Wednesday, January 4, 2012

Quick-and-Dirty Medicare Basics

Image by Double--M

With the number of articles decrying the expense of Medicare, many people assume that this government program will cover the majority of medical expenses for retirees. This is not true. Older adults have a number of expenses they must cover in order to have adequate health care.

I hesitate to address health costs at all since there are so many variables, programs, and exceptions. Nevertheless, my short time as a volunteer Medicare counselor (six months and counting) has helped me learn a few basics, so let me share them. Again, this is very general information that only serves as a starting point.

Medicare Part A coverage (hospital insurance) is usually provided for free if you or your spouse paid Medicare taxes while working. There are some exceptions which require individuals to pay for Part A (roughly $450 a month), which you can read about online at Even if you have earned Part A coverage, there are co-pays, limits to the number of days Medicare will pay for hospital stays, and some treatments not covered at all.

Many people start Medicare Part B coverage (medical insurance) once they retire and leave their employer's medical insurance. Part B monthly premiums are usually deducted from your Social Security benefits check. Most members of the middle class will have a monthly premium near $100. There are penalties if you do not sign up on time, so start researching this well before you turn 65.

Instead of having Medicare Parts A and B, some people choose to enroll in Medicare Part C, also called Medicare Advantage Plan. This is like an HMO or PPO. Depending on which company provides the insurance, Part C may or may include drug coverage. They have very low monthly premiums, but they have more limitations on what doctors and hospitals you can use, and they bill for many extra costs if you do fall ill. Part C plans work well if you maintain good health. The out-of-pocket expenses increase rapidly if you have a major medical problem. I recently talked with a woman on Plan C who had a heart surgery, and her out-of-pocket expenses were near $10,000.

Medicare Part D (prescription drug coverage) is a relative newcomer. The amount a person pays is difficult to generalize. Drug plans are purchased through private insurance companies that are monitored by the government. Even though the premiums will most likely stay consistent from month to month (around $40 for many), there are differences in deductibles and co-payments. Some policies have low premiums but high co-pays and deductibles, so it is important to see projections for the entire year. A woman who came in for free counseling where I volunteer here in Kansas found a plan that would cost her around $1,100 over the year in premiums, deductibles and co-pays.

The Medicare website has an amazing tool called the Plan Finder that can estimate costs using information supplied by various insurance companies. Over a year, a person could pay just a few hundred dollars for prescription medications. Another individual could pay thousands. If a person must take some very expensive medications, the high out-of-pocket costs cannot be entirely avoided. However, by using The Plan Finder to comparison shop, individuals might save a few hundred dollars over a year by finding an insurance company that offers lower prices for certain prescription medications compared to their competitors. During open enrollment (October 15th through December 7th), people can change drug plans. As a volunteer, I saw one person save nearly $800 a year for the same set of drugs merely by switching insurance companies with the help of a SHIP counselor who used the Plan Finder to comparison shop.

Because Medicare Parts A and B only provide limited coverage, many people buy additional coverage called Medigap or Supplemental Insurance. For example, there is no co-pay for the first 20 days of a hospital stay, but the co-pay after that is $141.50 a day (2011 rate) until day 101 when Medicare will pay again. Supplemental insurance can cover days 21 through 100 for you. This is private insurance that is regulated by the government. There are several levels of coverage (Plans A through J), but the average premium hovers around $150 a month. The premiums, deductibles and co-pays can be quite complex and often changes from year to year, so please refer to Medicare’s website or to publications by state insurance departments.

The cost of health care is one concern. However, I am also alarmed at how older adults must negotiate through such a complex and dynamic system just when many are experiencing more difficulties with their cognition, with transportation to pharmacies and to doctors, and with more constraints on their budget. Many older adults spend a great deal of time and money managing their health. And adult children often find themselves needing to sort out the paperwork. For this reason, I encourage people much younger than 65 to start learning about these programs so that they don’t have to start from square one during a parent’s major health crisis.

Do you have any experience with Medicare yet? Have you helped a parent, spouse, or friend manage the paperwork associated with health care?



  1. My dad went to lectures on Medicare as he approached the eligible age. When he was signing up, the lady tried to stir him to a policy that is inferior if you have a serious medical problem. He went to law school for two years and read extensively. A friend of my mom's listened to a relative and did not pay for as expensive of coverage and sadly had unforeseen medical problems that cost her a lot out of pocket. Now if they can just close the doughnut hole!

  2. Your relative may have been steered towards Part C, which is a very good plan for preventative medicine and a good plan for saving people money. The monthly premiums are very, very low. However, if the beneficiary has a major health event such as a stroke, heart attack or cancer, then the deductibles and co-pays quickly add up. Beneficiaries are gambling that they will have good health and if they choose Plan C. It is definitely good that your dad read the fine print. Many people don't, and then they are surprised when services are not covered. I suggest all people see a SHIP counselor (as their closest Area Agency on Aging) because they offer free, unbiased counseling. My best to you, bkbsmiles!