Medicare is a federal health insurance program. It covers most people age 65 or older, some people younger than 65 with disabilities, and people with end-stage renal disease, often referred to as ESRD.
Medicare does not provide complete coverage for all health care needs. Even though it pays for some preventive services and covers most medically necessary services, Medicare doesn’t pay for many routine services like annual physicals, or things like glasses, hearing aids, or long term care at home or in a nursing home.
Medicare is described in “Parts”, each of which refers to a different aspect of medical or drug delivery.
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Part A pays for most inpatient hospital care, some inpatient skilled nursing home care, some home health care, and hospice care. You are automatically enrolled in Part A when you join Medicare. If you qualify automatically for Medicare (through your own or your spouse’s Social Security record), you do not have to pay a monthly premium for Part A coverage.
Part B pays for doctors’ services, outpatient hospital care, outpatient physical and speech therapy, some home health care, ambulance services, and some medical equipment and supplies.
Part B coverage is voluntary. There is a monthly premium that is automatically deducted from your Social Security check every month. If you don’t receive Social Security benefits, you will be billed for Part B.
Medicare Advantage is a United States health insurance program of managed health care (preferred provider organization (PPO) or health maintenance organization (HMO)) that serves as a substitute for “Original Medicare” Parts A and B Medicare benefits. Medicare Part A provides payments for in-patient hospital services, excluding those of physicians and surgeons. Part B provides payments to physicians and surgeons, as well as for medically necessary outpatient hospital services (such as ER, laboratory, X-rays and diagnostic tests) and certain durable medical equipment and supplies. Original Medicare claims payments are processed through the Centers for Medicare and Medicaid Services (“CMS”). In contrast, Medicare Advantage is offered by commercial insurance companies, who receive compensation from the federal government, to provide all Part A and B benefits to enrollees, but do not process claims through the CMS.
Most Medicare Advantage plans (sometimes referred to as “Part C”) include the Part D prescription drug benefit plan, and are known as a Medicare Advantage Prescription Drug plan or “MAPD.” The federal government makes separate payments to plans for providing Part D benefits.
Medigap (also Medicare supplement insurance or Medicare supplemental insurance) refers to various private health insurance plans sold to supplement Medicare in the United States. Medigap insurance provides coverage for many of the co-pays and some of the co-insurance related to Medicare-covered hospital, skilled nursing facility, home health care, ambulance, durable medical equipment, and doctor charges. Medigap’s name is derived from the notion that it exists to cover the difference or “gap” between the expenses reimbursed to providers by Medicare Parts A and B for the preceding named services and the total amount allowed to be charged for those services by the United States Centers for Medicare and Medicaid Services (CMS). As of 2006, 18% of Medicare beneficiaries were covered by a Medigap policy. Public-option Part C Medicare Advantage health plans and private employee retiree insurance provides a similar supplemental role for almost all other Medicare beneficiaries not dual eligible for Medicaid.
A person must be enrolled in part A and B of Medicare before they can enroll in a Medigap plan. During the open enrollment period which begins within 6 months of turning 65 or enrolling in Medicare Part B at 65 or older, a person may obtain a Medigap plan on a guaranteed issue basis (i.e. no medical screening required). Outside of open enrollment, the issuing insurance company may require medical screening and may obtain an attending physician’s statement if necessary. It is also important to know that monthly premiums apply, and plans may not be cancelled by the insurer for any reason other than non-payment of premiums/membership dues. Furthermore, a single Medigap plan may cover only one person. Finally, Medigap insurance is not compatible with a Medicare Advantage plan.
Individuals on Medicare are eligible for prescription drug coverage under a Part D plan if they are signed up for benefits under Medicare Part A and/or Part B. Beneficiaries obtain the Part D drug benefit through two types of plans administered by private insurance companies: the beneficiaries can join a standalone Prescription Drug Plan (PDP) for drug coverage only or they can join a public Part C health plan that jointly covers all hospital and medical services covered by Medicare Part A and Part B at a minimum, and typically covers additional healthcare costs not covered by Medicare Parts A and B including prescription drugs (MA-PD). (NOTE: Medicare beneficiaries need to be signed up for both Parts A and B to select Part C.) About two-thirds of all Medicare beneficiaries are enrolled directly in Part D or get Part-D-like benefits through a public Part C Medicare Advantage health plan. Another large group of Medicare beneficiaries get prescription drug coverage under plans offered by former employers.
Generally, not all drugs are covered at the same out of pocket cost to the beneficiary. This gives participants incentives to choose certain drugs over others. This is most often implemented—as is the case for drug coverage for those not on Medicare—through incentives to use generic drugs over brand-name drugs. The incentive is also often implemented via a system of tiered formularies in which some brand-name drugs are less expensive than others and not subject to step therapy. Medicare beneficiaries who were eligible for but did not enroll in a Part D when they were first eligible and later want to enroll, pay a late-enrollment penalty, basically a premium surtax, if they did not have creditable coverage through another source such as an employer or the U.S. Veterans Administration. This penalty is equal to 1% of the national premium index times the number of full calendar months that they were eligible for but not enrolled in Part D and did not have creditable coverage through another source. The penalty raises the premium of Part D for beneficiaries, when and if they elect coverage.