We will briefly discuss some basic knowledge of Medicare that you need to know, as a beneficiary. This will include some basic terminologies, how Medicare works, and hence how you can make an educated decision when selecting a plan.
Every year when you file tax return, part of the taxes deducted goes to pay Medicare tax, along with the social security tax. When you accumulated 40 quarters of medicare tax credit, you become eligible for Medicare. When you turn 65, you will be eligible for original Medicare part A without having to pay a premium. Those who don’t have enough credit will have to pay a monthly premium if they want part A coverage.
For part B premium, most people pay a standard amount (approximately $144/month for year 2020). High-income individuals (e.g., with annual income exceeding $85,000) have to pay additional. This is called IRMAA (income-related monthly adjusted amount). Low-income individuals might be able to get (partial or full) government assistance for part B premium. This is called the Medicare Savings Program (MSP) which is funded by the federal government and administered by the state. Depending on your MSP eligibility category, you might even get assistance for most of you medical expenses. Qualified beneficiaries can get some D-SNP Medicare Advantage plan that requires no monthly premium.
Medicare in a Nutshell
The original Medicare is funded by the federal government administered by the Centers for Medicare and Medicaid Services (CMS). It contains 2 parts: part A and part B.
Part A is the hospital insurance including skilled nursing home care and hospice. It has a deductible of approximately $1400 (for year 2020) per benefit period. It means that you will have to pay the deductible again if you are re-admitted to a hospital within 60 days of checking out. There is a co-pay for each day you stay in the hospital.
part B is the medical insurance for outpatient care, including physician visits, laboratory tests, and some diagnostic screenings. For year 2020, the monthly premium is about $144, and the annual deductible is about $190. Details of part A & part B coverage can be found on the Medicare government website.
On top of the original parts A & B, there is part C which are the plans administered by private insurance companies, following CMS guidelines. These insurance companies offer a variety of plans to cover different needs. Premium of the plans also varies. Part C plans are also known as Medicare Advantage (MA) plans.
Part D is the prescription drug plan (PDP) sold by private insurance companies. Most MA plans include a PDP. They are referred to as MAPD. There are also standalone PDP’s that you can get if your medical plan does not include prescription drugs, e.g., megigap plans and some private fee-for-service (PFFS) plans.
Insurance companies also sell Medicare supplement (a.k.a. med-sup or medigap) plans. Medigap plans are designed mostly to fill in the gaps of cost-sharing including the deductibles, co-insurance and co-payments. However, medigap plans cannot be used to pay cost-sharing of MA plans. In other words, medigap and MA plans cannot co-exist.
In most cases, enrollment of a new MA or PD plan will automatically dis-enroll you from your existing MA/PD plan. So you want to be careful when enrolling in a standalone PDP so that you don’t end up without any medical coverage. On the other hand, enrolling in either MA or medigap plans will not automatically dis-enroll you from the other. You will have to dis-enroll by contacting the plan or Medicare.
There is a late-enrollment penalty (LEP) for part D if you did not enroll when you first became eligible and did not have other creditable coverage. There is an LEP for part B if you did not enroll in part B and did not have other medical insurance (e.g., group insurance from employer or union). The LEP will stay with you as long as you keep part B and/or part D. You do have 63 days to sign up for part D after you lose the creditable coverage. You also get an 8-month special enrollment period (SEP) starting the day you lose your group insurance to sign up for part B.
The LEP amount for part B is 10% of the premium for every full 12-month period you have not signed up. For example, if you did not sign up until 40 months after you first became eligible, your LEP amount will be about 30% of the current part B premium, which is about $144. Hence your part B premium will be about $144*1.3=$187.2 per month.
The LEP amount for part D is 1% of the national average monthly premium for each month you did not enroll. The amount is approximately $0.33. For example, if you did not have part D for 8 years and you would like to enroll now, you LEP will be about 96 (months) * $0.33 (/month) = $31.7. If the part D plan you select has a monthly premium of $80, you will have to pay $111.7 per month instead.
Beneficiaries qualified for government subsidies will not be subject to LEP.
Factors to Consider When Selecting Plans
It can be a lot of work just to find a plan that works the best for you. You need to take into account the estimated total costs, coverage, network of providers, the formulary, among others.
Like most insurance (e.g., auto insurance), original Medicare and the plans have premium, deductible, co-insurance or co-payment. Premium is the monthly fee you pay to get/keep the insurance. You pay premium for the original part B, and part A if you have not paid 40 quarters of Medicare taxes. You also have to pay premium for the plans (although there are some Advantage plans are have zero premium). Deductible is the amount you have to pay out of pocket first before Medicare and the plan start to pay. Co-payment is the fixed amount you pay whenever you visit a doctor. Co-insurance is the percentage of cost that you pay out of pocket. This is often referred to as cost sharing.
Out-of-pocket (OOP) is the total amount you pay for medical services after Medicare and the plan pay. Each Medicare Advantage (MA) plan has a maximum yearly OOP which must not exceed the standard amount set by the CMS. This is one of the major reasons that you need a plan on top of the original Medicare. In most cases, original part B pays 80%, leaving you 20% of co-insurance. There is potentially no limit to the amount that you have to pay for this co-insurance. If you have an MA plan, then you will pay only up to the maximum OOP specified in the plan.
When calculating and comparing costs of plans, you have add your potential OOP and the total premium for the entire year.
Network of Doctors and Hospitals
Many Medicare Advantage plans (a.k.a. part C plans) have specified network of doctors and hospitals. With HMO plans, services acquired out of network are usually not covered. PPO plans will ask you to pay more for services out of network. On the other hand, medigap plans, usually more expensive, allow you to obtain services anywhere in the United States as long as they accept Medicare. So if you are considering getting a part C plan, you might want to find out first if your doctors are in the specific network of the plan.
Each prescription drug plan (PDP) has a formulary. Most MA plans include a PDP. So to determine if the MAPD plan meets your needs, you have to find out if its formulary contains your medicine. Otherwise, you might need to file for an exception or get a standalone PDP. For a standalone PDP, you will have to find a medical plan that can co-exist, for example, a medigap plan.
Coverage Phases & Limit of Prescription Drug Plans
There are 4 stages/phases of PDP coverage: deductible, initial coverage, coverage gap, and catastrophic coverage. As usual, you pay the deductible before the plan starts to pay.
There are usually 3 limitations with each PDP: quantity limit, prior authorization, and step therapy. For some expensive drugs, insurance company might ask you to try generic versions before giving you their brand name counterparts.