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Medicare 101

A Basic Description of Medicare

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Updated June 27, 2014

Medicare is a health payer program of the United States Federal Government that provides payment coverage support for health and medical care. It was first enacted in 1965 to help those who could not afford health or medical care in their retirement years, or who were totally disabled from certain diseases like end-stage renal disease. Today, millions of American citizens who are age 65 and older, and millions of younger people who suffer from those specific diseases receive Medicare assistance.

The Medicare program is administered by Centers for Medicare and Medicaid Services (CMS) under the US Department of Health and Human Services (HHS). It is supported by federal taxes through payroll deduction from the time an individual first goes to work as a young person, right through his or her retirement from the workforce, plus premiums that are charged to those people who did not pay in enough over the course of the working years. That means that if you worked for a living, you have already paid for Medicare coverage, or at least part of it.

When an American citizen turns 65, then he or she becomes eligible for Medicare coverage to help pay for health or medical care as it becomes necessary.

Coverage falls into four different areas, called "Parts."

Medicare Parts A, B, C and D - What Do They Mean?

The different "parts" refer to the different types of payment support and coverage provided by Medicare:

  • Medicare Part A is in-patient hospital coverage, plus skilled nursing, hospice and home health care
  • Medicare Part B is for doctor visits and preventive services like screening tests
  • Medicare Part C is the part that covers Medicare Advantage plans which are managed care provided by private companies. These are optional plans that Medicare patients may choose to pay for separately.
  • Medicare Part D is drug coverage.

All Medicare recipients get minimal, basic payment assistance for Parts A, B and D covering hospital stays, doctor visits and to pay for some drugs. That does not mean they are free - it just means they are partially paid for, depending on how much you paid in during your working years (see below) and what your current annual income is. The extra costs will come in the form of premiums and/or co-pays.

Coverage under Part C incurs additional cost and may be elected by those who can afford it. When an individual chooses a Medicare Advantage or Medigap plan under Part C, that means they will manage their health insurance just like they did previous to their Medicare years, through a private payer. However, since they are a Medicare patient, that private payer will get paid two ways: by them as individuals, and by the federal government, too.

What Does Medicare Coverage Cost?

It won't surprise you to learn that the answer to the question of cost is, "it depends."

If you worked for a living prior to turning age 65, then you paid into Medicare through your employer. In effect, you were purchasing health insurance for your post-65 years with every paycheck you received. Money was deducted from your pay, and if it wasn't enough, then you paid even more when you filed your federal income taxes.

Depending on the choices you make for that post-65 coverage, you may pay more for your Medicare coverage as you go along. For example, if you choose a Medicare Advantage or a Medigap plan then you may pay additional premiums, presumably for enhanced coverage. Most Medicare patients also pay premiums and co-pays, depending on their annual income. Depending on the drug plan you choose, you may pay more or less for the prescription drugs you need. If you want to be covered while traveling outside the United States, or want a private room in the hospital, you may also pay more.

It's those choices, and their relationship to cost, that make open enrollment important since that's when Medicare patients choose what options they want in place for the following year.

What is Open Enrollment?

For a period of several weeks during the last quarter of each year, October through December, those citizens who are eligible for Medicare the following year, can make choices about their Medicare services for that next year. This period is called Medicare Open Enrollment. It is similar to the open enrollment period used by most private health insurers.

There are several choices to be made during Medicare open enrollment. Similar to private health insurance choices, seniors base their decisions on which doctors they want to choose from, what sort of drug coverage is necessary, how much of a premium they can (or want to) afford and more.

Each year there are changes. At a minimum, the premium amounts change. Often, the types of coverage change. Plans offered one year may be dropped or expanded by the private insurers that offer Medicare Advantage coverage.

There are also changes due to healthcare reform each year which are intended to make access easier, some of which are focused on preventive healthcare, too.

Where Can I Learn More About Medicare?

There are excellent resources available for learning more about Medicare, your eligibility, Open Enrollment and Medicare Advantage Plans, too:

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