Medicare is America’s federal health insurance program for citizens age 65 or older, permanent legal residents who meet residency requirements, and people with certain disabilities. People have a lot of misconceptions about Medicare. For example, many believe the coverage is free. – This is definitely not the case which is why it’s important to learn about Medicare before turning 65 years old.
Become familiar with Medicare coverage
Original Medicare has two parts: Part A and Part B. These two parts provide coverage for inpatient and outpatient services. Medicare covers any medically necessary service ordered by your doctor, and you can visit any doctor in the United States that accepts Medicare.
Medicare Part A covers inpatient services including a semi-private room, meals, medications administered to you, and lab services. It also provides post-hospital care, such as rehab at a skilled nursing facility, home health care, and hospice care. Part A does not, however, cover long-term care.
Medicare Part B covers most outpatient services. Part B covers preventative services including annual physicals and screening tests. It also covers lab testing, ambulance rides, and durable medical equipment. Medicare Part B can sometimes cover services while you are in the hospital such as radiation or chemotherapy.
Part B does not cover routine dental, vision, hearing services, cosmetic procedures, or prescription drugs you get from a pharmacy.
Medicare Part D is a federal program administered by private insurance companies. You buy the coverage in addition to Original Medicare.
Medicare Part D covers most common prescription medications used to treat a wide range of illness and diseases. Each Part D plan has a formulary, which is a list of covered medications. All Part D plans must cover all drugs in the following six categories:
Know your future Medicare costs
Most people qualify for premium-free Part A because they have a qualifying work history. If you or your spouse worked ten years (40 quarters) in the United States and paid FICA taxes, then you won’t pay a premium for Part A. If you do not have qualifying work history, you could pay as much as $471 per month in 2021 for Part A.
You must meet the Part A deductible before Medicare provides coverage. The Part A deductible in 2021 is $1,484 per benefit period. If you are required to stay at a skilled nursing facility after your inpatient stay, Part A will cover the first 20 days of your stay. However, if your stay exceeds 20 days, you will pay $371 per day for days 61 through 90.
Unlike Part A, everyone pays the Part B premium. Your Part B premium is based upon your modified adjusted household gross income. Social Security reviews your tax returns from two years prior and will determine your premium based on the information they find. The majority of senior Americans pay the standard Part B premium, which is $148.50 per month in 2021.
The annual Part B deductible in 2021 is $203. Once you have paid the $203 deductible, Medicare Part B will cover 80% of your Medicare-approved services.
Your Part D premium is set by the insurance company. However, if you have a higher income, Medicare may charge an additional amount each much in addition to your plan premium. Most people have access to at least 20 different Part D plans with an average premium of $38.
The maximum Part D deductible in 2021 is $445, although some plans set their deductible below the government maximum.
Avoid late enrollment penalties
The only way you can delay Medicare Parts A, B, and D is if you have creditable coverage. If you do not have a form of creditable coverage, you must enroll in Medicare during your Initial Enrollment Period. If you fail to enroll in Medicare during your Initial Enrollment Period, you will be subject to late enrollment penalties.
If you do not qualify for a premium-free Part A, you could face a 10% premium penalty for twice the number of years you did not have coverage when eligible for Medicare. For example, if you were first eligible for Medicare in 2018 and did not enroll in Part A until 2020, you will pay a 10% premium penalty for four years.
You will be subject to a 10% Medicare Part B penalty if you fail to enroll in Part B during your Initial Enrollment Period. The Part B penalty accrues every 12 months you failed to enroll in Part B when you were eligible.
For example, if you fail to enroll in Part B for three years, you will pay a 30% penalty. However, unlike Part A, you will pay the Part B premium for the lifetime of your Medicare policy.
Although Part D is considered voluntary coverage, you can still receive a late enrollment penalty when you delay enrollment. Similar to Part B, you will receive a late enrollment penalty for every month you were without prescription drug coverage. The Medicare Part D late enrollment penalty is 1% of your premium, which rounds to the nearest $0.10. You will continue to pay this penalty for as long as you have Part D.
Medicare can be a complicated subject that takes lots of research to understand thoroughly. Becoming familiar with your healthcare coverage, costs, and penalties are just a few of the many important Medicare topics. There is no such thing as learning too much about Medicare — the more you know, the more confident you will be in making Medicare decisions.