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The AARP Poll Do you know the details of your loved one’s healthcare coverage?

Medicare Basics: What You Need to Know

It’s important that you understand this federal health insurance program. It’s large and complex, with rules about enrollment, benefits, and out-of-pocket costs. So focus on the program’s basics and know where to find more detailed information—you owe it to your parents now and yourself later.

Fundamentals Medicare is a national health insurance program that helps people age 65 and up, and younger individuals with end-stage kidney disease, Lou Gehrig’s disease (ALS), and other disabilities, pay for heath care.

Like most other insurance programs, Medicare does not pay all your health care costs. You’ll pay deductibles, premiums, coinsurance, or co-payments. Neither does Medicare pay for long-term care, an extended stay in a nursing home, or coverage when you travel outside the country. This is why some people choose to buy additional coverage.

You do have a choice of how you get Medicare: Through the Original Medicare Plan, a Medicare Advantage Plan, or one that helps with prescription drug coverage. Which options you choose affect the cost and level of your coverage.

. . . Focus on the program’s basics and know where to find more detailed information—you owe it to your parents now and yourself later.

Original Medicare, also known as traditional Medicare, is a fee-for-service health plan. It lets you choose any doctor or hospital that accepts Medicare.

It consists of Part A, Hospital Insurance, and Part B, Medical Insurance. Part A helps pay for various types of care including inpatient hospital care, limited nursing home and home health, and hospice care. Part B helps pay for doctor visits, medical equipment, some preventive services, some outpatient home health and hospital care, rehabilitation therapy, laboratory tests, x-rays, mental health services, ambulance services, and blood work.

For Part A you usually pay no premiums because most people pay Medicare taxes while they are working. In specific cases, premiums may apply. Coverage for Part B is optional. Part B requires a monthly premium plus an annual deductible and a coinsurance payment of 20 percent of approved charges. Some people wait to sign up for Part B but may pay a late enrollment penalty if the period when they had first qualified has expired.

Original Medicare pays for many health care services and supplies, but does not cover all of your health care costs. To get drug coverage under Original Medicare (also known as Part D), you must also choose and join a Medicare-approved private drug plan.

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  • Who qualifies? U.S. citizens or permanent residents who have paid the Medicare payroll tax for at least 10 years of their work life or have met other specific requirements qualify. At age 65, you’re automatically enrolled in Medicare Parts A and B if you are receiving Social Security or Railroad Retirement benefits. If you’ve decided not to receive Social Security benefits at or before 65, you’ll need to apply for Medicare.

Medicare Advantage Plans offer an alternative to Original Medicare. They are also known as Medicare Health Plans or Medicare Part C. Examples of Medicare Advantage plans include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and Private-Fee-For-Service (PFFS) plans. Each type of Medicare Advantage plan differs from, but has features in common with, the others. Medicare Advantage plans are run by private companies that make the rules and retain the right to change those rules yearly. In most Medicare Advantage plans, you can only go to doctors, specialists, and hospitals on the plan’s list. Some plans will allow you to go outside of the network, but going out of network usually means that you will have higher out-of-pocket costs. Most Medicare Advantage plans offer at least one plan with drug coverage. If you enroll in a Medicare Advantage plan without drug coverage, consider adding a private Medicare-approved drug plan.

  • Who qualifies? People enrolled in Medicare Part A and Part B qualify. Because the Advantage plans are optional, it’s up to you to decide if you need one. Each year brings the chance to stay in your current plan, switch to another Medicare Advantage plan, or return to Original Medicare. People with end stage kidney disease do not qualify for a Medicare Advantage plan.

Medicare Prescription Drug Coverage, or Part D, reduces the costs of prescription drugs. Private companies run Part D plans approved by Medicare. Wherever you live, you’ll find several different plans and sponsors whose benefits and costs vary. Medicare drug plans don’t have to cover every prescription medicine, but they must provide choices within each drug category. They do not cover over-the-counter medicines. Like other insurance, Part D plans require premiums, co-payments, coinsurance, and sometimes deductibles. The costs depend on what drugs you take and which plan you choose.

  • Who qualifies? Because it’s optional, Part D is available to everyone with Medicare coverage. However, if you do not join a Part D plan when you’re first eligible, you will pay a soft penalty of higher premiums unless you have other drug coverage as good as Medicare’s standard version.
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Paying for Medicare

  • Medicare Part D Extra Help Program aids people with Medicare who have limited resources to pay for most of their Medicare Part D premiums, co-payments, and deductibles. It also provides continuous drug coverage throughout the year. If you are enrolled in Medicaid, Supplemental Security Income (SSI), or a Medicare Savings program, you will automatically get Extra Help with paying for Part D. Otherwise, you’ll need to apply first for Extra Help and then enroll in a private Medicare-approved prescription drug plan.
  • Medicare Savings Programs help pay out-of-pocket costs for people with Medicare who have limited resources. The programs are known as the Qualified Medicare Beneficiary (QMB), the Specified Low-Income Medicare Beneficiary (SLMB), and the Qualifying Individuals (QI). The QMB program will pay for Medicare premiums, deductibles, and coinsurance for eligible people who qualify for Part A. It will also pay for the annual Part B deductible and the 20 percent coinsurance costs. If your income is too high to qualify for QMB, you may qualify for SLMB or QI, which fund the Part B monthly premium only.
  • Medigap or Medicare Supplemental insurance pays for some of the health care services and supplies not covered by Original Medicare such as your share of doctor and hospital services. Private companies sell Medigap.
  • Other Ways to Pay for Health Care Costs, in addition to Medicare, include employer retiree health care, union health coverage, veteran’s benefits, military retiree benefits (TRICARE), Federal Employee Health Benefits Program (FEHB), and long-term care insurance.

It is very important to discuss your health care choices with your employer’s plan administrator before you change your current coverage.

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© 2003, 2004, 2007 AARP. Reprinting by permission only.


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