Medicare Can Be Confusing
For people just starting their journey into Medicare, the choices can be confusing.
Even the names are bewildering! There’s Medicare Part A, Medicare Part B... The government names Medicare products like buildings in a Soviet apartment complex.
But don't worry, comrade. We're here to help!
Where to Start?
The key to understanding Medicare is to start with the basics.
So let’s start with the simple question: what is Medicare?
Answer: Medicare helps Americans pay for their medical care once they reach age 65.
There are three separate things Medicare helps you pay for:
Hospital Visits, paid for by “Medicare Part A”
Doctors Visits (outside the hospital), paid for by “Medicare Part B”
Prescription Drugs, paid for by “Medicare Part D”
You’re probably wondering where “Medicare Part C” went, aren’t you? Don’t worry about that. We’ll get to that later.
For now, just focus on the list above, and the simple fact that there are three things Medicare pays for: Part A pays for hospitals, Part B pays for doctor visits, Part D pays for prescription drugs.
What do you have to pay for Medicare coverage?
There is no such thing as a free lunch.
Just like the benefits you receive from Medicare are broken into three categories (Part A: Hospital, Part B: Doctor, and Part D: Drugs), the payments you make to Medicare are also broken into three categories.
First, you must pay a monthly premium for Medicare Part A (insurance for hospital stays). The “sticker price” for Part A monthly premium -- that is, the price that a normal person would pay, without any sort of government help or discount -- is $437 dollars each month.
That sounds like a lot, doesn’t it?
Except… guess what! Most people don’t really have to pay it!
Why? Because, chances are, you already "paid into the system” during your working years. That’s right, if you were employed for 40 quarters (ten years), and you paid your employment taxes during that time, then you get Medicare Part A completely free.
How do you know if you worked for 40 quarters? Simple. If you currently receive Social Security, (or are eligible to receive it, but haven’t started collecting it yet,) then you worked for 40 quarters. You do not have to pay for Medicare Part A premiums. Congratulations!
What if you worked for less than 40 quarters?
If you didn’t pay into the system for the full ten years required to get free Part A coverage, you may still get a break. If you worked for 7.5 years (30 quarters) you only need to pay $240 per month (not $437).
And, if you didn’t work for 30 quarters, you can buy Part A coverage at the full price, which, as I said, is $437 dollars per month.
What do you need to pay for Part B premiums?
We discussed Part A premiums. The good news is that most people do not have to pay anything for Part A, because they already paid for it during their working years.
However, most people end up paying something for Part B. (Remember, Part B covers your doctor visits outside the hospital.) The “standard” Part B premium is $134 each month. It’s the “standard” because the actual amount you pay may be higher if your income is above a certain level. (Medicare Helper’s True-Cost Revealer tool will help you figure out what you pay for Medicare Part B, based on your taxable income). But generally, for most people, the monthly premium you need to pay is $134.
What do you pay for Part D - Prescription Drug Coverage? (And why you may not need to pay anything at all!)
Medicare Parts A and B are reimbursement programs. They are simple to understand: you have a medical bill (hospital or doctor). You pay it. Then you send it to Medicare, and they reimburse you for some or all of it (assuming your deductible is met. More on this later).
But Medicare Part D is different. Part D is prescription drug coverage. It is offered by private insurance companies. You can choose whether to sign up for Part D coverage, or not.
If you do sign up Part D coverage with a private insurance company, the insurance company will help you pay for some (or all) of your prescription drug costs. (The amount they will pay depends on many things. We recommend you use Medicare Helper’s Medicare True Cost Revealer to understand exactly what you will pay for your drugs under each plan.)
So if you want Prescription Drug coverage, you need to choose a Prescription Drug Plan offered by a private insurance company. And of course you need to pay the monthly premium for the Prescription Drug Plan.
Except it’s not actually true.
In some cases, you can receive Prescription drug coverage without buying a separate Prescription Drug Plan, and without paying a monthly premium for separate prescription drug coverage.
Are you confused? Don’t worry. Let me explain.
Medicare Part C - The All-in-One Plan
Remember how, at the beginning of this article, I explained how Medicare is delivered in three pieces: Part A (Hospital), Part B (Doctor), and Part D (Drugs)? And I joked about the “missing” Part C, I said not to worry about that… yet.
Now, it’s time to understand Medicare Part C.
Medicare Part C (Medicare Advantage) versus “Original Medicare”
You may have heard the term “Medicare Advantage” and wondered what it referred to. Medicare Part C is also called Medicare Advantage. The idea behind Medicare Part C (or Medicare Advantage) is that you can choose a private insurance company to take care of all your Medicare needs.
If you choose a Medicare Part C (Medicare Advantage) plan, the private insurer is required to offer the same coverage as you would receive through Original Medicare. Indeed, in many cases, the insurance company offers additional benefits that Original Medicare does not cover, such as vision, dental, and hearing.
Finally, some Medicare Advantage plans also offer Prescription Drug Coverage. Which means that you can still get help paying for prescription drugs, but do not need to buy a separate Prescription Drug Plan. You can get everything you need — doctor visits, prescription drugs — through one insurance plan.
Pros and Cons of Medicare Advantage Plans
The charts below point out the main differences between Original Medicare and Medicare Advantage. At a high level, Medicare Advantage plans may cost you less, and are much simpler to understand and manage than Original Medicare. The trade-off is that some people feel Medicare Advantage plans limit some of their choices about which doctors and specialists they can see. Medicare Advantage plans make a large effort to “control costs.” This can be a good thing when it is time for you to pay for monthly plan premium. But it can feel restrictive when you want to see a favorite doctor, or want to visit a specialist without prior authorization.
Original Medicare vs. Medicare Advantage
You must enroll in
Medicare Parts A & B
To sign up, you need to be enrolled in Medicare Part A and B, but then you will move to Medicare Advantage
How bills get paid
Prescription Drug Coverage
Optional. If you want it, you’ll need to buy a separate Prescription Drug Plan (PDP) from a private insurance company, and pay monthly premiums.
You can choose a Medicare Advantage plan that includes Prescription Drug coverage, or one that does not. There is no separate premium for drug coverage. (But typically, plans with drug coverage have higher premiums than plans without.)
What is the future of Medicare?
Medicare calls itself an “insurance” plan. This means that customers need to pay for it. And if you're over age 65, you are the customer.
Now, whether Medicare is really an insurance policy is a matter for political debate. In truth the government pays out much more money to beneficiaries than the beneficiaries pay in. If a private company ran an insurance plan like this, it would quickly go out of business, and its executives would be thrown in jail! But the U.S. government is able to do this because... well, it’s the U.S. government. It can borrow money, or print it, or tax people to get it. So we don’t have to worry about Medicare going out of business—at least not during our lifetimes.
Now that I’ve reassured you about the future of Medicare, let us know if you have any questions or explore your plan options with the Medicare Cost-Revealer.