Friday, May 3, 2019

What is Medicare and Why do I care?

What's all this stuff about Medicare?

I keep seeing folks posting on Twitter & Facebook about Medicare, and, frankly, there's a lot of confusion out there. That's understandable, though, because signing up for Medicare is confusing. There are lots of options and there are some pretty severe penalties if you get it wrong. So here's my experience with signing up for Medicare back in 2017 when I turned 65.

(WARNING: I am not a Medicare expert; this is just what I know after figuring out how to sign up for Medicare. Make sure you read the "Medicare and You" booklet for the year you want to sign up to get the straight information. There are also lots of wonderful people at Medicare to help with questions. Go to https://www.cms.gov for the straight info.)

What is Medicare?

Medicare is a health insurance program for American citizens 65 and over. That's right, I said citizens. If you're an immigrant, you're out of luck unless you have a green card and have lived in the U.S. for at least five years or have become a naturalized citizen.

There are five (5) different parts of Medicare that you'll need to understand when it's time for you to sign up. We'll get to those in a minute.

Who's eligible?

Everybody who is 65 or older is eligible to sign up for Medicare (but see the citizen thing above).

How much is Medicare?

We'll get to premiums in a minute. You should know that if you're employed then every paycheck your employer will deduct 1.45% of your gross pay as the Medicare payroll tax. Your employer matches that (so the total is 2.9%) and sends it on to the government. If you pay the payroll tax for 10 years you then become eligible for premium-free Medicare Part A when you sign up at age 65. More on that below. For other parts of Medicare, there are monthly premiums you will have to pay once you sign up.

When do I sign up?

You have a 7-month window around the month your 65th birthday falls in which to sign up for Medicare. That's 3-months before your birthday, the month of your birthday, and 3-months after your birthday. My birthday was in July, so my window for signing up for Medicare was from April through October. If you don't sign up you'll be subject to penalties in the form of increased premiums - for life. You don't need to sign up if you are still working and have health insurance at work. BUT, my advice would be to sign up for Medicare Part A anyway. That's what I did. Most employers will make Medicare your secondary insurance.

What is not covered by Medicare?

The two big things not offered by Medicare are vision and dental insurance. It also doesn't cover most nursing home care and there are limits on extended care. See the Medicare and You brochure for the details.

What are the parts of Medicare?

There are five different parts of Medicare you need to worry about.

Medicare Part A

Part A is the hospitalization part of Medicare. It will pay for your hospital stays and many of the services you'd use while an inpatient. Most people will not have to pay premiums for Part A - you've already paid them as part of that 1.45% payroll tax you paid with every paycheck. If you didn't pay the Medicare payroll tax for at least 10 years, then you'll have to pay a Part A premium. The amount changes every year, so look it up. Part A has a deductible that you'll have to meet. In 2019 it's $1,364 for the first 60 days of each "benefit period", which is basically a hospital stay. Again, there are lots of variations on the rules.

Medicare Part B

Part B is the medical services part of Medicare. It will pay for your doctor bills, lab work, outpatient medical services, medical equipment, and other stuff. You MUST sign up for Part B when you are eligible if you don't already have health insurance through your employer. If you defer Part B you will be charged an increased premium every month for life.

Part B premiums are about $135/month in 2019 for most people. That's per-person. Medicare does not have the idea of family coverage. Every person is on their own. So if you are married, you and your spouse BOTH have to sign up for Medicare. Part B also has a deductible, which is $186 for 2019. Oh, and if you get Social Security the government will cheerfully take your Medicare Part B premium right out of your monthly Social Security check.

Medicare Part C

Part C is also called Medicare Advantage. It was added in the 1990s and replaces Parts A and B for those folks who sign up for it. Medicare Advantage is basically an HMO that is run by different insurance companies for the government. Like an HMO, premiums for these plans will vary, and you have a more limited choice of doctors and hospitals. Many Medicare Advantage policies also cover dental and vision care (which you don't get at all from traditional Medicare). Medicare Advantage is very popular for people who live in big urban areas because there are lots of doctors and hospitals. Those of us outside big urban areas (my town has about 30,000 people and the nearest bigger cities are about 250,000) have much more limited choices. If you choose Medicare Part C, you can't buy Medigap insurance (see below).

Medicare Part D

These are the Medicare Drug plans that were introduced in 2005. Part D plans are all offered by private insurance companies. Each company has a variety of plans, and each company has different "formularies" which are the lists of drugs that they will pay for. So your job as a consumer is to figure out which plan covers the drugs that you currently take. You can change plans every year. You can also go out to the Medicare website and enter all your drugs and your location and Medicare will show you all the plans in your area that carry your drugs. I only take a cholesterol drug and a steroid (for eye surgery), so my plan is pretty cheap at about $53./month.

Medigap Insurance

The dirty little secret about Medicare Parts A and B is that they only meet 80% of your costs. You need to pick up the other 20% yourself. This can be a pretty hefty amount if you have to have surgery or a lengthy hospital stay. So the government designed a set of insurance plans, labeled with letters of the alphabet, that insurance companies offer to Medicare enrollees to bridge that 20% gap, hence the name - Medigap. Of course, you have to pay for these plans, and the premium depends on which plan you get. The most popular plan is the 'F' Plan, which is, of course, being phased out (I have no idea why). Plan 'G' covers everything that Plan 'F' does, but you have to pay your Medicare Part B deductible (which was covered under Plan 'F'). And both you and your spouse will have to have your own Medigap insurance plan. See https://www.medicare.gov/sites/default/files/2018-07/02110-medicare-medigap.guide_.pdf for the complete guide to Medigap plans.

The Bottom Line

So the bottom line is, for most people you'll get:
Medicare Part A    (no premium, but there are deductibles)
Medicare Part B    (premium of $135.50/month, and $186/year deductible in 2019)
Medicare Part D    (premium varies by formulary; somewhere between $50 and infinity)
Medigap Insurance Plan 'G' (premium varies by the insurance carrier, usually about $100/month)

For my wife and I we have
Part A - $0/month
Part B - $135.50/month * 2 = $271/month
Part D - $56.50/month * 2 = $113/month
Medigap Plan 'G' - $94/month + $105/month = $199/month
Total:  $583/month in premiums.

To compare, our employer insurance (an Employee+One plan) was around $400/month while we were working; it also included vision and dental coverage and had a $750/year deductible each. So Medicare is actually more expensive for us in retirement than when we were working and we have less coverage (no vision or dental).

The other big alternative (particularly for people in large urban areas) is:
Medicare Part C  - Medicare Advantage (but you must enroll in Medicare parts A&B as well; premiums vary geographically and by insurance carrier) plus
Medicare Part D - unless your Part C plan covers drugs (which many do not)

Good luck to all with your Medicare! Hope this helps!