The transition from Major Medical insurance to Medicare can be either easy or hard. It will all depend on your level of understanding. If you assume that Medicare is exactly like the health insurance you had at work, you will be frustrated when you receive medical bills.
If you understand how Medicare works, you will be able to build an insurance portfolio to ease the frustration that comes the first time you need medical treatment after you enroll in Medicare.
In this lesson, you will learn how Medicare works. I will assume that you have qualified for Medicare based on age. There are ways to qualify for Medicare other than age. Medicare is also available to people who have been on Social Security Disability Insurance for 24 months and people with End Stage Renal Disease. However, most people enroll in Medicare when they reach age 65 and have no group health insurance through work.
Medicare is similar to the Major Medical you had during your working years. However, Medicare works differently. You were probably used to having all your insurance is one policy before you retired. When you retire, you will have health insurance that is similar to what your group health insurance gave you while you were working available to you. The difference is that Medicare, instead of one comprehensive plan, is modular. By that I mean that you will be able to pick and chose which coverage you want.
1. MEDICARE PART A
Medicare Part A provides insurance protection for hospital and hospice costs. For most Americans, there is no premium forMedicare Part A. You, or your spouse, paid your “premiums” during your working years in the form of payroll taxes.
When you must go into the hospital, Medicare A will pay 100% of your hospital bills after you have paid the deductible that Medicare charges. That deductible is subject to an annual review by Medicare and will change from year to year.
The deductible with Medicare A is most likely different from the deductible you had with your previous Major Medical health insurance. It is likely that you are used to an annual deductible. Once you paid medical bills to fulfill your deductible option, your insurance company would pay towards your medical bills for the rest of the year.
That is not the case with Medicare. Unless you are readmitted to the hospital for the same reason within 60 days, you will be required to pay your Part A deductible every time you are admitted to the hospital.
For those few people who do not qualify for “free” Medicare A because they have not paid Medicare payroll taxes for the required “40 quarters,” there is a method that allows them to pay for both Medicare parts A and B.
Barring a disability or end stage renal disease, you will be allowed to enroll in Medicare starting on the first of the month that is 3 months before the month of your 65th birthday through the end of the month that is 3 months after your 65th birthday.
If you fail to enroll in Medicare A during this time you will be able to join Medicare during the first 3 months of each year. The problem is that if you elect to pay premiums to join the program later in life, you will pay a 10% penalty. That penalty will last twice as long as the time you could have had Medicare part A but elected not to have it.
For example, if you could have paid to have Medicare A when you first turned age 65 but waited 5 full years until you were 70 to start paying for Medicare, the “premium” that Medicare will charge you will include a 10% additional penalty amount for 10 years.
2. MEDICARE PART B
When you had private health insurance during your working years, both your hospital and doctor’s bills were paid by the same insurance plan. You had no divisions to monitor. Unfortunately, that is not the case with Medicare.
Medicare has a separate division to pay for your doctor’s bills. Since Medicare charges an additional premium for Medicare B, it is optional. If you are automatically enrolled in Medicare when you turn 65, you will automatically be enrolled in Part B. You will be able to opt out of the program if you do not want to pay the additional premium.
Before you opt out of Medicare B, think about it. Many people are confused. They think that the “free” part of Medicare, Part A, will pay for everything. They do not figure on the fact that their doctor bills separately from the hospital. While hospital bills are paid by Medicare A, your doctor bills Medicare separately. Whether he sees you in or out of the hospital makes no difference. All of your doctor’s bills are paid by Medicare B.
After you have paid a nominal deductible (in 2012 the deductible was only $140), Medicare B will only pay your doctor 80% of the “Medicare Approved” amount of your doctor’s charges. You are responsible to pay the additional 20%.
If you elect to go to a doctor who “does not participate in Medicare” and you have Medicare B, you will need to first pay your doctor. Non-participating doctors may charge up to 115% of Medicare’s Approved amount for their services. Medicare will only reimburse you for 80% of the “Approved” amount for your treatment. You would be responsible to pay your doctor both the additional 20% of the “Medicare Approved” as well as any charges he makes above what Medicare pays.
Below is a sample of how a typical doctor’s office bill is handled by Medicare if you elect to use a doctor who “does not accept Medicare.
There is another difference between the health insurance you are accostumed to and Medicare B. The Major Medical plan you had during your career most likely had a “Stop Loss” provision. After you paid a pre-determined amount of money, called a “Maximum Out-Of-Pocket,” your private insurance company paid 100% of any medical costs you had for the rest of the year.
Medicare B works differently. There is no “Stop Loss.” You would be liable to pay 20% of everything Medicare B pays. The average American will spend close to $250,000 on health care during retirement. Most of that will be spent through Medicare B. If you only spend $200,000, you will have to pay $40,000.
3. MEDICARE D
Not only must you be aware that Medicare’s process for paying your doctor and hospital bills are different from your private Major Medical health insurance, you also need to be aware that neither part A nor part B of Medicare will pay for your prescription drugs.
If you want Medicare to help you with your prescriptions, you must have a Medicare D (Prescription Drug Plan). Although they are regulated by the Centers for Medicare and Medicaid Services (CMS) they are sold through private health insurance companies.
A discussion about how Medicare D plans work is best left for another lesson. The rules are subject to change every year. In this lesson I will attempt to briefly explain why you may want to enroll in Medicare D even if you are not required to take prescription drugs at this time.
Medicare D is only available for those who are enrolled in Medicare B. Your Initial Enrollment Period (IEP) is only 90 days from the time you enroll in Medicare B. If you have not elected a Medicare D plan during that time, you must wait until the next Annual Enrollment Period (AEP).
The problem is that if you do not enroll in a Medicare D plan during your Initial Enrollment Period and later elect to enroll during an Annual Enrollment Period, unless you qualify for a Special Election Period, you will have to pay a penalty. The penalty for not enrolling in Medicare B during your Initial Enrollment Period is 1% of the national average premium for Medicare D for each month that you were eligible for Medicare D but elected not to get it. That premium lasts for your entire life. It never goes away.
Medicare D plan premiums are relatively low. For the past couple of years, the national average premium has been around $32 a month. As the costs for prescription drugs change, that premium is subject to change each year.