Broker Check

Medicare: The Basics



By Aaron A. Anderson, Senior Financial Analyst


Like every government program, the size of Medicare and amount of information about it can be overwhelming.  One could write a phone book sized magnus opus on the subject and just scratch the surface. Unfortunately, they also use similar terminology and a lot of alphabet letters to describe different aspects of the program, adding to the confusion. Part A, Part B, Part C, Part D, Medicare Advantage, Medicare Supplements, Plan F, Plan G, lions, tigers, and bears. Oh my! So, for this initial foray into the subject, I want to give a bird’s eye view, defining terms and telling you what you need to understand to start making informed decisions.


Medicare Part A (Hospital Insurance): Covers hospital care, skilled nursing care, nursing home care (assuming medically necessary and usually in conjunction with a covered hospital stay), hospice, and home health services. A person is automatically enrolled soon after taking Social Security if they are at least age 65 or have a disability. This coverage is premium free assuming you or a spouse paid into Medicare during your work history. Notice things not covered here include doctors and routine office visits which leads to…


Medicare Part B (Medical Insurance): Covers medically necessary services and supplies including doctor visits, lab tests, surgeries, wheelchairs, ambulance services, mental health services, second opinions, and limited outpatient drugs. This coverage is not free; everyone pays a base premium, which can increase depending on annual income. Eligibility and enrollment are the same as Part A, however, because it does have a premium cost associated with it, one has the option to decline it. There are quite a few things that aren’t covered by Part A and Part B such as long-term care (that’s not medically necessary), dental services, eye care, and hearing aids.  Prescription drug coverage is also not covered which leads to…


Medicare Part D (Prescription Drug Coverage): First off, I know you’re thinking, “Wait! What about Part C?”. We’ll get to that in a moment. Part D is an extra-cost “add-on” offered commercially, and covers prescription drugs based on what’s called a formulary. A formulary basically divides drugs into different tiers with different costs associated with them. Lower tiers are where the cheaper, common drugs go with lower copays while higher tiers are reserved for the more specialty, designer drugs with much higher copays. Each company offering Part D coverage uses a different formulary, so it is important to know where the drugs you take fall into which tiers at each company. This is especially important for people with chronic issues that regularly require a certain drug. That drug might be in a more expensive tier (or worse, not even covered) depending on the company. Each company offering Part D coverage charges a premium and some have multiple levels of coverage (with differing premiums) that change copays, the formulary, etc.


Hypothetically, one could have pretty good coverage with just Part A, Part B, and Part D. Unfortunately, there are still holes in coverage with just those and so ways to fill those holes have been created.


Medicare Part C / Medicare Advantage: Yes, if you hear the words “Part C” or “Advantage”, they are talking about the same thing. Long story short, this coverage is like your stereotypical employer sponsored health insurance plan. You can enroll in one of these plans when you first sign up for Medicare and then annually during the open enrollment period starting mid-October through early December. These plans function as the typical HMO or PPO, with their own lists of approved doctors, pharmacies, etc. They tend to include prescription drug coverage (Part D) and many also cover things like vision, hearing, and dental. When you go to the doctor, you give them your Part C insurance card, pay any copay required by your Part C plan, and then they bill your provider for the remainder (who then bills Medicare to pay their part).  As for premiums, you typically pay a separate premium in addition to your Part B premium (I say “typically” because some Advantage plans have no extra premium above the Part B premium with minimal extra coverage). Many pensions that offer health coverage (especially government based pensions) do so using a Part C plan.


Medicare Supplement Plans (Medigap plans): If a person has what’s referred to as “original Medicare” – Part A and B without Part C – then there are a few things that come as a surprise to many people. They think, “I’ve got Medicare so I’m covered. Healthcare is free!” As indicated at the beginning, however, there are many services that are not covered. As a strange example, the first three pints of blood each year must be paid for by you out of pocket. Plus, surprisingly, Medicare has copays and coinsurance! As a result of these issues, insurance companies offer Medicare Supplement plans to fill in the gaps (hence the name “Medigap”).

Also using the alphabet (just to confuse you?), these are labelled as Plan A through Plan N each of which offers various levels of coverage for various levels of premiums to help pay for the copays, coinsurance, and other out of pocket costs not covered by Part A and B. Basically, they allow you to levelize your health care spending – instead of having costs spike when you use your health care, you have monthly premiums that help flatten out those costs. Unlike Part C plans, Medigap plans are accepted at any doctor that accepts Medicare, so there are no limited networks of coverage. The provider bills Medicare who pays their portion and then forwards the remaining balance to your Medigap provider to pay theirs. Also unlike many Part C plans, Part D (drug coverage) is not included and must be purchased separately.

Fortunately for the shopper, Medigap plans are standardized between companies. Literally the only difference between say Plan F from one company and Plan F from another company is the premium. Of course, there are differences between companies such as their credit rating (which gives an indication of claims paying ability), quality of customer/claims services, and other add-ons such as discount programs for dental/vision or for fitness centers. So, it pays to shop around, not only for your initial purchase, but periodically after your coverage has been in force.  A key point … Don’t assume, just because you got the lowest cost plan initially, that you continue to have the best premium.  So long as you remain reasonably healthy, opportunities may present which allow for premium reductions.


This is where we can help. Give us a call and let us assess your situation. We can then make a recommendation of a Medicare Supplement plan and company that fits your needs and circumstances.  Also, Medigap plans require limited medical underwriting to sign up EXCEPT during a small six-month window after enrolling for Part B (confusingly also called open enrollment, but in this case, it means exactly that … guaranteed insurability; you cannot be turned down regardless of your health). So, if you are in that window, please call us as soon as possible so that you don’t miss your opportunity to enroll without underwriting.


Initially written: 10/24/2017