Medicare Planning

Millions of older Americans rely on Medicare to cover their health care costs. As the nation’s elder population rapidly expands, this number will only continue to increase. Scientific advances in medical care have extended the average lifespan, causing people to live longer and require more comprehensive health insurance as a result. Generally, Medicare is a tremendous asset for seniors. Medicare alone, however, is sometimes not enough to cover every health care expense. Costly co-pays and deductibles can easily eat into a modest retirement budget.

To make up for the gaps in coverage, some individuals choose to apply for Medicaid benefits. Unlike Medicare, which is a federal entitlement program, Medicaid is administered by the states and requires recipients to meet a low income threshold. Because it is basically a form of welfare, not everyone will qualify. For those who do qualify, Medicaid works pretty cohesively with the Medicare program to cover extra health expenses and provide total coverage. For more information about applying and qualifying for Medicaid, read Medicaid Secrets – a comprehensive guide to Medicaid.

For those who do not meet the Medicaid low income requirements, however, it is probably necessary to purchase a second health insurance plan. These types of plans are referred to  as "Medicare supplemental insurance". In essence, they fill in the "gaps" to provide coverage where Medicare does not. Knowing which type of supplemental insurance to buy requires a fundamental understanding of Medicare, its various parts, and how these add-on plans work.

Available to individuals age 65 and older, Medicare is composed of four different parts. Each part provides a different type of coverage, with certain parts requiring recipients to actively enroll, pay additional premiums, or both. Sections A and B together make up what is known as Original Medicare. Only Medicare Part A features automatic enrollment. To receive benefits from the other three parts, you must add them yourself.

Medicare Part A is the most basic type of Medicare insurance and provides hospital coverage only. As soon as you become eligible to receive Medicare benefits, you are automatically enrolled in Medicare Part A. As long as you or your spouse worked for at least 10 years and contributed to the Medicare program while you were working, you will pay no premiums for Part A coverage. Co-pays and deductibles are not considered part of the premiums and are paid out of pocket by the recipient. For individuals who did not work long enough to qualify for premium-free coverage, the cost of Medicare Part A in 2012 is $451 if you worked less than 7.5 years and $248 per month if you worked between 7.5 and 9¾ years. It is important to note that Medicare Part A will only pay for up to 100 days of skilled nursing care. Individuals who require long-term care must either arrange for other coverage or pay privately.

Medicare Part B is medical insurance, which covers a large menu of services, including doctor’s visits, lab tests, outpatient facility care, preventative screenings, medical equipment, ambulance transport, and some types of therapy. Not all physicians accept Medicare Part B insurance, so it is important to determine whether your desired provider includes Part B on its list of accepted insurers. Medicare Part B coverage is not free, and you must deliberately add it to your existing Part A plan. The yearly out of pocket deductible for 2012 is $140. In 2012, the monthly premium for Medicare Part B is $99.90. For individuals with an annual income greater than $85,000, the monthly premium is higher, costing anywhere from $139.90 to $319.70 per month depending on income.

Medicare Part C is completely different from Original Medicare. This type of coverage falls under the umbrella term “Medicare Advantage Plans” and actually takes the place of both Medicare Parts A and B. Medicare Advantage Plans are offered by private insurance companies, so you must research carefully before deciding to substitute this type of plan in place of your Original Medicare coverage. To qualify, you must already be enrolled in Part A and Part B and be current on all the premiums and costs associated with those parts. Medicare Advantage Plans are required by law to provide all the coverage available under Original Medicare, but they usually offer extended coverage beyond Parts A and B. Cost and coverage varies widely among insurers, but common benefits include vision and dental care. Many types of Medicare Advantage Plans also offer prescription drug coverage.

Medicare Part D is limited to prescription drug coverage and is only available to individuals with a Medicare Advantage Plan. It cannot be added to Original Medicare. The deductible for 2012 is limited to $320 per year. Monthly premiums differ among plans, which are only offered through private insurance companies. With so many choices for prescription drug coverage available on the market, it is a good idea to explore other options to see how Part D compares. Depending on your individual prescription needs, Part D may not be the most competitive choice.

For some people, adding on Medicare Part C or Part D isn’t the best option. Sometimes the coverage offered under those parts is cost prohibitive or too restricted. For these individuals, Medicare supplemental insurance – or medigap insurance – may be a better choice. Supplemental insurance is only available to individuals already covered under Original Medicare. That is, you cannot add supplemental insurance to Medicare Part A only. Additionally, supplemental insurance will not cover gaps in Medicare Advantage Plans or Medicare Part D. Supplemental insurance is offered by private insurance companies, which are required by law to designate their policies as Medicare supplemental insurance so the consumer is aware that a particular product meets federal standards. There are currently 10 types of supplemental insurance plans available, identified as A, B, C, D, F, G, K, L, M, and N. Historically, types C and F have been the most popular choices, as only these two pay deductibles under Medicare Part A and Part B. Types M and N were added in 2010. That same year, several other types were eliminated, although individuals enrolled in those types were allowed to keep their plans. A few states also offer their own brand of supplemental insurance. With so many different plans, it is necessary to shop around and carefully examine each type of coverage before adding supplemental insurance to your existing Medicare benefits.

The process for selecting supplemental, or “medigap”, coverage is quite similar to shopping for long term care insurance. For tips on how to shop for the best Medicare supplement plans, check out How To Buy Long Term Care Insurance.

You can also read more about the differences between Medicare and Medicaid at Elderly Parents Medicare - Medicaid.

For further reading, here’s an article that explores the question: Do medicaid plans work?

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