Medicare

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 is a federal public health insurance program for the elderly and qualified disabled. It is a financing program not a health delivery system. It relies on private health providers to deliver health care to program beneficiaries. Private providers are paid by Medicare, either directly via Original Medicare or through an intermediary system of private insurers: Medicare Advantage (MA) or stand-alone prescription drug plans (PDPs).

Overview
Medicare was established in 1965 under Title XVIII of the Social Security Act to provide health insurance for elderly Americans. Prior to Medicare, nearly half the elderly lacked health insurance. Today, health insurance for the elderly is nearly universal. Medicare was expanded in 1972 to provide health insurance to non-elderly disabled individuals. In total, Medicare provides coverage to 62.6 million Americans: 54.1 million aged 65 and older and another 8.5 million non-elderly with permanent disabilities [as of 2020]. Medicare spent $915.4 billion in FY 2020 out of total Federal spending of $6.6 trillion.

Medicare is organized into four parts: A, B, C, and D.

Part A is hospital insurance, funded by a 2.9% payroll tax (shared equally between employer and employee). Part B is physician and outpatient coverage, funded by premiums and general revenue. Parts A and B are called Original Medicare.

Part C is the Medicare Advantage program, under which private insurers bundle Parts A, B, and in some cases D, and receive a fixed payment from Medicare to provide coverage for each enrollee. Medicare Advantage enrollees must still pay the Part B premium.

Part D is the prescription drug benefit, funded by general revenue and beneficiary premiums. Part D benefits can be obtained in two ways: either (1) purchased on a stand-alone basis, or (2) when combined with Part C.

Table 1 shows the various coverage options.

Health savings account
If you have a Health savings account (HSA), contributions must stop when you enroll in Medicare. Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. Your contribution limit for this year is reduced by the number of months you become ineligible to contribute to the HSA.

If you delayed applying for Medicare and later your enrollment is backdated, any contributions to your HSA made during the period of retroactive coverage are considered excess contributions and will result in a tax penalty.

Medicare Parts B, C, and D premiums, related IRMAA premiums, and any Medicare-related deductibles, co-pays, or coinsurance payments are all HSA-eligible expenses. However, premiums for Medicare Supplement plans are not HSA-eligible expenses.

Prescription drug plans
In addition to MA plans that offer Part D drug benefits, another private plan type under Medicare is the stand-alone prescription drug plan (PDP). PDPs operate in multi-state regions. Most operate nationally.

PDPs may offer a basic benefit that includes a donut hole or coverage gap (wherein a beneficiary pays 25% of drug costs between the initial coverage and the catastrophic coverage range). Other PDPs offer enhanced coverage which may include generic or brand coverage in the donut hole and/or a reduced deductible. In 2021, 48 million of the more than 62 million people covered by Medicare are enrolled in Part D plans.

There is a late enrollment penalty (a permanent addition to your Part D premium) if you don't have Medicare or other creditable drug coverage within 63 days from the initial enrollment.

A Prescription Drug Plan should be seriously considered by an Original Medicare beneficiary, as certain prescriptions can be very expensive (particularly a prescription course for the treatment for cancer) and the Catastrophic Coverage provided by a Prescription Drug Plan (and primarily funded by the Federal Government) would be very worthwhile in such a case.

Even an Original Medicare beneficiary who does not normally take prescriptions should seriously consider at least an inexpensive Prescription Drug Plan when first eligible, due to the Federally-funded Catastrophic Coverage provided and the lifetime penalty associated with late sign-up to a Prescription Drug Plan.

Medicare Advantage
Medicare Advantage plans, sometimes called “Part C” or “MA Plans,” are offered by Medicare-approved private companies that must follow rules set by Medicare. Most Medicare Advantage Plans include drug coverage (Part D). In most cases, you’ll need to use health care providers who participate in the plan’s network.

The plans set a limit on what you’ll have to pay out-of-pocket each year for covered services. This limit is called the Maximum Out-Of-Pocket (MOOP) cost and includes all cost-sharing (deductibles, coinsurance, and copayments) for Parts A and B covered services received from in-network providers. Part D cost-sharing does not count towards the MOOP.

Some plans offer non-emergency coverage out of network, but typically at a higher cost.

The most common types of plans are:


 * Health Maintenance Organization (HMO) Plans
 * Preferred Provider Organization (PPO) Plans
 * Private Fee-for-Service (PFFS) Plans
 * Special Needs Plans (SNPs)

Other less common types of Medicare Advantage Plans that may be available include HMO Point Of Service (Hmopos) Plans and a Medicare Medical Savings Account (MSA) Plan.

With a Medicare Advantage plan, healthcare decisions made by you and your doctors are subject to the approval (or denial) of the insurance company offering the Medicare Advantage plan. In contrast, with Original Medicare and a Medicare Supplemental (Medigap) plan, you can receive any Medicare-approved healthcare service without prior authorization from an insurance company.

MA plans typically have lower up-front premiums than Original Medicare plus Medigap plus Part D; but, depending on healthcare utilization, the cost of a MA plan can equal or exceed that of Original Medicare plus Medigap plus a stand-alone PDP. This is especially pertinent if the MA insurance company denies coverage for a healthcare service that an enrollee chooses to have, and the enrollee becomes responsible for the entire cost of the non-covered service.

The number of beneficiaries enrolled in MA plans has grown to 25 million in 2020. Between 2011 and 2020, private plan enrollment grew by 12.7 million or 103 percent, compared to growth in the overall Medicare population of 28 percent for the same period. As of 2020, 40% of beneficiaries are enrolled in such plans at a cost of $11,676 per enrollee.

Supplemental (Medigap) insurance
Either through an employer or the non-group market, some beneficiaries obtain additional coverage, known as Medigap. Medigap plans are standardized in most states (Massachusetts, WI, MN are exceptions) and cover cost sharing and other benefits not covered by Medicare.

Premiums
Medicare premiums are set every year. A summary of costs can be found at Medicare.gov: Medicare costs at a glance

Both Part B and Part D premiums can be increased if the Medicare recipient's Modified Adjusted Gross Income (MAGI) exceeds certain thresholds, through a system called Income-Related Monthly Adjustment Amount (IRMAA). In effect, IRMAA reduces the amount of the premium subsidized by the government.

You have the right to appeal if you believe that an IRMAA amount is incorrect due to an incorrect tax return or a qualifying life event. Details are provided in Medicare Part B Premium Appeals. Social Security Administration Form SSA-44 is used for life-changing events.

Part B
For those enrollees getting Social Security benefits while not subject to increased premiums through IRMAA, if the new rate would reduce the net Social Security benefit received, the new rate for them is adjusted so that there is no reduction is Social Security benefits paid (the “hold-harmless” provision).

Those with higher incomes have their premium subsidies reduced (similar to the loss of ACA premium subsidies - the premium tax credit and the cost sharing subsidy - for higher income individuals). The amount of the  government subsidy reduction is called the Income-Related Monthly Adjustment Amount (IRMAA). Without the full subsidy, the premium is greater than it otherwise would have been.

IRMAA is calculated with a 2 year lag, e.g, IRMAA for 2022 would be based on the 2020 tax return.

Once the Modified Adjusted Gross Income (MAGI) is determined, there is a table for single filers. The MAGI brackets are adjusted for inflation each year (rounded to the nearest $1,000). For joint filers, the bracket numbers are twice the bracket numbers for single filers (with the exception of the top bracket which is 1.5 times the top single bracket).

Part B premium costs (including IRMAA), deductibles, and coinsurance can be found at Medicare.gov here.

Part D
Part D enrollee premiums vary from plan to plan and are calculated by comparing each plan’s approved Part D bid to the national average monthly bid amount. A plan’s basic Part D premium is equal to the base beneficiary premium plus the difference between the plan’s bid and the national average monthly bid amount and may be reduced by MA rebates.

Part D premiums are also subject to IRMAA for those with higher incomes on the same tier system as Part B premiums. Beneficiaries with low incomes and modest assets are eligible for assistance with Part D plan premiums and cost sharing, as previously mentioned above.

Medicare application
If you are not yet receiving Social Security retirement or disability benefits, you will need to sign up for Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance, unless continuing employer coverage) at age 65 to avoid a permanent Part B premium late enrollment penalty later, that is for your lifetime.

If you worked full-time past the age of 65 and had not signed up for Medicare Part B, when applying for Medicare Part B online, you must enter into the Notes field the date you want Medicare Part B to become effective. The webpage gives specific verbiage to enter.

Likewise, unless you have continuing creditable employer coverage, Part D (prescriptions) must be signed up for at age 65 to avoid a monthly late enrollment penalty, that is for your lifetime.

You can submit your Medicare application up to 3 months before the month of your 65th birthday. Applications may be online (recommended by the Social Security Administration), by phone (1-800-772-1213 or TTY 1-800-325-0778), or in-person at your local Social Security office. Table 2 shows a typical timeline:

Shopping for coverage
You should shop for Medicare coverage on an annual basis. Your Medicare costs is Medicare.gov's starting point for understand costs. A summary of basic costs is provided in Medicare costs at a glance.

Plan finder
Medicare.gov's Find a Medicare plan provides cost comparisons for drug plans (Part D) and Medicare Advantage Plans. Enter your zip code and additional information as needed. You can enroll in a plan from this website.

The site will also show you plans that have sanctions placed against them (actions taken when a plan fails to comply with Medicare Part C or Part D requirements). See: Part C and Part D Enforcement Actions

Supplement Insurance (Medigap) plans can be found at Medicare.gov's Find a Medigap policy that works for you. Plans will be shown for your state. You will have to contact the company directly to purchase a policy.

Many states have websites that provide detailed pricing by Medigap Plan by insurance company, which can be found through an internet search.

Original Medicare
Those enrolled in Original Medicare pathway need to check to see if their Medicare D coverage in the new year will cover their medications at the lowest cost. The drug plans change a lot from year to year.

The supplemental (Medigap) insurance plans do not change their coverages (they are lifetime contracts) but the prices for the same plan can vary greatly between insurance companies. You can switch plans and insurance companies anytime If you can pass medical underwriting.

In several states (CA, NV, ID, OR, and IL), the Medigap Birthday Rule is in effect, which allows one to switch, without underwriting, to another supplemental plan with the same or lesser benefits. MO has an Anniversary Rule, while ME has Open Enrollment every June. Other states (MA, NY, WA, and CT) make it even easier to switch plans.

Medicare Advantage
If you are in Medicare Advantage, Part C coverage, which is replacing Parts A, B in Original Medicare and is usually including prescription coverage (instead of Part D separately) then you need to be aware that you have an annual contract with an insurance company for those benefits.

These contracts can change greatly from year to year, so you would be wise to not just blindly renew with the same insurance company. Your provider network might soon be very different and your co-pays could change. Your prescription drug coverage may also change. You can switch to a better Advantage plan in the open enrollment period in the fall for coverage starting in the new year.

You can easily shop Medicare Advantage and Medicare D plans on the medicare.gov website.

Supplemental plans (Medigap)
Each insurance company decides how it will set the price, except for certain states where the Medicare Supplement pricing methodology is mandated by the state. The way they set the price affects how much you pay now and in the future. Medigap policies can be priced or "rated" in 3 ways:


 * 1) Community-rated (also called "no age-rated"): The same monthly premium is charged to everyone who has the Medigap policy, regardless of age.
 * 2) Issue-age-rated (also called "no age-rated"): The premium is based on the age you are when you buy (when you're "issued") the Medigap policy.
 * 3) Attained-age-rated: The premium is based on your current age (the age you have "attained"), so your premium goes up as you get older.

See Costs of Medigap policies for the details, including how to shop for a Medigap policy.

Considerations for high-deductible Medigap plans
One of the most misunderstood, and unfortunately misnamed, parts of the Medicare program are the high-deductible Medicare Supplement (Medigap) plans, the high-deductible versions of Plans F and G.  These plans should be considered particularly by individuals in good heath when joining Medicare, depending on if the pricing of these Plans compared to other Medigap plans are relatively attractive in an individual’s locale.

The major misconception concerns the fact that a high-deductible Medigap plan does not have a first-dollar deductible, like most health care plans.

With a high-deductible Medigap plan, Medicare Part B first pays 80% of Medicare-approved expenses (at the low Medicare reimbursement rate) and the “deductible” in a high-deductible Medigap plan is actually just the Part B 20% coinsurance until the “deductible” is reached for the high-deductible Medigap plan. (One caveat is that the entire cost of the Part A deductible when a hospital inpatient would be borne with a high-deductible Medigap Plan, until the Plan deductible is met.)

So, when a Part B bill is received, an individual is just paying 20% of the bill until the “deductible” is reached, unlike what occurs in most healthcare plans, where the individual is paying 100% of the bill until the deductible is reached.

Many individuals have found that once they understand how high-deductible Medigap plans work and once they review various projected healthcare expense scenarios going forward, a high-deductible Medigap plan could result in significant financial savings over a lifetime.

Medical insurance brokers
Many people have found it very useful to work with an insurance brokers who specialize in Medicare. A knowledgeable agent can guide you to what are the most appropriate choices for your specific circumstances. A good Medicare insurance broker would be knowledgeable about your specific market, the options available, the price increase histories, and the best insurance companies, as well as the insurance companies to stay away from. There is no cost to you, as their commission is paid by the insurance company.

Be sure to find a reputable agent, as some agents steer people to Medicare Advantage plans because of their high commissions.

Retiree considerations
A number of companies, as part of their retirement package, include subsidizing your supplemental plans. Many of those will only reimburse you on what you spend (up to a cap in many cases). If you are in this situation, selecting a Medicare Advantage plan that has a no or low monthly cost, when buying a Medigap plan that could be paid in full with your company's subsidy, needs to be part of the evaluation process.