Medicare 101: A Guide to Understanding Your Benefits (Parts A-D)

Medicare impacts millions of seniors every year, but few people understand how it works. There are many layers to Medicare and important decisions that need to be made, and retirees (as well as those working past age 65) are often left to educate themselves and determine the best health care choices for their situation.

Making the wrong decisions with your Medicare benefits could lead to higher premiums, higher out-of-pocket drug costs, and even paying more in taxes.

In this guide, we will cover the basics of Medicare, the various coverage components, and the important considerations for Medicare enrollment, so you can make the best decision for your situation.

Jump to section:

• What is Medicare?
• How is Medicare paid for?
• When do I enroll in Medicare?
• What is NOT covered by Medicare?
• What are the different parts of medicare?
• Understanding Medicare Part A
• Understanding Medicare Part B
• Understanding Medicare Part D
• Understanding Medigap Insurance
• Understanding Medicare Part C
• Important Considerations for Medicare Enrollment

The Basics of Medicare

What is Medicare?

Medicare is a government program, administered by a branch of the Department of
Health and Human Services (HHS), providing health insurance designed for those ages 65 and older and in some cases, younger individuals who need certain assistance.

Medicare looks and feels like your typical health insurance plan. You pay a monthly premium along with deductibles, co-payments, and coinsurance in exchange for health coverage.

What differentiates Medicare from employer-provided health plans is the complex benefit elections and multitude of decisions that you must make on your own.

How is Medicare paid for?

Medicare is funded through payroll taxes, earnings on investments inside of the Medicare trust fund, and taxes on Social Security benefits.

When do I enroll in Medicare?

Medicare enrollment typically occurs at or around age 65, depending on your circumstances and birth month, and happens in several ways.

For Medicare Parts A and B, you are automatically enrolled if any of the following apply to you:

1. You are receiving Social Security benefits at the time you reach age 65
2. You receive Railroad Retirement benefits
3. You are already receiving Medicare because you have been eligible for Social Security disability benefits for 24 months

Individuals who do not meet any of these qualifications have to enroll themselves. Failing to enroll or enrolling late can result in penalties via increased premiums.

For Medicare Parts C and D, enrollment is not automatic, and you must choose a private insurer to proactively enroll for these coverages.

To avoid any penalties or lapses in coverage, it’s important to enroll during your initial enrollment period (three-month window before the month you turn age 65 and the 3 months after you turn age 65).

If you miss your initial enrollment period, you will have to wait to obtain coverage during the general enrollment period, which is January 1-March 31 (for coverage starting July). This would potentially result in a lengthy and unwanted delay in health coverage.

Individuals who are still employed at age 65 and participate in their employer’s group health plan may qualify for a Special Enrollment Period (SEP). If this describes you, you can check with your benefits administrator to discuss the pros and cons of enrolling in Medicare while still employed. If they advise you not to enroll in Medicare while still covered under their plan, you will qualify for an SEP based on when you retire or terminate employment.

Click here to learn more about Medicare and special enrollment periods.

What is NOT covered by Medicare?

It’s important to understand what is not covered by Medicare, as many of these costs will need to paid from your retirement savings, such as:

1. Dental care
2. Eye examinations related to prescription glasses, dentures, and cosmetic surgery
3. Acupuncture
4. Dentures
5. Cosmetic Surgery
6. Routine Physical Exams
7. Hearing Aids and examinations for fitting them
8. Long-term care services

To learn more about the specifics of Medicare, the government publishes an annual
resource, Medicare & You, that reviews the Medicare system and coverages in greater
detail.

What are the different parts of Medicare?

The following sections will detail out each part of Medicare (and their costs), but here is a general overview:

You have the option of either enrolling in Original Medicare, or you can elect to purchase a single Medicare Advantage policy through a private insurer. This decision depends on your preferred doctor, overall financial situation, and health care needs. Consult with a financial advisor or health insurance specialist to determine what is most appropriate for you.

Understanding Medicare Part A

What does it cover?

There are 4 major coverage components of Medicare Part A: inpatient hospital care, skilled nursing care, home health care, and hospice care.

Inpatient Hospital Care

Part A includes coverage for the following hospital expenses:

1. A semi-private room
2. Meals during your hospital stay
3. Nursing services
4. Medications that are part of your inpatient hospital treatment
5. Any other services and supplies from the hospital that are deemed necessary by a
   doctor

Requirements that must be met for inpatient hospital care to be covered under Part A:

• You are admitted to a hospital as an inpatient under an official doctor’s order, which says you need inpatient hospital care to treat your illness or injury
• You are admitted to a hospital that accepts Medicare (this can be determined using the Medicare website)

Part A does not cover the following services while you are in the hospital:

• Private-duty nursing
• Private room (unless it is determined to be medically necessary)
• Television and phone in your room (if there’s a separate charge for these items)
• Personal care items like shampoo, razors, or slippers
• Visits from the doctor

Skilled Nursing Care

Part A covers the following services in a skilled nursing facility:

1. A semi-private room
2. Meals during your stay in the skilled care facility
3. Skilled nursing services
4. Rehabilitation services, if medically necessary
5. Medical social services
6. Medications that are part of your skilled care facility
7. Medical supplies and equipment used as part of your skilled care
8. Ambulance transportation to nearest provider, if the required services are not
   provided at your current facility

Requirements that must be met for skilled nursing care to be covered under Part A:

• You have completed a 3-day required hospital stay for a related illness or injury
• A doctor certifies that you need daily skilled care that otherwise could not be
  provided at home

Home Health Care

Medicare Part A covers certain home health care services if they are deemed medically
necessary and ordered by your doctor, including:

1. Part-time or intermittent skilled nursing care (not full-time care)
2. Physical therapy
3. Speech-language pathology services
4. Occupational therapy
5. Medical social services
6. Part-time or intermittent home health aide services
7. Some costs related to durable medical equipment if ordered by your doctor

Requirements that must be met for home health care to be covered under Part A:

• You have a medically necessity for part-time services that require some form of
  skilled care or therapy
• A doctor specifically orders the care and you are home bound
• A Medicare certified home health agency administers the care

Hospice Care

If you are determined to have a terminal illness (a life expectancy of 6 months or less) by
your doctor, Medicare Part A will cover hospice care, which may include:

1. All items and services needed for pain relief and symptom management, including
   drugs and medical equipment
2. Medical, nursing, and social services
3. Aide and homemaker services
4. Spiritual and grief counseling

Hospice care may be delivered in your home or a local Medicare facility, such as a nursing home.

What does it cost?

Part A does not require a monthly premium for most seniors. Eligibility for Social Security
benefits is the main determinant of whether if you will need to pay a premium for Part A
coverage.

• To qualify for premium-free Part A coverage, any of the following must apply:
• You are already receiving Social Security benefits
• You’re eligible to get Social Security benefits but have not yet filed for them
• You or your spouse had Medicare-covered government employment

Once you have determined whether or not you will need to pay a premium for Medicare
Part A, you can determine what your costs will be:

Inpatient Hospital Care

*A benefit period begins on the first day of inpatient services and ends after the patient hasn’t received care in a hospital or skilled care facility for 60 days. Each benefit period is limited to a total of 90 days of inpatient hospital coverage.
There is no limit to the number of benefit periods you receive, but the deductible will apply when each new benefit period is activated.
**You also have a lifetime total of 60 days of reserve time to use when you run over the 90 day benefit period limit but need continued care. Rather than paying 100% of the costs after day 90, there is a $800/day coinsurance for using each lifetime reserve day (60 days total).

Skilled Nursing Care

Home Health Care

Hospice Care

*In the rare case that the prescription is not covered by the hospice benefit, the provider should contact your Medicare Prescription Drug plan to see if it’s covered under Part D

Understanding Medicare Part B

While Part A provides coverage for hospital, in-home, and institutional services, Medicare Part B primarily deals with doctor’s services and preventative care.

What does it cover?

Medicare Part B coverage incentivizes you to stay healthy by covering the following preventative care services:

1. Annual wellness exams
2. Many preventative screening exams, such as mammograms and colonoscopies
3. Flu shots
4. Smoking and obesity counseling

In the event that health care is needed, Part B covers the following medical services:

1. Medically necessary doctor’s visits (even while staying in the hospital, covered under
   Part A)
2. Approved procedures, such as x-rays, casts, stitches, or outpatient surgeries
3. Home health services
4. Durable medical equipment
5. Ambulance services when other transportation options would risk your health

What does it cost?

*If you are collecting Social Security the base monthly premium amount will be automatically deducted from your monthly benefit.
If you are delaying Social Security benefits then you’ll receive a bill in the mail with various payment methods available.
**There is also a potential additional monthly premium surcharge, known as the income-related monthly adjustment amount (IRMAA), that is applied on top of the $164.90. This adjustment is based on the modified adjusted gross income reported on your IRS tax return from 2 years ago:

Source: https://www.medicare.gov/your-medicare-costs/part-b-costs

Understanding Medicare Part D

What does it cover?

Part D offers prescription drug coverage to everyone with Medicare. Obtaining drug coverage under Medicare requires enrolling in a private plan approved by Medicare that offers a minimum amount of coverage. These plans will vary in cost and also the types of drugs that are covered.

What does it cost?

Premium costs for Medicare Part D are not standardized and may vary significantly by
plan. Your actual drug plan premium costs will vary depending on:

• The actual drugs that you use
• Whether you go to a pharmacy in your plan’s network

**Visit the Medicare website and enter the drugs you take and your ZIP code to see available plan options and costs.
*There is a potential additional monthly premium surcharge, known as the income-related monthly adjustment amount (IRMAA), that is applied on top of the base premium you pay. This adjustment is based on the modified adjusted gross income reported on your IRS tax return from 2 years ago:

Source: https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/monthly-premium-for-drug-plans

Understanding Medigap Insurance

* Plans F and G also offer a high-deductible plan in some states. With this option, you must pay for Medicare-covered costs (coinsurance, copayments, and deductibles) up to the deductible amount of $2,700 in 2023 before your policy pays anything. (Plans C and F aren’t available to people who were newly eligible for Medicare on or after January 1, 2020.)
** For Plans K and L, after you meet your out-of-pocket yearly limit and your yearly Part B deductible, the Medigap plan pays 100% of covered services for the rest of the calendar year.
*** Plan N pays 100% of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that don’t result in inpatient admission.

What does it cover?

Medigap policies are sold by private companies to aid in covering costs that the other
parts of Medicare do not cover, such as copayments, coinsurance, and deductibles.

There are 10 standardized Medicare supplemental plans available for purchase. The
Medicare website provides a great overview of these plans and the different coverages
and characteristics.

Here are some tips when shopping for a Medigap policy:

1. Choose the policy that offers the coverage you need
2. Choose a reputable company offering that policy at the lowest price
3. Make sure your health care provider processes the billing for the company you
   choose.

What does it cost?

Visit the Medicare website to estimate costs for Medigap policies in your area.

Understanding Part C

Medicare participants also have a choice to elect a Medicare Advantage Plan, or a “Part C” plan.

Functioning much like an HMO (Health Maintenance Organization) or PPO (Preferred
Provider Organization), Medicare Advantage Plans are offered by private companies
approved by Medicare.

What does it cover?

Unlike Medigap policies meant to supplement Medicare coverage, Part C Advantage
Plans typically provide all Part A (Hospital) and Part B (Medical) coverage. Most include
Part D (prescription drug) coverage as well. They may also offer extra coverage not
included in the typical Part A and Part B medicare plan (hearing, dental, vision, etc)

What does it cost?

Since offered by private insurance companies, Part C Medicare Advantage Plans
can charge variable out-of-pocket costs and have different rules for how services are
accessed.

Important Considerations for Medicare Enrollment

As you can see, there is a lot of nuance to Medicare cost and coverage. Accounting for the various parts of Medicare and what they mean for your out-of-pocket costs is an
incredibly important consideration of a comprehensive retirement plan.

According to the Employee Benefit Research Institute (EBRI), a man needs about
$144,000 and a woman needs about $162,000 to have a 90% chance of having enough savings for health care expenses in retirement.

You will want to have ample retirement resources available for these health care expenses, so you can avoid stressful or unexpected financial situations. We recommend working with a financial advisor on a retirement plan that takes into account your projected Medicare costs and out-of-pocket costs to help you better prepare for one of life’s biggest transitions.