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Wealth Management

Understanding Medicare

Medicare is a federal program that provides health insurance to retired individuals—regardless of their medical condition—and certain younger people with disabilities or end-stage renal disease. This article contains extensive details on the most relevant parts of Medicare and details the changes that may be made during the end-of-year Medicare open enrollment period (OEP) which we are currently in.

This article contains extensive details on the most relevant parts of Medicare and details the changes that may be made during the end-of-year Medicare open enrollment period (OEP) which we are currently in. The enrollment period ends December 7, and thus it is important to note the few items that are extremely important to pay attention to during this time and the potential changes that can be made:

  • The Medicare Part D prescription drug plan you currently have may need to be switched
  • You may need to add a Medicare Part D prescription drug plan if you don’t have one
  • You may want to change your Medicare Advantage Plan
  • You may want to switch from original Medicare to a Medicare Advantage Plan or vice versa

What You Need to Know about Medicare

Medicare is a federal program that provides health insurance to retired individuals—regardless of their medical condition—and certain younger people with disabilities or end-stage renal disease. We’re currently in the Medicare OEP, which runs each year from October 15 through December 7 and allows those over age 65 to make changes to their coverage, which then take effect on January 1.

Below are some key facts about Medicare and the potential changes that can occur during the end-of-year Medicare OEP to help you make sound decisions about your coverage.

What Does Medicare Cover?

Medicare coverage consists of two main parts: Medicare Part A and Medicare Part B. These parts together are known as Original Medicare. A third part, Medicare Part C (Medicare Advantage), covers all Part A and Part B services and may provide additional services. A fourth part, Medicare Part D, offers prescription drug coverage that can help you handle the rising costs of prescriptions.

Medicare Part A (Hospital Insurance)

Generally known as hospital insurance, Part A covers services associated with inpatient hospital care. These are the costs associated with an overnight stay in a hospital, skilled nursing facility, or psychiatric hospital, including charges for the hospital room, meals, and nursing services. Part A also covers hospice care and home health care.

Medicare Part B (Medical Insurance)

Generally known as medical insurance, Part B covers other medical care. Physician care—whether you received it as an inpatient at a hospital, as an outpatient at a hospital or other healthcare facility, or at a doctor’s office—is covered under Part B. Laboratory tests, physical therapy or rehabilitation services, and ambulance service are also covered. Medicare Part B also covers 100 percent of the cost of many preventive services and an annual wellness visit.

Medicare Part C (Medicare Advantage)

A Medicare Advantage plan is a private healthcare plan that contracts with Medicare to provide Part A and Part B benefits. A Medicare Advantage plan covers all the services that Original Medicare covers except hospice care. Some plans offer extra coverage for expenses not covered by Original Medicare, such as vision, hearing, dental, and other health expenses. Most also offer prescription drug (Part D) coverage. Several types of Medicare Advantage plans may be available, including health maintenance organization (HMO) plans, preferred provider organization (PPO) plans, private fee-for-service (PFFS) plans, and special needs plans (SNPs). You can choose to enroll in either Original Medicare or a Medicare Advantage plan. If you enroll in a Medicare Advantage plan, you’ll generally pay a monthly premium for it, in addition to your Part B premium.

Roughly two-thirds of all Medicare Advantage plan participants are enrolled in HMO-style plans, where care must generally be provided by an in-network provider, with many of the remaining participants enrolled in PPO-style plans, where participants can receive care from an out-of-network provider but will pay more for that benefit. Many Medicare Advantage plans offer additional benefits, such as coverage for hearing aids, dental, and vision expenses. Choosing a Medicare Advantage plan may be a very cost-effective decision, at least for those who have a reasonable network of doctors in their local Part C Medicare Advantage plan based on their geographic location.

Like Medicare Part D drug plans, Medicare Advantage plans may change their drug formularies each year. They may also make other changes throughout the year, such as altering the network of doctors or changing the list of covered services, which could make it beneficial for those covered by a Medicare Advantage plan to switch to another Part C plan instead.

We can help you perform a Medicare Advantage plan review each year. In addition to checking the drug coverage to make sure critical medications will continue to be covered in a cost-effective manner, we will make sure any doctors that you absolutely have to be able to see are still covered by the plan.

Medicare Part D (Prescription Drug Coverage)

All Medicare beneficiaries are eligible to join a Medicare prescription drug plan offered by private companies or insurers that have been approved by Medicare. Although these plans vary in price and benefits, they all cover a broad number of brand name and generic drugs available at local pharmacies or through the mail. Medicare prescription drug coverage is voluntary, but if you decide to join a plan, keep in mind that some plans cover more drugs or offer a wider selection of pharmacies (for a higher premium) than others. You can get information and help with comparing plans on the Medicare website, medicare.gov, or by calling a Medicare counselor at 1-800-Medicare.

From year to year, it’s common for Medicare Part D plans to change their drug formularies—their lists of covered prescription drugs—and if left unchecked, this could come as an unwelcome surprise when someone is left footing the bill for previously covered drugs that now become expensive. In September, Medicare participants receive an evidence of coverage (EOC) document, which details plan coverage and expenses, and a plan annual notice of change (ANOC) document that includes explanations about any changes in coverage and costs that will come into effect in the following year.

Generally, individuals using original Medicare, who don’t have creditable drug coverage, should sign up for Medicare Part D during the initial enrollment period for Part D coverage. This is the six-month span around the month in which a person reaches their 65th birthday (three months prior to your 65th birthday and three months after the month of your 65th birthday). Without other creditable drug coverage, signing up for Part D coverage during the initial enrollment period is critical as it avoids the late enrollment penalties for delayed Medicare Part D.

Typically, the penalty is assessed to Medicare Part D participants with gaps in creditable coverage for 63 days or longer after the end of their initial enrollment period is equal to one percent of the national base beneficiary premium times the number of full uncovered months after the end of the initial enrollment period. This penalty applies for life, unless the Medicare participant decides to drop prescription drug coverage altogether, and must be paid in addition to the actual Medicare Part D plan premium and any income-related monthly adjustment amount (IRMAA). The decision to not sign up for Medicare Part D on time, but to do so later, can have long-term consequences.

What Is Not Covered by Medicare Parts A and B?

Some medical expenses are not covered by either Part A or B. These expenses include:

  • Your Part B premium
  • Deductibles, coinsurance, or co-payments that apply
  • Most prescription drugs
  • Dental care
  • Hearing aids
  • Eye care
  • Custodial care at home or in a nursing home

Medicare Part C may cover some of these expenses, or if you’re enrolled in Original Medicare you can purchase a supplemental Medigap insurance policy that will help cover what Medicare does not.

Can I Switch between Medicare Advantage and Original Medicare?

During the Medicare OEP, you can switch from original Medicare to a Medicare Advantage Part C plan. You can also use the Medicare Open Enrollment period to leave the Medicare Advantage program and return to original Medicare. Original Medicare offers a few advantages over most Medicare Advantage plans, including a typically much wider group of covered healthcare providers or a bigger network.

How Much Does Medicare Cost?

Medicare deductible amounts and premiums change annually. Here’s what you’ll pay in 2019 if you’re enrolled in Original Medicare:

The standard Part B premium amount in 2019 will be $135.50. Many people will pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS income tax return from two years ago is above a certain amount, you’ll pay the standard premium amount and an income related monthly adjustment amount (IRMAA). IRMAA is an extra charge added to your premium.

Who Administers the Medicare Program?

The Centers for Medicare & Medicaid Services (CMS) has overall responsibility for administering the Medicare program and sets standards and policies. The CMS also manages the official government website for Medicare, medicare.gov. But it’s the Social Security Administration (SSA) that processes Medicare applications and answers Medicare eligibility questions.

How Do You Sign Up for Medicare?

You’ll be automatically enrolled in Medicare when you turn 65 if you’re already receiving Social Security benefits, or when you apply for Social Security benefits at age 65. In either case, the SSA will notify you that you’re being enrolled.

Although there’s no cost to enroll in Medicare Part A, you’ll pay a premium to enroll in Medicare Part B. If you’ve been automatically enrolled in Part B, you’ll be notified that you have a certain amount of time after your enrollment date to decline coverage. Even if you decide not to enroll in Medicare Part B during the initial enrollment period, you can enroll later during the annual general enrollment period that runs from January 1 to March 31 each year. However, you may pay a slightly higher premium as a result.

If you decide to postpone applying for Social Security past your 65th birthday, you can still enroll in Medicare when you turn 65. The SSA suggests that you call (800) 772-1213 three months before you turn 65 to discuss your options. The easiest way to apply for Medicare is online at socialsecurity.gov.

While traditional year-end planning items, such as tax-loss harvesting, year-end Roth conversions, and planning your tax deductions often have significant impacts, in many instances, a year-end review of your Medicare coverage—prior to the end of the Medicare OEP—may prove to be the most valuable year-end planning you do from one year to the next.

Source: Broadridge Investor Communication Solutions, Inc.