What Is Medicare and How Does it Work?
Medicare is a federal health insurance program for Americans 65 and over. The program is administered by the Centers for Medicare & Medicaid Services and covers some 64 million people.
Understanding how Medicare works is essential. Medicare is not to be confused with Medicaid, the medical coverage program for low-income Americans that’s run by the states.
There are different types of Medicare plans that fit a variety of financial needs.
Table of contents
What does Medicare Part A cover?
What does Medicare Part B cover?
What does Medicare Part D cover?
What does Medicare Advantage (Part C) cover?
What isn’t covered by Medicare
Types of Medicare coverage
There are two main types of Medicare coverage:
- Original Medicare: Consists of Parts A and B.
- Medicare Advantage: Obtained through private insurers and must include Medicare parts A, B and usually includes drug coverage, along with extra benefits.
What does Medicare Part A cover?
Medicare Part A is hospital insurance that covers inpatient care in a hospital or skilled nursing facility. While this kind of Medicare covers hospice care and some parts of home health care, it does not cover long-term “custodial care,” which includes help with activities of daily living such as bathing and dressing.
If you’re already receiving Social Security benefits at age 65, you’ll be automatically ˛enrolled in Medicare Parts A and B.
How much does Medicare Part A cost in 2022?
- Part A is free if you or your spouse has worked and paid taxes to Medicare for at least 40 quarters (10 years)
- If you paid between 30 and 39 quarters (9.75 years) of Medicare taxes, you’ll pay $274 per month.
- If you paid 30 quarters (7.5 years) of Medicare taxes, you’ll pay $499 each month in premiums.
- You’ll have a $1,556 deductible for each benefit period.
- From days 61-90 of inpatient care, you'll pay $389 in coinsurance per day.
- From days 91 and onward of inpatient care, you'll pay $778 in coinsurance per day.
Source: Medicare.gov
What does Medicare Part B cover?
Medicare Part B covers outpatient services like doctor visits, ambulance services, durable medical equipment and some preventive services. Mental health coverage and some prescription drugs (the kind you don’t administer yourself) are also included.
How much does Medicare Part B cost in 2022?
- The standard monthly premium for Medicare Part B is $170.10.
- If your income exceeds $91,000 a year ($182,000 for couples) you will pay more.
- The annual deductible for Medicare Part B is $233 in 2022.
- After reaching your deductible, you’ll pay 20% of the amount approved by Medicare for doctor services, outpatient therapy and durable medical equipment.
Source: Medicare.gov
What does Medicare Part D cover?
Those on Original Medicare must buy a stand-alone Medicare prescription drug plan (Part D) to get coverage for their medications. Keep in mind that there may be late enrollment penalties for Medicare Part D.
Medicare Part D helps cover the costs of prescription drugs. If you’re enrolled in Medicare Part A or Part B, you may enroll in Part D to supplement your coverage. These plans will help you pay for prescription medications not covered by Medicare Part A or Part B.
How much does Medicare Part D cost in 2022?
- The national base premium for Medicare Part D is $33.37.
- This amount may increase or decrease, depending on your income.
Source: Medicare.gov
What does Medicare Advantage (Part C) cover?
Medicare Advantage, also known as Medicare Part C, is another way of getting Medicare benefits. In addition to the basics, most Medicare Advantage plans cover some services that Original Medicare doesn’t pay for, such as:
- Dental
- Vision
- Hearing benefits
- Fitness benefits
- Prescription drug coverage
Medicare Advantage plans cap your total health care spending at $7,550 a year for in-network coverage, whereas Original Medicare has no spending limit protections. If you’re on Original Medicare and opt to buy a Medigap supplement plan, it will pay most of your uncovered costs in exchange for an additional monthly premium.
These health plans can be HMOs (Health Maintenance Organization) or PPOs (Preferred Provider Organization). HMOs have a limited network of doctors, so make sure your providers participate in whatever plan you’re considering before you enroll.
How much does Medicare Advantage cost?
- The average monthly Medicare Advantage premium is $19, but these vary by plan.
Source: Centers for Medicare & Medicaid Services
Supplemental plans
If you decide to enroll in Original Medicare, consider buying a Medigap plan also known as Medicare Supplement Insurance. Private insurers offer these insurance plans and they are designed to cover costs that Medicare does not, such as copayments and deductibles.
Medigap Sign-Up Period
The best time to buy a Medigap policy is during your initial sign-up period around your 65th birthday. If you enroll then, you are guaranteed coverage regardless of your health status.
If you wait until after this window to enroll, then you have to pass medical underwriting first. That means the insurer will ask you questions about your health now and in the past and medications. Outside of certain exemptions, the insurer can charge you more or even deny you coverage based on your history.
How do I enroll?
Your Medicare enrollment window starts three months before your 65th birthday, includes the month you turn age 65 and ends three months after that birthday.
If you’re already receiving Social Security benefits at age 65, in most cases you will be automatically enrolled into Medicare Part A and Part B. If you aren’t taking Social Security, you need to enroll in both and can do so online through the Social Security website.
Around the time of your enrollment, Medicare will send you a “Welcome to Medicare” packet along with your Medicare card.
Medicare’s open enrollment period runs every year between Oct. 15 and Dec. 7. During this time, beneficiaries can pick a new Medicare Part D drug plan, a new Medicare Advantage plan, or switch from Original Medicare into a Medicare Advantage plan or vice versa. Keep in mind that Medigap supplement plans are not part of open enrollment. Your best time to enroll in a Medigap plan is during your initial enrollment window around your 65th birthday.
Keep up with changes to policies to better suit your needs
It pays to shop around, even if you like your existing coverage. Every fall, plans send out an annual “notice of change” alerting you to anything that might be different for the coming year.
Reevaluate your coverage in light of any changes that you might have experienced during the year. If you received a new diagnosis that will require new medications or access to specialists, make sure the plans you have fit your particular situation. Medicare’s online Plan Finder can help you research plans in your area.
What happens if you miss your enrollment window
If you miss your initial Medicare Part B sign-up period, you might have to pay late penalties for life. Do not miss your deadline and avoid these penalties.
Your monthly Part B premium may go up 10% for each 12-month period you are eligible to enroll but don't sign up for it. In most cases, you’ll have to pay this penalty each time you pay your premiums, for as long as you have Part B.
Enrollment exceptions
If you are over 65 and have qualifying health insurance through your job, you might have a bigger enrollment window. Talk to your employer’s benefits administrator to make sure you understand how your job coverage interacts with Medicare.
Generally speaking, if your employer has 20 or more employees, you may be able to delay Parts A and B, and in that case, you don’t need to act when you turn 65.
If your employer has fewer than 20 employees, you should sign up for Medicare Parts A and B when you first meet the age eligibility requirement. In this scenario, Medicare usually provides primary coverage and your work plan will provide secondary coverage.
Enrollment for young people with disabilities
Medicare is available for people younger than 65 who are disabled. If you qualify to receive Social Security Disability, you may be automatically enrolled in Medicare.
That said, each case is different and sometimes there is a waiting period that must elapse before you receive your Medicare card. You can always contact your local Social Security office for more information.
What isn’t covered by Medicare?
The main service that Medicare does not cover is long-term care, including assisted living, home health aides and nursing homes (outside of short, rehabilitative stays).
The following are not covered by Original Medicare (some may be covered by Medicare Advantage):
- Dental care
- Eye exams/ eyeglasses
- Hearing aids
- Medical care while overseas (with few exceptions)
- Most chiropractic services
- Cosmetic surgery
- Routine podiatry (feet care)
Medicare FAQs
Who qualifies for Medicare?
People 65 or older, younger persons with certain disabilities and people of any age with end-stage renal disease. This condition, also known as end-stage kidney disease, requires dialysis or a kidney transplant.
What is the difference between Medicare and Medicaid?
Medicare is a federal program for persons 65 and older. Medicaid is run by the states and is a medical coverage program for low-income Americans. If you have both health services, Medicare pays first for Medicare-covered items and services, Medicaid pays second.
What is Medicare Advantage?
Medicare Advantage is also known as Part C. Apart from basic coverage, most Medicare Advantage plans include some services that Original Medicare doesn’t cover. This type of medical insurance is managed by private health insurers and sometimes offers limits on out-of-pocket costs.
What is Medicare tax?
Medicare tax is a payroll tax deducted from workers’ paychecks in the same way that Social Security tax is withheld. With this tax, the federal government funds Part A of the Medicare program.
What is the Medicare Part B premium for 2022?
The standard monthly premium for Medicare Part B is $170.10. In some cases, your Medicare costs may be higher depending on your income.
What is my Medicare number?
To get your Medicare card and/or number, access your account at MyMedicare.gov or call 1-800-MEDICARE (TTY users call 1-877-486-2048). If you haven’t already created an account, you can sign up and do so.