Understanding Medicare

Medicare is a federal health insurance plan for people who are 65 and older, whether retired or still working. In addition, people who are disabled can get Medicare at any age.

There are three parts to Medicare:

• Hospital insurance (Part A)
   
• Medical insurance (Part B)
   
• Prescription drug coverage (Part D)

How Medicare works

Parts A and B

If you're already receiving Social Security benefits when you turn 65, you’ll automatically be enrolled in both Parts A and B of Medicare, effective on the first day of the month that you turn 65. The premiums for Part A are paid by the government; you pay only a deductible and coinsurance. For Part B, you pay the premiums, a deductible and 20 percent of the covered charges.

You can choose to decline Part B coverage, but you'll pay a penalty for late enrollment if you decide you want to take it later. However, if you or your spouse is still working when you turn 65 and you have health coverage through your employer, you may be able to delay enrolling in Part B and Part D without paying a penalty.

If you're not receiving Social Security benefits when you turn 65, you must sign up for Medicare Parts A and B. You will not be enrolled automatically. You may apply at any Social Security office during the initial enrollment period, which begins three months before you turn 65 and ends three months after your birthday.

Part D

You will not automatically be enrolled in Part D, which helps pay for prescription drugs. To get Part D benefits, you must enroll separately in a stand-alone drug plan or Medicare advantage plan that provides the Part D benefit. Similar to Part B, there is a penalty for late enrollment. For more information on prescription drug costs and Medicare, go to Medicare.gov.

Medicare Advantage plans

Medicare Advantage Plans are private insurance plans that bundle Parts A and B, and often include other benefits such as prescription drug coverage or vision and dental insurance. A Medicare Advantage plan is used as a way to curb your out of pocket health care spending by limiting healthcare access to a network of providers in your area. This can be an issue if you want to keep your primary care physician in another plan or spend substantial time away from your primary residence. You should check a plan carefully for coverage specifics and possible restrictions or enlist the help of a Medicare insurance professional to decide if Medicare Advantage is right for you and compare plans that may be appropriate for your situation. 

Medigap policies

Another choice to limit out-of-pocket costs is a Medigap policy. Medigap is a supplemental insurance policy offered by a private insurance company that helps to cover your out of pocket health care costs. Medigap works in any state with any provider who accepts Medicare. You can see specialists directly, without prior approval unlike some Medicare Advantage plans. And, you’ll pay a relatively predictable amount, no matter what level of health care needs you require. However, if you require prescription drugs or want vision and dental insurance, you’ll need to purchase them separately.  

A couple of important exceptions

• If you have COBRA coverage from a former employer, you should still enroll in Medicare Parts A and B during your initial enrollment period. Your health insurance under COBRA typically ends as soon as you are eligible for Medicare.
• If you are a citizen or permanent resident, but not entitled to Medicare (for example, because you did not work enough years to qualify), you may still voluntarily enroll in Medicare. However, you must pay a monthly premium for Part A benefits.

For details on all aspects of Medicare, go to Medicare.gov.

A note about Medicaid and Medicare

It's easy to confuse Medicaid with Medicare, but they are two very different programs. Medicaid is a state-run program that provides hospital and medical coverage for people with low income and little or no resources. Each state has its own eligibility and coverage rules. Some people qualify for both Medicare and Medicaid. For more information about the Medicaid program, contact your local medical assistance agency, social services or welfare office.