Medicare 101: Original Medicare and Supplemental Insurance

Medicare 101: Original Medicare and Supplemental Insurance
Eileen St. Pierre, The Everyday Financial Planner

Medicare is the country’s health insurance program for people age 65 and older. You should apply for Medicare three months before your 65th birthday at the Social Security Administration (you can now sign up online at http://www.socialsecurity.gov). Doing so will ensure that your health coverage starts right when you turn 65. With health care costs continuing to rise, it is important for those who are eligible (or soon to be eligible) for Medicare to understand all of their options. With the addition of prescription drug coverage and supplemental insurance policies, older adults have more choices than in the past.

[Note: Those eligible for Medicare should not enroll in the new health insurance exchanges – Read my column Already on Medicare?  Don’t worry about the new exchanges.]

Medicare Part A

Medicare Parts A and B are referred to as Original Medicare. Medicare Part A is hospital insurance that covers inpatient care at hospitals, skilled nursing facilities (not custodial or long-term care), hospice, and home health care. Staying overnight at a hospital does not mean you are an inpatient. Always ask if you are an inpatient or an outpatient, because this will affect your out-of-pocket costs.

  • If you paid Medicare taxes while you worked or are eligible to receive Social Security, you don’t have to pay for Medicare Part A.
  • The 2014 Part A deductible is $1,216 per benefit period (an increase of $32); after that, you pay 20% coinsurance on covered services.

Medicare Part B

Medicare Part B is medical insurance that covers doctors’ services, outpatient care, home health services, some preventative services, and other medical services. You have to pay a premium each month for Part B. When you first become eligible for Part A, you have a 7-month period in which to sign up for Part B.

  • If you don’t sign up for Part B during this initial enrollment period, you will have to pay higher premiums (your monthly premium increases 10% for each 12-month period you delay).
  • Usually, you don’t pay a late enrollment penalty if you meet certain conditions that allow you to sign up for Part B during a special enrollment period (ex. after retiring from a job that offered you health insurance).
  • In 2014, your Part B premium will be $104.90 per month (the same as last year) unless you are considered high income. If your income is above $85,000 (single) or $170,000 (couple), you will have to pay a higher Part B premium, ranging from $146.90 to $335.70 per month.
  • Your Part B premium can be automatically deducted from your monthly Social Security check.
  • The Part B deductible is $147 (the same as last year); after that, you will pay 20% coinsurance on covered services.
  • Under the Affordable Care Act, the Part B deductible and coinsurance for most preventative services have been eliminated.

Some of the items and services that Medicare does not cover include the following:

  • Long-term care
  • Routine dental care
  • Dentures
  • Eyeglasses and contact lenses
  • Cosmetic surgery
  • Acupuncture
  • Hearing aids and exams for fitting hearing aids

Supplemental Insurance (Medigap)

You may also decide to purchase a supplemental insurance policy, also referred to as a Medigap policy. It is sold by private insurance companies to fill in the gaps in Original Medicare coverage. It pays some of the health care costs that Original Medicare does not cover. If you are on Medicare and have a Medigap policy, then Medicare and your Medigap policy will pay both their shares of covered health care costs.

Insurance companies are only allowed to sell you a standardized Medigap policy. They must all have specific benefits so that you can compare them easily.

  • You may be able to choose from up to 10 different standardized policies, Medigap Plans A – G (you can no longer buy E), K, L, M, and N.
  • Each plan has a different set of basic and extra benefits and will be the same for any insurance company.
  • The policy must be clearly identified as Medicare Supplement Insurance.

Generally, when you buy a Medigap policy, you must have Medicare Parts A and B. In addition to the Part B premium that comes out of your Social Security check, you will also have to pay a premium to the Medigap insurance company. You and your spouse must each buy separate Medigap policies.

You have a 6-month Medigap policy open enrollment period which starts the first month you’re both 65 and enrolled in Part B.

  • For example, if you turn 65 and enrolled in Part B in June, the open enrollment period is from June to November.
  • Once this period starts, it cannot be delayed or replaced.

After initial enrollment, you must wait until the next open enrollment period if you want to change Medigap providers. So to make any changes for 2014, you need to do so during the current open enrollment period, October 15 – December 7, 2013.

To find the right Medigap policy for you, you can use the Medigap Plan Finder at http://www.medicare.gov/find-a-plan/questions/medigap-home.aspx. Again, plans sold on the new health insurance exchanges are not Medigap policies.

The next two columns in this Medicare 101 series will focus on Part C (Medicare Advantage) and Part D (Prescription Drug Coverage). For additional Medicare information, download the Official 2014 Medicare Handbook.

Visit my Financial Planning for Later in Life page for more information.