A Brief Guide to Medicare
As we look toward 2020, health insurance may be on your mind. If you have Medicare, there are quite a few choices, and if you’re not totally happy with your current coverage, you may be looking for something new. That search can plunge you into confusion, however, as you encounter a new world with unfamiliar terms and seemingly complicated choices. This article aims to clarify and simplify those choices by acquainting you with various aspects of Medicare and the relevant terms.
Types of Medicare Plans
The Medicare system created under the Lyndon B. Johnson administration was simpler in many ways than it is now. Medicare today consists of various parts, and if you don’t know what each of these represents, you could be treading into muddy water as you try to make choices regarding them. Here’s a closer look.
- Traditional Medicare (Parts A & B). This is the original Medicare that has been around since the 1960s. It is administered by the federal government. There is a set price for each service rendered, and providers are reimbursed per service. This is known as FFS or fee-for-service coverage. The plan has two parts: A and B. Part A is referred to as hospital insurance and covers care at hospitals (inpatient) and skilled nursing facilities as well as hospice care and some home health care. Part B is medical insurance and covers doctors’ services (at their offices and at hospitals), preventive care, and medical supplies.
- Medicare Advantage (Part C). Medicare Advantage plans differ from Traditional Medicare because they are not administered by the federal government. Rather, they are offered through private organizations approved by Medicare. While Traditional Medicare works on a fee-for-service basis, Medicare Advantage operates on a monthly fee per enrollee. At a minimum, these plans offer everything available through Traditional Medicare, and most offer additional perks, including annual physicals, vision or dental coverage, additional drug benefits, etc. In addition, Medicare Advantage caps the amount that a person has to pay out of their own pocket for health care, while that amount is unlimited for Traditional Medicare beneficiaries.
- Part D. This is an optional benefit that is available to everyone on Medicare and covers prescription drugs. It can be purchased to supplement Traditional Medicare, or a comparable offering may be rolled up in Medicare Advantage plans. Not all Medicare Advantage plans provide prescription drug coverage, but those that do are referred to as “MA-PDs” (for Medicare Advantage Prescription Drug plan).
A Closer Look at Medicare Advantage Plans (Part C)
There are roughly a dozen types of Medicare Advantage plans. Most require you to have Medicare Part A and B and live within the plan’s service area to be eligible. We’ll look at just a few of these types of plans here.
- Health Maintenance Organizations (HMOs). HMOs are a type of Medicare Advantage plan that requires you to choose a primary care provider and (usually) get a referral in order to see a specialist.
- Preferred Provider Organizations (PPOs). PPOs are similar to HMOs in many ways, but they also have some key differences. First, their rules about which provider you can see are usually less rigid. You do not have to choose a specific primary care provider, and you can usually opt to be treated by providers out of your assigned network (though it may require a higher copayment for this flexibility). In addition, with most PPOs, you don’t have to get a referral from your primary care doctor in order to see a specialist—you can simply choose one and go as needed.
- Special Needs Plans (SNPs). To qualify for one of these plans, you must meet certain criteria pertaining to unique health care needs. For example, if you have a chronic condition or live in a nursing home or are receiving both Medicare and Medicaid (referred to as “dual eligibility”), you may be eligible for an SNP. These plans offer the coverage of Medicare Plans A, B, and D through a single plan. A Special Needs Plan may include a broader network of providers, including those who specialize in certain types of care that you need, or they may have formularies (lists of covered medications) that include the particular prescriptions that you need. These programs may be subject to higher premiums than other plans.
- Medicare Savings Account (MSA). With this Medicare Advantage Plan, a high-deductible insurance plan is paired with a medical savings account that accrues interest and is interest-free. The account is seeded with money each year by the insurance company and can be used to defray health care costs until the deductible is met and the insurance plan kicks in. This is similar to a health savings account that many people use outside of Medicare. With a health savings account, if your employer only offers a high-deductible plan, you can avail yourself of one of these tax-advantaged accounts to help with that prohibitive deductible. While health savings accounts outside of Medicare are quite popular, MSAs are less popular; only about 5,000 people use the MSA nationwide.
Recipients of Traditional Medicare can purchase Medicare supplements (also known as Medigap) from private companies. They can be used for health care costs not covered by Traditional Medicare (copayments, deductibles, etc.) These supplements correspond with different levels of coverage and work in tandem with your original Part A and B benefits. You will pay a monthly premium in addition to the other premiums that you pay to Medicare.
There are many factors that will play into your decision about which plan is best for you, and one of them will undoubtedly be cost. For help in contrasting the different costs associated with specific plans, see this Medicare webpage.
And if you are unclear about different insurance terms affecting your pocketbook, here’s a quick rundown:
Premiums: Your monthly fee for insurance
Deductible: The amount that you pay for covered health care services before your insurance provider kicks in and starts to pay. So if you have a $1,000 deductible, once you have paid for covered services totaling that amount out of your pocket, your insurance company will pay for your ongoing health care services (though you may be required to pay a copayment with each service).
Copay: Short for copayment, this is the fixed amount that you are required to pay for health care services rendered. The amount of the copay depends on the service. For example, for preventative services such as a yearly physical or mammogram, the copay may be lower than it is for specialized services. Usually, you will be required to start paying a copay once your deductible has been met.
If you’re new to Medicare or if you have already subscribed to a plan but think there may be something better out there, the good news is that there are many choices available to you. If you read up on the different options and shop around for the best plans and prices, you can find the best arrangement to fit both your health needs and your budget.