Medicare is a federal health insurance program for people 65 years and older. Millions of Baby Boomers enroll in the program each year and depend on it to cover medical expenses.
Medicare can be difficult to understand, causing new applicants unexpected and unwelcome confusion and stress. This article will outline the program in clear terms to help Baby Boomers understand exactly what Medicare is.
Note: Medicare and Medicaid are often confused. You can learn about Medicaid here. Or learn the differences between Medicare and Medicaid here.
What is Medicare?
Established in 1965, Medicare is a U.S. health insurance system that covers most, if not all of the costs of medical care for people aged 65 and older. The program is funded through a 1.45% payroll tax you’ve been paying throughout your working years. Medicare is a benefit you have earned.
When you sign up for the program you are enrolled in “Original Medicare.” Original Medicare is defined as a “Fee For Service” health plan that is made up of two central pieces: Hospital Insurance (also known as Medicare Part A) and Medical Insurance (also known as Medicare Part B.) When you enroll in the program, you get Part A and Part B. If you want prescription drugs covered, you’ll need to enroll and pay separately for a Medicare Part D program. These programs are available through an insurance company or other private company approved by Medicare.
When you receive medical services you will be required to pay a deductible. The remaining balance due for the services received is covered through the program but the amount paid will be limited to a Medicare-approved amount. If there is still a remaining balance due, you are responsible to pay it.
In reality, Medicare ends up covering approximately 50% of medical expenses incurred by those enrolled in the program. The remaining 50% of health care costs are generally covered by separate private insurance policies and/or through publically available Part C or Part D Medicare health plans.
Why is Medicare Important For Baby Boomers?
Before the program was introduced in 1965, close to 33% of senior adults lived below the poverty line. When they got sick or seriously ill the impact on their finances could be devastating. Medicare helped shift most of the financial burden off of the individual, often protecting them from financial ruin.
The issue of poverty among Baby Boomers aged 65 or older has improved greatly since the inception of Medicare. According to a study from the Congressional Research Service, the percentage of 65+ year olds living in poverty is under 10%. But the benefit to most Baby Boomers is still the same, saving them from health-related expenses that might otherwise ruin their financial stability.
Who Qualifies for Medicare Benefits?
The most basic eligibility requirement for most recipients is that you have reached the age of 65. In some situations, younger people with disabilities also qualify for benefits. For example, anyone in the final stages of renal disease can claim benefits.
Much like the Social Security benefits program, Medicare requires that U.S. citizens pay taxes for a certain period of time to qualify for coverage.
Work credits are used to measure Medicare eligibility. When enrolling in the program, you will need to have earned 40 credits which amounts to about 10 years of paying employment taxes to claim full benefits. If you don’t personally have a full 40 credits, you may still be able to enroll if your spouse qualifies.
How Much Does Medicare Cost?
Your income at the time of application determines how much your Medicare costs. The majority of Americans don’t have to pay for Part A since they paid Medicare taxes for the required 40 quarters. Medicare.gov reports that the premium charge for people who worked 30 to 39 quarters is a reasonable $259 per month. People who paid these taxes for less than 30 quarters can purchase coverage for a $471 premium.
According to Medicare.gov, Part A has a $1,484 deductible due for each benefit period. Coinsurance charges are broken down also with $0 due from the 1st to the 60th day. From day 61 to 90, there is a $371 coinsurance fee. After day 91, coinsurance costs $742 per day for each benefit period.
The Part B plan monthly premium charge is $148.50 as of 2021 rates. Premiums can be higher for higher-income people. The associated deductible and coinsurance amount is $203. Once the deductible is paid, seniors must pay typical charges of 20% of approved doctor services, medical equipment charges and outpatient therapy bills. Medicaid can be used to pay premiums to cover low-income seniors in some cases.
Part C, commonly referred to as a Medicare Advantage Plan, offers coverage for costs that the Original Plan does not pay. Each plan is different and designed for specific needs. Over-the-counter drugs and transportation to the doctor’s office are also benefits offered by many plans. Medicare pays a predetermined amount monthly to companies that offer Advantage Plans.
The amount seniors pay for Medicare Advantage Plans varies based on the doctors and providers you use. One way to save money is to exclusively use network providers. Many plans won’t pay provider’s bills if they are not in the network or specified service area.
It is noteworthy that the majority of Advantage Plans offer Part D prescription drug coverage. Don’t assume that every Medicare Advantage Plan has drug coverage since some don’t.
What Are “Medicare Parts” and What They Cover?
While we discussed Medicare costs in the section above, it is equally important to understand what each part covers. The four parts of Medicare are designated as Part A, Part B, Part C, and Part D.
Medicare Part A is generally referred to as hospital insurance since it covers hospital care. It also covers home health care services, home health care and stays in a skilled nursing facility. It is important to remember that there are time limitations on coverage in nursing care facilities. You should also read the fine print that defines how long home health care services are covered. Hospice care is also covered for a limited amount of time which makes the timing of when care begins very important.
Medicare Part B is essentially medical insurance that covers expenses unrelated to the hospital such as blood tests, doctor’s visits, outpatient hospital care, X-rays, and diabetic supplies. The good news about Medicare B is that it typically pays for the majority of lab tests and medical services your physician orders.
Medicare Advantage Plans cover services not paid by Plan A and B. If you anticipate expenses associated with your hearing, vision, dental and fitness expenses like gym membership, then you’ll want to sign up for n Advantage Plan. Other unique expenses like transportation to and from the doctor and over-the-counter drugs are also covered by many of these plans.
Medicare Part D is sold as a prescription drug plan. Private insurance companies compete for this business. Based on the plan you choose, you can count on paying a deductible, a copayment fee and a coinsurance cost. Many baby boomers obtain this benefit via their Medicare Advantage Plan.
What is NOT Covered by Medicare?
Original Medicare doesn’t cover hearing aids, eyeglasses, dentures, cosmetic surgery, medical marijuana, sterilization, prescription drugs, and medical expenses incurred outside of the U.S. As mentioned above, Medicare Advantage Plans are purchased by many seniors to cover these common costs.
Many adults decide to enroll in long-term care insurance since Medicare does not cover it. As unpredictable as the future is, it is important to be prepared for every possibility.
How to Sign Up For Medicare
As you approach your 65th birthday, you’ll want to start researching Medicare Plan information. You can sign up for the program beginning as early as three months before your 65th birthday and as late as three months after your birthday. This initial enrollment period is when you will want to sign up for Part A and Part B. You can also sign up for an Advantage Plan or Medicare Part D for prescription drug coverage.
NerdWallet emphasizes the importance of signing up for Part B and Part D on time. The penalties associated with signing up late are expensive. In the event you select a Medicare Advantage plan, then your Part A and B coverage is included and the penalties for late signup are waived.
The general enrollment period is not the same as the initial enrollment period. The general enrollment period offers baby boomers another chance to sign up for Medicare Part B or an Advantage plan. General enrollment starts on January 1st each year and lasts until March 31st.
If you are already signed up for Medicare and want to make some changes, then there is a fall enrollment period that runs from October 15th to December 7th when you can make those necessary adjustments. Since your health needs can change quickly, it is always a good idea to review your coverage regularly.