Lesson 1: What is Medicare?

Welcome to lesson one, Introduction to Medicare. All right, let’s get into it. What is Medicare? Well, Medicare is a federal health insurance program established by Congress to provide healthcare benefits for people over the age of 65. Individuals 65 or older automatically qualify for Medicare. Individuals under the age of 65 can qualify for Medicare with certain disabilities or individuals of any age with end stage renal disease, which is permanent kidney failure requiring dialysis or a kidney transplant.

You will receive Medicare Part A and B on the first day of the month you turn 65. If your date of birth is July 15, you will receive Medicare Part A and B on July 1. If you turn 65 on the first of the month, you will receive Medicare Part A and B on the first day of the month before your birthday month. Meaning if you turn 65 on July 1, you will receive Medicare Part A and B June 1. You can receive your Medicare benefits at a later time if you defer your Part B. The reason a senior will defer their Part B is if they have credible coverage at that time, either through an employer or their spouse’s employer plan. If you are collecting Social Security benefits at least four months before you turn 65, the government automatically enrolls you in Medicare Part A and B. If you are not collecting Social Security, you can enroll in Medicare by going online, by phone or by visiting your local Social Security office.

In general, Medicare is the standard 80/20 coinsurance because Medicare covers 80% of Medicare approved charges. Medicare is important because it’s guaranteed affordable health insurance for seniors that have aged out of their employer plans. Before Medicare, one in two seniors had no health insurance. Plus, it covers the fastest growing demographic in the United States as 10,000 seniors are turning 65 a day. Just think about that. It is a huge market.

How Medicare works

Medicare is broken into four parts:

• Part A and B are referred to as Original Medicare and that is what covers the 80%. Medicare Part A is your hospital insurance. Best way to remember this is by thinking of Part A as being admitted to the hospital because Part A covers your inpatient hospital care as well as recovery in a skilled nursing facility, hospice, and other home health care services. Part A is usually free, as long as you have worked in the United States for 40 quarters (or ten years.)
• Medicare Part B is your medical insurance and covers things like doctor visits, diagnostic testing, durable medical equipment, and non-self-administered medications. So, you can think of Part B as bouncing in and out of the doctor’s office.
• Medicare Part C is optional and not part of original Medicare. Think of Part C as a completely different ballgame, as Medicare Part C is an alternative way to receive your Medicare benefits. Medicare Part C is also referred to as Medicare Advantage, which we will be diving into a little later.
• Medicare Part D is easy to remember as that is your prescription drug plans. So, think of Part D as drug plans. I know that’s silly, but those analogies helped me to remember when I started out.

Beneficiaries have three options when it comes to their Medicare benefits. The first option is to be on Original Medicare (Parts A and B) and add a Part D prescription drug plan. But that would leave them on the hook for 20% of the total cost, which could add up if they plan on utilizing their coverage. The second option they have is to enroll into a Medicare Advantage plan, and the third option is to stay on Original Medicare and get a Medicare Supplement to cover the 20% Original Medicare does not cover. If they go with the third option, they will need to enroll in a standalone Part D Prescription Drug Plan.

What Medicare costs

Medicare Part A is what you’ve been paying taxes towards during your working years. If you have paid those taxes for ten years (or 40 quarters) or were married to someone who paid taxes towards it, you will get Part A for free. If you do not qualify for a premium free coverage, you can pay for Part A, but it will cost a hefty premium. Each part of Medicare has a deductible that is set each year by Medicare. Medicare Part A has an inpatient hospital deductible and this deductible for 2023 is $1,600. That is the amount you have to pay before Medicare Part A benefits will kick in. This deductible is not an annual deductible. This deductible is based on a per 60-day benefit period, meaning you could have to meet that deductible more than once if you have multiple hospital stays in a year, if you have a long-term stay in a hospital after you’ve been in a hospital for 60 days, you will be responsible for a coinsurance in the amount of $400 per day. If you’re in the hospital past 90 days, your coinsurance will go up to $800 per day. If you’re in a skilled nursing facility, Medicare covers the first 20 days in a skilled nursing facility and after that you’re responsible for $200 per day for days 21 through 100.

Now, unlike Medicare Part A, Medicare Part B has a premium each month (so, Part B is not free.) You will have a Part B premium that is taken out automatically from Social Security. If you are not drawing Social Security, you could rebuild the Part B premium quarterly. For 2023, the Part B premium is $164.90.

You could pay more based on your income, and that is referred to as IRMAA (The Income Related Monthly Adjustment Amount.) The Social Security Administration determines who pays an IRMAA based on the income reported two years prior. So, for 2023, the Social Security Administration looks at your 2021 tax return to see if you must pay an IRMAA. Just like Part B, Social Security can tack on extra premiums for part D prescription drugs, if you are in a higher bracket. For 2023, the income brackets for Part B and Part D are the same.

If you have a smartphone, there is a free app you can download called ‘What’s Covered’. Simply go to your app store or Google Play store and search ‘What’s Covered’. This app is developed by the Centers for Medicare and Medicaid Services and allows you to search for any service to see if Medicare covers it and what part of Medicare covers it, or any additional information you need to know. If a client asks you if Medicare will pay for a wheelchair, simply go to your app, and search wheelchair. This app is very helpful, and I personally use the ‘What’s Covered’ app daily.

Like Part A, Medicare Part B has a deductible, but that deductible is much smaller. This is an annual deductible that resets every January. In 2023, the Part B deductible is $226 per year. This is the amount you pay before your Part B benefits kick in. After you’ve met your deductible, Medicare is going to pay 80% and you are going to have to pay the 20%. So, under Original Medicare, it does leave you vulnerable to large out of pocket exposure. That’s why a lot of beneficiaries look at other options like a Medicare Supplement plan or a Medicare Advantage Plan to help cover some of those out-of-pocket costs that you would be responsible for under Original Medicare. So that’s what we are going to talk about.

This flow chart will give you a visual of your options and the choices available when enrolling in Medicare. (See video for chart)

The first choice is Original Medicare (that’s what we just reviewed.) One of the benefits by going this route is that you can go to any provider in the United States that accepts Medicare. You won’t have to worry about network restrictions. If you decide to stay on Original Medicare, you will then need to decide if you are going to add drug coverage. If you need drug coverage for your prescriptions, you will need to add a standalone drug plan, which we will get into that a little bit later.

The next step is to determine if you want to add supplemental coverage like a Medicare Supplement or Medigap plan to cap that out-of-pocket exposure (so that Medicare Supplement will fill all those gaps left behind.) The other option is to go with a Medicare Advantage Plan (or Medicare Part C.) This is an alternative way to receive your Medicare benefits. If you go this route, you still have to be enrolled in Medicare Part A and B, and you still have to pay your Part B premium, you still have to be enrolled in Original Medicare, but if you enroll into a Medicare Advantage Plan, then that managed care plan replaces your original Medicare benefits and acts as your insurance. These plans typically include prescription drug plans.

Over the next few lessons, we will dive deeper into Medicare Supplements, Medicare Advantage, and Prescription Drug Plans. So, stay tuned.

Well, that wraps up our introduction to Medicare. Before we move on to lesson two understanding Medicare supplements. It’s time to test your knowledge with a short quiz.