Insurance

What is Medicare?

Medicare is the federal insurance program for Americans age 65 and over (it also covers the disabled). Medicare is funded by the Social Security Administration, which really means it’s funded by taxpayers: We all pay 1.45% of our earnings into FICA – Federal Insurance Contributions Act, if you’re into deciphering acronyms – which go toward Medicare.

Medicare includes a mind-numbing maze of coverage, rules and regulations. Basic Medicare comes in two parts: A and B. You are automatically enrolled in these at age 65.

Medicare Part A provides coverage if you’re hospitalized. This coverage is “free” – meaning you pay no premiums – if you paid into the Social Security pool for at least 10 years. Medicare Part B provides coverage for doctor visits and other “outpatient” costs such as medical equipment and physical therapy. It also covers some preventive costs such as diabetes testing, glaucoma screening, and colon and prostate cancer screening. Part B comes with a monthly premium you must pay.

But wait, there’s more.

Medicare Part C, known as Medicare Advantage, is a private plan run through Medicare that provides an alternative to Parts A and B. If you want it, you have to buy it. Medicare Part C is known as Medicare Advantage. These are private plans run through Medicare that, by law, must at least be “equivalent” to regular Part A and Part B coverage. But there’s lots of variation among Part C plans. Any given one may cover less of one thing and more of another than Parts A and B do.

Some Part C plans provide significant coverage beyond what you get in Parts A and B – including, in some cases, prescription drug coverage – but not all. The better ones basically function like Medigap [LINK to #6 below] policies but are administered by Medicare rather than being wholly run by private insurance companies.

In fact, if you have a Medicare Advantage plan, any Medigap policy you may have is useless; Medigap won’t pay if you are covered by Medicare Part C.

The monthly premium varies widely depending on your state and the private insurer you choose, as well as whether you choose an HMO or PPO for your Medicare Advantage coverage. To compare Medicare Advantage plans, go to the Medicare Web site [please link to: (Note: Medicare Advantage Plans are labeled “Medicare Health Plans” at the Web site.)

Medicare Part D provides prescription drug coverage. It is a separate policy you buy from a private insurer.

Each private insurer has its own plan, but the general rules work like this: You pay a monthly premium for Part D coverage and may also have an annual deductible of no more than a few hundred dollars a year, if there is any deductible at all. Once you cover the deductible, your plan will then pay some – or all – of your drug costs, but only for the first $2,850 in total drug costs per year.

Once you hit $2,850 you hit a coverage gap. You’ll pay 47.5% of the cost of brand name drugs (28% for generics) until your total costs reach $4,550. After that, Medicare will again pick up most of the tab.

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