides coverage for prescription drugs, doctor visits, transportation, home care, hospital visits, and even nursing home stays when necessary.
If you have both Medicare and Medicaid, you will not have to pay a monthly premium for the long-term care portion of the PACE benefit. But since Medicaid is involved, there is rather severe mean-testing that must be met before one can join a PACE program. But if you have Medicare but not Medicaid, you will have to pay a monthly premium to cover the cost of the long-term care portion of the PACE benefit, and you will also have to pay a premium for Medicare Part D drug coverage.
Medicare Part D
This is the controversial 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.
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. In fact, if you already have a Medicare Advantage Plan that provides prescription drug coverage and you foolishly join a Medicare Part D plan, you will be disenrolled from your Medicare Advantage Plan and returned to Traditional Medicare.
You can also get a Medicare Part D plan to add drug coverage to some Medicare Cost Plans, some Medicare Private Fee For Service (PFFS) plans, as well as to Medicare Medical Savings Account (MSA) plans.
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.
Like most prescription drug plans, Medicare Part D does not pay the entire cost of your drugs. In 2018, the standard Part D benefit included an initial $405 annual deductible. . No Medicare Part D plan can have an annual deductible higher than this. Different Part D policies may have different deductible amounts, and some Medicare drug plans do not even have a deductible, but usually at the cost of a higher monthly premium.
After meeting the deductible, the beneficiaries in a standard Part D plan will have to pay 25 percent of the cost of covered Part D prescription drugs, with the Part D plan paying 75 percent of the cost.
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. Your plan will notify you of any formulary changes that affect drugs that you are taking.
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. There are generally two types of drugs, brand-name and generic drugs. Brand-name drugs are those which are still under patent and are available from only one manufacturer. Generic drugs are those which are equivalent to those of brand-name drugs which have gone off-patent and are now being offered by several different manufacturers. Generic drugs are generally cheaper than brand-name drugs. 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, depending on how expensive the drug is.
In some cases, if the drug you need is in a higher tier and your prescriber thinks that you really need that drug instead of a similar drug in a lower tier, you or your prescriber can ask your plan for an exception to get a lower copayment.
Many Medicare Part D plans use networks of pharmacies, and you must have your prescriptions filled at a pharmacy that is in the network, or the plan might not pay anything. However, most large pharmacies are in these networks, and you will have no problem if you go to one of these.
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.
Each month that you fill a prescription, your drug plan will mail you an Explanation of Benefits notice that gives a summary of your prescription drug claims and your costs. Review it carefully and check it for mistakes. Contact your plan if you have questions or find mistakes. If you suspect fraud, contact Medicare.
Some plans require that you or your prescriber must contact the drug plan before you can fill certain prescriptions. Your prescriber may need to show that the drug is medically necessary before the plan will cover it. Sometimes the plan will impose limits on how much of a certain drug you can get at any one time. Sometimes the plan will require that you must try one or more similar, lower-cost drugs before the plan will cover the prescribed drug. The Medicare drug plan will also perform additional safety checks, like checking for unsafe amounts of opiod pain medications.
There is a monthly premium that varies with different plans, with the average being about $32 per month. You pay this in addition to the Part B and Medigap premiums. 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. 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.
You can pay the Part D premium by check or by automatic withdrawal from your bank account. Alternatively, you can arrange to have the plan premium deducted from your Social Security check or from your Railroad Retirement Board payment--you need to contact your drug plan (not Social Security or the RRB) if you want your premium to be deducted in this manner. If you want to stop premium deductions and get billed directly, you need to directly contact your drug plan.
As in the case of Medicare Part B premiums, the premium that you pay for Part D coverage could be higher based on your income. Starting in 2011, people with higher incomes (the same as those listed above for Medicare Part B—over $85,000 for singles and over $170,000 for married couples) had to start paying higher premiums for Part D drug coverage. The extra premium that is charged depends on the modified adjusted gross income that was reported on your IRS Form 1040 two years prior to your application for a Part D policy. Usually the extra amount will be deducted from your Social Security check. If you are billed the amount by Medicare, you will need to pay the extra amount to Medicare, not your plan.
Here’s the official table for someone who applied for a Medicare Part D plan in 2018:
You Pay in 2018
If Your Yearly Income in 2016 was
Your plan premium
$85,000 or less
$170,000 or less
Your plan premium + $13.00
Your plan premium + $33.60
Your plan premium + $54.20
Your plan premium + $74.80
You Pay in 2018
If You Are Married but You File a Separate Tax Return From Your Spouse and Your Yearly Income in 2016 was
Your plan premium
$85,000 or less
Your plan premium + $74.80
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.
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.
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.
Some Medicare Part D drug plans will require that you and/or your prescriber contact the drug plan before you can fill certain prescriptions, such as those for painkillers. Your prescriber may need to show proof that the drug is medically necessary before the plan will cover it. There may be limits on how much medication you can get at one time, and there may be a requirement that you need to try one or more similar, lower cost drugs before the plan will cover the prescribed drug. But if you or your prescriber believe that these coverage rules should be waived, you can ask for an exception.
Even before you purchase a certain drug, you have a right to get a written explanation from your Medicare drug plan about your benefits, including whether the drug you want is covered, whether you have met the requirements to get the drug, how much you will have to pay out-of-pocket for the drug, and whether to make an exception to a plan rule when you request it. If the drug that was prescribed by your doctor isn’t on the formulary, you have the right to ask for an exception. You can also ask for an exception if you think that you should pay less for a higher-tier (i.e., more expensive) drug because you or your prescriber believes you cannot take any of the lower tier drugs for the same condition. If you are requesting an exception, your prescriber must provide a statement explaining the medical reason why the exception should be approved.
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. The coverage gap begins after both you and your drug plan have spent a certain amount for covered drugs. In 2018, this amount was $3750. Once the beneficiary has reached the coverage gap, they are now in the “donut hole”, and have to pay 100 percent of the cost of prescription drugs, Once you enter the donut hole, this can add up to a lot of money out of your pocket—sometimes thousands of dollars. You remain in the “donut hole” until your total out-of-pocket spending reaches the catastrophic coverage threshold, which was $5000 in 2018. This gets you out of the “donut hole”, and you now you pay only a coinsurance or copay for covered drugs for the remainder of the plan year. On January 1, the plan restarts again and you are back in the initial coverage state, which means that you could run into the same “donut hole” again
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, only 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.
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.
There is some hope for seniors who have found themselves trapped in the “donut hole”. 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, the “donut hole” will gradually be eliminated in stages over the next few years.
As a start, 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 have 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 counts as out-of-pocket spending, and helps the patient to get out of the coverage gap. In addition, discounts provided by drug companies is added to your out-of-pocket amount and thereby also counts as getting you out of the donut hole.
In 2013, while you were are in the donut hole, you got a 50 percent discount from the drug company on the cost of brand-name drugs and will have to pay only 47.5% of the plan’s cost for covered brand-name drugs (with the plan paying 2.5 percent of the cost). The 50 percent discount paid by the brand-name drug manufacturer still applied toward getting you out of the donut hole, but the additional 2.5 percent paid by your Medicare Part D plan will not count toward getting you out of the donut hole. You paid 79% of the plan’s cost for covered generic drugs (with the plan paying the remaining 21%. These discounts remained until you reached the end of the coverage gap.
In 2015, manufacturers continued to cover 50 percent of the cost of brand-name drugs, and the plan paid another 5 percent, providing seniors with total coverage of 55 percent while in the donut hole. Part D plans will pay 35 percent of the cost of generic drugs in the donut hole leaving seniors responsible for 65 percent.
Here are the numbers for 2018:
Standard Benefit FOR 2018
Beneficiary pays the first $405 (the deductible)
Initial Benefit Period
Beneficiary pays 25% of the next $3,345 (25% of $3,345 = $836)
Plan pays $2,508
Initial Coverage Limit = $3,750
That is, when the beneficiary and the plan have spent ($405 + $3,345 = $3,750)
The Donut Hole:
Beneficiary pays 100% of their prescription costs up to the Out-Of-Pocket threshold of $5000.
That is, when the beneficiary has spent $405 +$836 + $3,759= $5000
Beneficiary pays $3759 out-of-pocket while in the donut hole.
While in the donut hole, costs of plan-covered drugs are shared:
· Drug manufacturer provides 50% discount on brand-name drugs. The plan provides an additional 10% discount. So the beneficiary pays 40% of the cost of brand-name drugs
· Enrollees pay a maximum of 51% co-pay on generic drugs.
Note about True Out-of-Pocket (TrOOP) costs:
The total amount spent by the beneficiary while in the Coverage Gap (up to $3,725) includes:
· The 50% discount on brand-name drugs provided by the drug manufacturer
Payments made by the plan during the Coverage (10% on brand-name drugs) do not count toward TrOOP.
"Catastrophic Coverage" begins after the beneficiary has spent $5000 (this is the total out-of-pocket spending requirement, and includes any discounts paid by the drug company)
($405 + $836 + $3,759 = $5,000)
In other words, after the total spending (plan plus beneficiary) has reached $7,508
While in the Catastrophic Benefit Period, in 2017, beneficiaries will be charged $3.30 for those generic or preferred multisource drugs with a retail price under $66 and 5% for those with a retail price greater than $66. For brand-name drugs, beneficiaries would pay $8.25 for those drugs with a retail price under $165 and 5% for those with a retail price over $165. Minimum beneficiary cost sharing in Catastrophic Benefit Period: the greater of 5% or $2.65 (Generic drugs) and the greater of 5% or $6.60 (Brand-name drugs)
Over the next few years, coverage of generic drugs while in the gap will increase annually until it reaches 75 percent in 2020. Copayments for generic drugs are reduced by seven percentage points each year. Over the next few years, patients will receive more discounts for generic drugs as well as brand-name drugs until the gap finally fully closes in 2020. By then, cost sharing for both brand-name and generic prescription drugs will be the exactly the same during the “donut hole” as during the initial coverage period.
How do you enroll in a Medicare Part D prescription drug plan? Remember that you need to apply directly to the private insurance plan that offers the coverage, not to Medicare. Also you need to be sure that the plan you are considering is clearly marked as a Medicare Part D plan, which means that that it has been vetted and approved by Medicare, and meets the standards imposed by Medicare. 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.
Like Medicare Part B, the enrollment rules for Medicare Part D can be rather tricky, and you need to be careful. Your application will be vetted by CMS to make sure that you have complied with the Part D enrollment rules.
A lot depends on whether or not you already had creditable prescription drug coverage at the time you apply for Part D coverage. This is prescription drug coverage (for example through an employer or through a union) that is at least as good as Medicare’s standard prescription drug coverage. If you are participating in a drug plan through a current or former employer or through a union, through TRICARE, the Department of Veterans Affairs, Indian Health Service, or through health insurance coverage, your plan must tell you every year if your drug coverage is creditable coverage. 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. In certain cases, if you went too long after you became Medicare eligible without having any sort of creditable drug coverage before you applied for Part D coverage, you could be hit with a late enrollment penalty.
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 the month you turn age 65 and ending 3 months after the month 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 any prescription drug coverage before. Your coverage will begin the first day of the month after you ask to join the plan. If you joined during one of the 3 months before you turned 65, your coverage will begin the first day of the month you turn 65.
If you got Medicare Part B for the first time during the General Enrollment Period (which lasts from January 1 to March 31 each year), you can also join a Medicare drug plan at that time. But you might have to pay a late enrollment penalty if you had gone too long without any creditable prescription drug coverage at the time you applied for Part D
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 are on Medicare and 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. You have to be careful here--if you join a Medicare drug plan while you are still getting creditable drug coverage from your employer, you, your spouse, or your dependents, could lose your employer or union health coverage. If you drop your employer’s prescription drug coverage in favor of a Medicare drug plan, 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 employer coverage for yourself, you may also have to drop coverage for your spouse and dependents as well.
Generally, you must stay enrolled in your Medicare drug plan for the entire year and can only make changes during the Yearly Election Period (which is between October 15 and December 7), but there are Special Enrollment Periods under which you are allowed to join, switch, or drop your Medicare Part D drug plan outside the Yearly Election Period if you meet certain requirements. Examples are if you move out of your plan’s service area, if you live in an institution such as a nursing home, if you have (or lose) Medicaid, or if you qualify for (or lose) Extra Help.
If you are Medicare eligible and you lose your employer-provided prescription drug coverage because you got laid off or because your employer stopped providing this coverage, you will have two months to join a Medicare Prescription Drug plan after you lose your coverage. In addition, if you qualify for Extra Help, you can join a Medicare Drug Plan any time.
If you are getting Medicare due to a disability, you can join a Part D plan during the 7-month period that begins 3 months before your 25th month of entitlement for disability benefits and ends 3 months after your 25th month of eligibility for disability. Your coverage will begin the first day of the month after you ask to join the Part D plan. If you join during one of the 3 months before you first get Medicare, your coverage will begin on the first day of your 25th month of entitlement. You will get another chance to join during the 7-month period that begins 3 months before the month you turn 65 and ends 3 months after the month you turn 65.
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 health insurance coverage (but usually at extra cost). If you are Medicare-eligible, you are well-advised to take Part B because COBRA is not considered as insurance based on current employment. However, if are already on Medicare Part B, you have the option to go onto COBRA when your employment ends if you so desire. If your COBRA coverage includes creditable prescription drug coverage, you may keep it instead of buying a Part D drug plan. You will have access to a special enrollment period lasting two months to join a Medicare drug plan without paying a penalty when that COBRA coverage ends.
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. These ratings are updated every autumn, and can change every year. But you can only switch to a 5-star Medicare Prescription Drug Plan once a year, and you can only do so if one is available in your area.
Like Medicare Part B, there is a penalty for delaying enrollment in a Medicare Part D prescription drug plan after you first become eligible. Whether or not you have to pay a late-enrollment penalty is decided by CMS when you apply for Part D coverage. Generally, the penalty is applied if you went for too long without any sort of creditable prescription drug coverage after you became eligible for Medicare.
You may have to pay a late enrollment penalty if you are on Medicare and had a period of 63 or more days in a row when you didn’t have Part D or any other creditable prescription drug coverage. However, this penalty does not apply to anyone who already has creditable prescription drug coverage through a job, via a retirement plan, through a spouse’s insurance plan, or through the Veterans Administration. In such a situation, you can wait to apply for Part D until you actually need it without having to pay any penalty. In any case, you should not go 63 days or more in a row without either having creditable drug coverage or being in a Medicare drug plan, or else you could be hit with this late enrollment penalty when you do sign up for a Part D drug plan.
When you apply to join a Medicare drug plan, and the plan thinks that you have gone at least 63 days without other creditable prescription drug coverage, the plan will send you a letter that asks for evidence of any drug coverage that you had. If you can’t prove that you had creditable prescription drug coverage for this period, you might end up having to pay that late enrollment penalty
The cost of the late enrollment penalty depends on how long you did not have creditable prescription drug coverage after becoming eligible for a Medicare drug plan. Currently, the late enrollment penalty is calculated by taking one percent of the “national base beneficiary premium ($35.10 in 2018) and then multiplying by the number of full, uncovered months that you were eligible but did not join a Medicare drug plan and went without other creditable drug coverage. For example, if you went 15 months after becoming eligible for Medicare and did not have creditable coverage before applying for a Medicare drug plan, the penalty would be $5.27. This amount is rounded to the nearest $.10 and added to your monthly premium This penalty is permanent—you would have to pay it for as long as you have Medicare prescription drug coverage.
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 drug coverage offered by these earlier Medigap plans is not creditable, which means that a beneficiary who delayed enrollment in a Part D plan in favor of keeping a Medigap plan that covers prescription drugs faces late enrollment penalties when they finally do sign up for Part D if that Medigap plan’s drug coverage was not as good as Part D’s standard benefit.
Can you keep one of these earlier Medigap plans that offered prescription drug coverage and also join a Medicare Part D drug plan? Yes you can, but if you do join a Medicare drug plan while you still hold a Medigap policy that covers prescription drugs, your Medigap insurance carrier must remove the prescription drug coverage from your policy and adjust your premiums accordingly. You can’t have both types of coverage at the same time.
What happen if you want to change your Medicare 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 (October 15-December 7). 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. You will get a letter from your new Medicare drug plan telling you when your coverage with the new plan begins.
Suppose that you want to drop your Part D drug plan and you do not want to join a new Part D plan. You might want to do this if you or your spouse return to work and are now getting creditable drug coverage through the employer. You can do so only during the Yearly Election Period described earlier, and you need to contact your plan or call Medicare and formally disenroll. But if during this time you drop your Part D drug plan and you don’t have any creditable drug coverage, and you decide that you want to join another Medicare drug plan at a later time, you will have to wait for the next Yearly Election Period and will probably have to pay that late enrollment penalty.
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 during the next Yearly Election Period (between October 15 and December 7). Your coverage will begin on January 1 of the next year. But if you don’t join another Part D plan, you will not have Medicare prescription drug coverage, and could get hit with that late enrollment penalty when you finally do sign up.
The Federal Employee Health Benefits (FEHB) program covers current and retired federal employees, and their eligible dependents. FEHB plans usually include creditable prescription drug coverage, and you don’t need to join a Medicare drug plan if you don’t want to. But if you do decide to join a Medicare Part D drug plan, you can keep your FEHB plan. In most cases, the Medicare Part D plan will pay first.
If you are a veteran, you may be able to get prescription drug coverage through the Department of Veterans Affairs. If you like, you can join a Medicare Part D drug plan, but you can’t use both types of coverage for the same prescription at the same time. Active duty military members, military retirees, and their dependents who are on TRICARE may also have prescription drug coverage, but most people with TRICARE who are entitled to Medicare Part A must also have Part B in order to keep their TRICARE prescription drug benefits. If you have TRICARE, you don’t need to join a Medicare Part D drug plan if you don’t want to.
If you have limited income and resources, you may qualify for assistance in paying some of your healthcare and prescription drug costs. Extra Help is a Medicare program designed to help such people pay Medicare prescription drug costs, provided that they qualify. The program is means-tested--in 2018, these limits were: Single person—annual income less than $18,210 and resources less than $14,100, married person—annual income less than $24,690 and resources less than $28,150 Resources include money in checking or savings accounts, stocks, bonds, mutual funds, or Individual Retirement Accounts. But resources do not include your home, car, household items, or life insurance policies.
Extra Help is not available in Puerto Rico, the US Virgin Islands, Guam, the Northern Mariana Islands, or American Samoa.
You automatically qualify for Extra Help if you have Medicare and if you also have full Medicaid coverage, or if you get help from your state Medicaid program in paying your Part B premiums (in a Medicare Savings Program), or if you get Supplemental Security Income (SSI) benefits.
If you qualify for Extra Help, you will get assistance in paying the Medicare Part D monthly premium, the yearly deductible, coinsurance and copayments. There is no coverage gap and there is no late enrollment penalty. You can switch plans at any time. Those people on Medicaid or those getting Supplemental Security Income automatically qualify for Extra Help. But one must join a Medicare drug plan to use this Extra Help—if you don’t join one, Medicare may enroll you in one so that you will be able to use this Extra Help. If you are on Extra Help and you do not want to join a Medicare drug plan because your employer or union already offers creditable drug coverage, you should contact Medicare and tell them that you do not want to join a Part D drug plan. If you still qualify for Extra Help and you still have creditable drug coverage, you will not have to pay a penalty if you join a Part D drug plan at a later time.
For people on Extra Help, drug costs in 2016 will be no more than $2.95 for each generic drug and $7.40 for each brand-name drug.
Medigap Supplementary Insurance Policies—“Medigap”
Original Medicare pays for much, but not all, of the costs for covered health care services and supplies. Once the deductible is met, Original Medicare typically pays only about 80 percent of medical costs. 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 helps to pay for expenses that Medicare does not cover because of deductibles, copayments, or coinsurance amounts or other limits under the Medicare program.
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.
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. In order to purchase a Medigap policy, you need to be already enrolled in both Medicare Part A and Medicare Part B, and you must pay the private insurance company a monthly premium in addition to the monthly Part B premium that you pay to Medicare. There are several different types of Medigap policies available, identified in most states by letters A through D, F through G, and K through N, and the premium cost will generally depend on which type of policy you choose. You need to contact the insurance company to find out how much the premium will cost for the type of policy you choose. However, in Massachusetts, Minnesota, and Wisconsin, Medigap policies are standardized in a different way.
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. Just as with Original Medicare, you don’t need to submit claims to your Medigap insurance company—your doctor and other healthcare providers initially submit the claim to Medicare, and once Medicare pays its share of the bill Medicare then automatically transmit the claim to the supplemental carrier to pay its share of what is left. Your medical provider does not need to deal directly with your Medigap carrier and does not even need to know who they are—all of these details are handled by CMS when the initial Medicare claim is submitted. Medigap plans (with the exception of Medicare SELECT) do not use networks, and you can use any doctor or provider who accepts Medicare.
However, the coordination between Original Medicare and secondary Medigap policies often does not work very smoothly. This coordination can often be quite complicated and it sometimes happens that there are paperwork screw-ups somewhere along the line, and the payment of claims can often be delayed. Sometimes Medicare has bad information on file and sometimes the secondary Medigap payer just can’t or won’t process the claims correctly. There are many times that the provider has to file a claim to the secondary. Sometimes the provider is unaware that the Medicare patient actually has a Medigap policy. It is always beneficial for the provider to have the secondary insurance information on hand – if for some reason the secondary payment is not received, without the patient’s coverage information, they would have no way of contacting the insurance company.
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. This means that Medigap insurance policies will not cover 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.
However, some Medigap policies also offer coverage for services that Original Medicare does not cover, such as medical care when you travel outside the USA. Some Medigap policies even offer caps on annual out-of-pocket expenses, a feature which Original Medicare does not provide
Medigap offerings have been standardized by CMS since 1992, but some seniors who had purchased Medigap policies before that date may still be on non-standard plans, and they may keep them if they so choose.
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. However, the drug coverage offered by most of these earlier Medigap policies is not considered as being creditable coverage, and you could be hit with a late-enrollment penalty if you try to sign up for a Part D drug plan at a later time. 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.
Some employers provide medical insurance policies to their retirees, but very often retiree medical coverage is not at all like Medigap, and often provides little or no supplementary coverage to retirees who are on Medicare, and might be worth little or nothing to you. In such cases you need to go onto the insurance market and purchase your own Medigap policy. You need to check with your company’s benefits experts to be sure. Once you have obtained a Medigap policy, you can probably drop your employer’s retirement medical insurance policy.
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.
There are originally 11 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.
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:
Medicare Part B coverage:
All of the Medigap policies cover the services listed above, but some of them provide additional benefits as well, as listed below
*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.
However, Medigap policies are standardized in a different way in Minnesota, Massachusetts, and Wisconsin. These are known as “waiver” states. They provide different kinds of Medigap policies that are not designated by letters, but they provide comparable benefits to standardized plans and have a different system that includes basic (“core”) and optional (“rider”) benefits
It is important to compare Medigap policies, because costs can vary widely. You need to search out the plan that is best for you.
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 at least 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 cost of the premium. There can be a big difference in the premiums that different insurance companies charge for exactly the same coverage.
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, but they are actually issued and sold by the UnitedHealthcare insurance carrier, which pays a fee to use 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 policies 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 one of the standard Medigap policies. Also, 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, G, K, M or N to replace it.
Since Medigap is private insurance and is not sponsored by the federal 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) introduced major changes in how Medigap works, and some of the standardized Medigap plans went away and some new ones were created. Starting June 1, 2010, Plans E, H, I, and J were no longer 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 were 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 had 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 hospital care 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 were 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 is similar to Plan D, and pays 100% of the Part B coinsurance, but there is a $20 copayment for doctor visits and a $50 copayment for emergency room visits that do not result in an inpatient admission. It is currently projected that the co-pay system will take effect after the Part B deductible is met. Neither Plan N nor M cover the Medicare Part B deductible nor the Part B excess charges, but there are no doctor’s office copays or coinsurance after you meet the Part B deductible.. However, they both provide foreign travel emergency coverage.
The result of these benefit changes is the creation of a whole bunch of new standardized 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.
The most popular Medigap plans being sold in non-waiver states are F, then G, followed by N.
What do you have to do to obtain a Medigap policy? Remember that you don’t apply for a Medigap policy through Medicare, and you need to apply directly to the private insurance company that offers the policy you are interested in. However, your application will be vetted by CMS to make sure that you have complied with the rather complicated enrollment rules for Medigap. These rules are even trickier than are the rules for enrolling in Medicare Part B, and you need to be extremely careful. Here are the rules:
In order to obtain a Medicare Supplement insurance policy, you must have both Medicare Part A and Part B, and you must pay the private insurance company a monthly premium for your Medigap policy, in addition to your monthly Part B premium. Since Medigap policies are no longer allowed to offer prescription drug coverage, you will have to purchase a Medicare drug plan to obtain drug coverage, which means that you will need to make two separate premium payments for your coverage.
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 Medigap 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, you might be subjected to medical underwriting, and even if you are able to buy one, the premium may cost more. Some states have additional open enrollment periods.
If you had delayed enrolling in Part B because you or your spouse had group health coverage based on current employment, your Medigap Open Enrollment Period will not start until you actually sign up for Part B.
Can a person under age 65 who is on Medicare because of a disability purchase a Medigap policy to help pay for things that traditional Medicare does not cover? Unfortunately, Federal law does not require insurance companies to sell Medigap policies to Medicare-eligible people who are under 65, and how Medigap is handled for people under age 65 will vary from state to state. Some states do require insurance companies to offer at least one type of Medigap policy for people under age 65 who are Medicare-eligible, but other states do not. Nevertheless, some insurance companies may voluntarily opt to sell Medigap policies to Medicare recipients who are under age 65, but such policies are generally much more expensive than equivalent Medigap policies sold to Medicare recipients over age 65. In addition, these carriers can use medical underwriting to jack up the premium costs, unless state law explicitly forbids it.
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.
What happens if you went ahead and enrolled in Medicare Part B while you still had employer-provided medical insurance coverage, but didn’t get a Medigap policy? Does the 6-month Medigap Open Enrollment limit apply to you? Do you have to apply for a Medigap policy even though you probably don’t need one? 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 Parts A and B 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, or if you find that your employer’s plan is becoming too expensive or no longer meets your needs, you would be eligible to purchase a Medigap policy to replace this coverage. Again, 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
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, unless you are switching back to Original Medicare.
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 if you return to Original Medicare within 12 months after joining your Medicare Advantage plan. If you had a Medigap policy before you joined your Medicare Advantage plan, you might be able to get your same policy back if the company still sells it. If it is not available, you can buy another Medigap policy. However, the Medigap policy can no longer offer prescription drug coverage even if you had it before, but you may be able to join a Medicare prescription drug plan. If you had 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.
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.
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 had a Medigap policy that offered drug coverage, you may keep it, but the drug coverage offered is often not considered as being creditable. This means that if you delay enrollment in a Part D plan in favor of keeping your Medigap plan that covers prescription drugs, you might face late enrollment penalties when you finally do sign up for Part D.
Consequently, if you have one of these older Medigap policies, you might want to consider dropping it and switching over to one of the newer Medigap policies, none of which provide drug coverage. At the same time, you could enroll in a Medicare Part D plan to get your drug coverage. But here again, this can be tricky. If you had enrolled in Medicare Part D prior to May 15, 2006, you were guaranteed the right to switch over to a new Medigap policy, one that does not have prescription drug coverage. But 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. However, if a beneficiary really wants to keep their older Medigap policy, they could avoid all this hassle by simply removing drug coverage from their current Medigap policy, retaining all the other benefits after they go onto Part D.
Can you switch from one Medigap plan to another one? If you move out of your Medigap insurance carrier’s service area, if your carrier goes out of business, or if the carrier stops offering Medigap insurance, you have a guaranteed right to buy another Medigap policy to replace the original one. But perhaps you are simply 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.
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 just before the expiration date of their current Medigap policy, which is usually at the end of the year. However, 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.
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 having to undergo medical underwriting.
In most cases, it is entirely up to each medical insurance company to decide whether it will offer beneficiaries who have existing Medigap 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.
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.
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 purchased after 1992 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.
· Community-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.
· Issue-Age Rated. 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.
· Attained-Age Rated. 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 relatively low for younger buyers, but they will go up fairly rapidly as the customer get older. These may be the least expensive at first, but they can eventually become the most expensive as you get older. It has been argued that 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.
However, it is debatable that any one rating option is best, and the relative advantages of the various rating options will vary from state to state and from one insurance company to another. Issue age rating is required in Florida, but rates are not necessarily less overall (long term) than in other states. In Wisconsin, only two companies issue age rate. They often phase out plans. They will close a block of businesses, and then open up a new one - usually under a sister company filing, with the new plan costing less than the closed plan. Physicians Mutual and Physicians Life have done that. Closing a block of issue age rates does not help support current customers, since sales have been closed. The block of business ages and decreases in size. Some plans run good. Others don't.
AARP is considered community rated. However, the 36% discount for joining at age 65 is taken back by 3% per year up to age 77. When you do the math, the rates increase 4+% each year - which is the same as age rating. As the base rate goes up each year, the percentage inflationary increase raises also.
What happens if your Medigap provider decides to stop participating in Medicare for the coming year? Plans that choose to leave Medicare entirely or those that decide to stop serving certain areas are known as “non-renewing”. Your coverage will end after December 31. Your plan will send you a letter about your options before the Medigap Open Enrollment Period starts. If so, you can choose another Medigap plan during the Medigap Open Enrollment Period between October 15 and December 7. Your coverage will start on January 1. You will also have a special right to join another Medigap plan until February 29.
There has 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. One has to remember that private insurance companies are for-profit companies, and must show a profit or they will not be in business for very long. This means that the money that they pay out in claims must never exceed the premiums that they bring in plus the subsidy they get from Medicare, so there is every temptation to skimp on the payment of claims.
Medicare Advantage plans are supposedly required to provide a benefit package that is as least as good as that of Original Medicare and must cover every benefit that Medicare covers, but the plans do not have to cover every benefit in the same way. For example, plans may pay less for some benefits and offset this by offering lower copayments for other services. Members may experience difficulty in getting emergency or urgent care, especially if they have gone out-of-network. Members have to follow a rather complicated set of rules to get covered care, and members can be restricted in their choice of doctors and hospitals. Sometimes the Medicare Advantage plan limits coverage only to your home state or home town, and it can sometimes be difficult to get care while you are away from home. Depending on the plan you choose and the area where you live, the list of hospitals and doctors that you are allowed to see can be rather restricted, and you could have a problem if you want to visit a specialist or facility that is not in the network.
Starting in 2011, Medicare Advantage plans cannot charge their subscribers more than Original Medicare for certain services such as chemotherapy or dialysis, but they can still charge more than Original Medicare for others, such as home health care and inpatient hospital services. So it can often be a crapshoot as to how much your out-of-pocket costs will be if you have a Medicare Advantage policy.
Some of these Medicare Advantage plans make a lot of attractive promises to attract new customers, but they often fail to deliver on what they promise. Plan members often encounter a formidable obstacle course when they actually try to get care and coverage. 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 Traditional Medicare would have paid the same doctor for the same services. Some will even deny coverage for medically necessary services. Often, coverage is denied if the patient fails to get prior authorization from a gatekeeper for a medical procedure. Most people don’t know how to appeal coverage denials, and really do not know how to navigate a private insurance company’s system. They just don’t know how to fight an insurance company and may just give up and pay or do without the service altogether.
Sometimes it turns out that Medicare Advantage plans are really only beneficial to those enrollees who are relatively healthy and need few services, but when they become critically ill, they find that coverage can become difficult to obtain and more expensive than it would have been under Traditional Medicare. Many Medicare Advantage enrollees, who were initially attracted to these plans by extras such as gym memberships, vision care, or dental coverage, are finding that their insurance carrier is somewhat less willing to cover them when they become critically ill, and they often get a hassle when they try to obtain coverage for things such as skilled nursing home care. Sometimes some distant gatekeeper who has never seen or examined the patient—not a medical doctor—will decide whether or not the care is “medically necessary”. Often the only way than get coverage for the care they need—and at a facility of their choice—is to return to Traditional Medicare.
Many Medicare Advantage plans offer extra services and benefits that are not provided by Traditional Medicare, such as dental coverage, vision care, and health club memberships. These extra benefits vary widely from plan to plan, and it sometimes happens that people find that the extra benefit does not cover as much as they thought it would when it comes time to actually claim it. Sometime it happens that these extra services come at the cost of reduced coverage of ordinary Medicare-eligible expenses. Because of this, it might turn out that your costs for a hospital stay or a medical procedure could be a lot higher than they would have been if you had been in Traditional Medicare with a Medigap supplement and a Part D drug plan.
Emergency or urgent care can sometimes be a problem under Medicare Advantage. Although Medicare Advantage plans are required by law to cover emergency and urgent care regardless of whether the provider is in the network or within the plan’s service area, it often happens that members are denied payment for out-of-network or even in-network emergency care or are being denied authorization to get urgent care while away from home, and they have to carry out a lengthy fight with their insurance carrier in order to get any sort of coverage.
Continuity in health care coverage is sometimes a problem for Medicare Advantage customers, either because their provider is not in the network or gets dropped from the network for whatever reason. A patient in a Medicare Advantage plan can lose their doctor or provider at a moment’s notice, and they will have to scurry around to find another provider who will accept their insurance, one who probably knows little or nothing about the patient’s medical history or special needs. This sort of continuity can be very important to many patients, and to lose access to a doctor who is intimately familiar with their needs can be very upsetting.
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. Recognizing that there is a problem here, the CMS announced that in the year 2015 a Medicare Advantage participant will be allowed to leave their plan outside the yearly election period if a “significant” number of doctors or other health care providers have dropped out of their plan. CMS will make a case-by-case determination based on the number of beneficiaries who are affected by provider withdrawals from their Medicare Advantage plans, whether they received adequate and timely advance notice was given, the size of the plan’s service area, the time of year during which the withdrawals occurred, along with other factors. Once the CMS decides that the members should be allowed to leave their Medicare Advantage plan, the agency will require that the plan notify their members of their new options. A three-month window will then open, during which the affected parties will be able to join Traditional Medicare or sign up for another Medicare Advantage plan that includes their providers.
Some Medicare Advantage plans provide a limit on their subscribers’ annual out-of-pocket expenses, providing some protection against catastrophic costs, but they generally don’t advertise that benefit very widely, lest they attract sicker members who need costly care. In addition, these limits on out-of-pocket costs tend to be rather high, often several thousand dollars.
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. Insurance companies come and go, they merge or go out of business, and they change the benefits that they cover. 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. Your coverage under the plan will end after December 31 of that year. You would have to find another Medicare Advantage plan which serves your area and meets your needs, and if you cannot find one you would have to return to Traditional Medicare and purchase a Medigap policy.
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. It is now illegal for Medicare Advantage plans to call you on the telephone or to ask you for personal financial information (such as credit card numbers) over the phone. It is also illegal for them to call you or to come to your home uninvited to sell Medicare products.
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.
Medicare Advantage plans generally have higher administrative costs than does Traditional Medicare. 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. This extra money goes towards covering administrative costs as well as for profits for the insurance company and its shareholders.
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. Some members of Congress want to reduce the government's payments to Medicare Advantage plans down to the level of traditional Medicare, and 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, about 7 percent more than Medicare spends on other Medicare Advantage plans. 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 plus a Part D drug plan. 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.
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 admitted, 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 ended this practice, and now requires 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. When Medicare Advantage was first introduced, a lot of insurers jumped into the program, only to quickly find out that they could not continue to serve the aged population and still make a profit. This caused a lot of them to drop out of the program. In order to entice them to stay in the program, Medicare started paying these private insurers a bonus every year in the form of overpayments. These overpayments have been sufficient to keep most of the Medicare Advantage insurers in the program and to keep their investors and stockholders happy. But by 2009 these overpayments were costing Medicare billions of dollars every year. The Medicare Payment Advisory Commission estimated that in 2009 alone, Medicare paid private insurers 14 percent per beneficiary more than it would have cost the government to cover them under Traditional Medicare. Under the provisions of the Patient Protection and Affordable Care Act, these 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.
Starting in 2014, Medicare Advantage plans will be 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 health club 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. Whether a Medicare Advantage plan will end up costing you more or less than Traditional Medicare would can depend on many factors, including your health, your budget, your tolerance for financial risk, as well as on which plan you choose.
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. At that time, I didn’t really understand how the system worked, and this turned out to be a mistake. 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. I had assumed that this Lucent plan was similar to a Medicare supplementary insurance policy, but to my surprise, I found out that it was definitely not. 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 was a Private Fee For Service Medicare Advantage plan, administered by the UnitedHealthcare Insurance Company. The SecureHorizons MedicareDirect plan also provided prescription drug coverage, but the coverage was 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) required 20 percent coinsurance after the deductible was met. There was 100 percent coverage for home healthcare. The plan covered 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 without a supplement, 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 plus a Part D drug plan. 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 did accept the SecureHorizons MedicareDirect plan’s coverage, but he warned me that this might change in the future. Based on all the negative stuff I had heard about Medicare Advantage PFFS 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 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, at 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.