Share on facebook
Share on email
Share on twitter
Share on linkedin

What is Medicare? The Definitive Guide to Understanding Medicare in 2019

Table of Contents

1. What is Medicare?

Medicare is a health insurance program provided by the Federal Government. The program took effect in 1966 to provide coverage for people age 65 and older as well as people with certain disabilities such as Lou Gehrig’s disease and End-Stage Renal Disease. Centers for Medicare and Medicaid Services (CMS), a division of the U.S. Department of Health & Human Services (HHS) oversees the Medicare program.

2. How is Medicare Funded?

Medicare is funded through two trust funds held by the U.S. Treasury; the Hospital Insurance Trust Fund, and the Supplementary Medical Insurance Trust Fund.

2.1 Hospital Insurance Trust Fund

What does it cover?

The Hospital Insurance Trust Fund pays for your Medicare Part A benefits as well as toward Medicare Program administration and fraud, waste and abuse investigations.

How is it funded?

It is primarily funded through payroll taxes. As of 2019, there is a 2.9% Medicare tax levied as a part of your payroll taxes. You and your employer split this, paying 1.45% each. This may appear on your paystub as FICA tax, and may be combined with a 6.2% social security tax.

2.2 Supplementary Medical Insurance Trust Fund

What does it cover?

This fund is responsible for administration of, and benefits paid through your Medicare Part B plan. Similar to the Hospital Insurance Trust Fund, it also contributes to overall Medicare Program administration and investigations into  fraud, waste, and abuse allegations.

How is it funded?

The Supplementary Medical Insurance Trust Fund is funded through multiple sources. Primarily the premiums collected for Part B and Part D, earned interest, and other fund authorized by Congress.

3. How does Medicare Work?

Medicare is broken down into four parts:

  • Medicare Part A – Hospital/Inpatient coverage
  • Medicare Part B – Doctor/Outpatient coverage
  • Medicare Part D – Prescription drug coverage
  • Medicare Part C – A combination of Medicare Part A, Part B, and often Part D as well

In addition to the four parts of Medicare, there is a fifth coverage type called Medigap.

Medicare Explained Infographic

3.1 Medicare Explained

Original Medicare, which is Part A & Part B, is provided by the federal government. For most people, Part A will be premium-free and Part B carries a monthly fee. You have a network of over 800,000 providers giving you the freedom to go to almost any doctor and hospital. Generally, there is no need for referrals to see a specialist or to pick a primary care physician. This gives you a lot of flexibility in getting the treatment you need. Original Medicare has set cost-sharing amounts and the health providers in this network have accepted assignment, which means the costs for services are based on a Medicare-approved amount. This usually results in lower out of pocket expenses and a seamless claims process.

Medicare Part C, D, and Medicare Supplement plans are provided by private health insurance companies. Medicare Part D and Medicare Supplement plans work alongside Original Medicare by providing additional coverage. Medicare Part C actually replaces your benefits. With the exception of hospice care, your Part A and B covered services are paid by a private health insurer instead of through the federal government.

3.2 What is Medicare Part A?

Medicare Part A is best defined as hospital coverage. It pays for inpatient services and room and board.

Medicare Part A coverage examples:

  • Inpatient hospital related expenses
  • Care for skilled nursing facility (SNF) stays
  • Long-term Care Hospital (LCTH) care
  • Hospice care
  • Part-time in home health care

Take a look at “What is Medicare Part A?” for a more in-depth look. You’re going to want to know about things like how the deductible works (it can be charged multiple times per year).

3.3 What is Medicare Part B?

Medicare Part B is your medical coverage.

Medicare Part B coverage examples:

  • Doctor’s services
  • Outpatient care
  • Preventative Services
  • Other medical related expenses

Still have questions? Still working and wondering about the late enrollment penalty? “What is Medicare Part B?” has the answers!

3.4 What is Medicare Part C?

Medicare Part C coverage is called Medicare Advantage.  These plans work a little differently and are comparable to most employer-sponsored health plans. They are usually an HMO or PPO plan meaning you have a limited network of doctors and care facilities. The cost-sharing also varies from plan to plan and can change each year, so you’ll need to review each plan to determine your out-of-pocket expenses. Medicare Advantage plans often carry little to no monthly premium, but you must continue paying your Part A (if applicable) and Part B premiums in order to be eligible for the plan.

Medicare Part C Illustration

Medicare Part C can be defined as Medicare Part A + Medicare Part B + Medicare Part D. This is because Medicare Advantage plans must offer all of the same benefits as Original Medicare and usually they offer more. 

Medicare Part C coverage examples:

Everything that Medicare Part A and Part B cover and may also include:

  • Prescription Drug Plan Coverage
  • Gym Membership
  • Hearing
  • Vision
  • Dental

If Medicare Advantage plans carry a very low cost or even a $0 monthly premium and have great benefits at a low cost, what’s the catch? “What is Medicare Part C?” will fill in the blanks.

3.5 What is Medicare Part D?

Medicare Part D is your prescription drug coverage. You pay a small monthly premium in addition to your Original Medicare premiums. It is important to note each plan has its own formulary and network of pharmacies. Part D plans usually carry an annual deductible and some form of co-insurance depending on what type of prescription drug you need coverage for.

Medicare Part D can seem complicated if you don’t understand how it works. There are some very important topics to understand such as the donut hole, catastrophic spending, your initial coverage limit and more. Head on over to “What is Medicare Part D?” and to learn about it.

3.6 What is a Medicare Supplement plan?

Medicare Supplement insurance is another name for a Medigap plan. There are 10 standardized plans that vary in benefits. Every company is approved by Medicare and every company must offer the same benefits for each plan. What this means is that no matter which company you choose, the plan benefits will be identical; the only difference is the price you pay. So Plan F with Mutual of Omaha offers the same exact coverage as Plan F with Anthem BCBS. Each plan is designated by a letter and pays for either a portion or all of your Medicare Part A and Part B cost-sharing. Plan F, which is the most popular plan right now, covers all of your Medicare cost-sharing, meaning you never pay out of pocket for any Medicare-covered expenses. Medigap Plan G, which is a contender for the most popular spot, covers everything that Plan F does less your Medicare Part B deductible. These plans carry an additional monthly premium and when combined with a Part D prescription drug plan, offer the most comprehensive solution to lowering your out-of-pocket Medicare-related expenses.

Medicare Supplement coverage examples:

  • Original Medicare Part A and Part B co-payments
  • Original Medicare Part A and Part B deductibles
  • Other Original Medicare Part A and Part B cost-sharing expenses

Below you will find a Medicare Supplement plans comparison chart outlining the three most popular Medicare Supplement plans.

3.7 Medicare Supplement Plans Comparison chart – Plan F vs Plan G vs Plan N

Medigap BENEFITSPlan FPlan GPlan N
Medicare Part A coinsurance and hospital costs (Up to an additional 365 days after Medicare benefits are used up)100%100%100%
Part B coinsurance or copayment100%100%100%*
Blood (first 3 pints)100%100%100%
Part A hospice care coinsurance or copayment100%100%100%
Skilled nursing facility care coinsurance100%100%100%
Part A deductible100%100%100%
Part B deductible100%0%0%
Part B excess charge100%100%0%
Foreign travel exchange (up to plan limits)80%80%80%
Out-of-pocket limitN/AN/AN/A

*Plan N pays the 20% co-insurance less a co-payment of up to $20 for some office visits and up to $50 for emergency room visits that don’t result in an inpatient admission.

For a Medicare Supplement comparison chart that covers all 10 standardized plans, read “What is a Medicare Supplement?“.  I go over each benefit for a more in-depth comparison of whether Plan G is better than Plan F.

Hint: It kind of is.

4. What Does Medicare Not Cover?

Medicare coverage is pretty comprehensive, especially when paired with a Medicare Supplement plan, but there are still some things on the “not covered list”.

4.1 Long-term Care

Long term care can be costly. The average annual cost for an assisted living facility is $46,350. That more than doubles for a private room in a Nursing home which averages $100,379. Medicare provides some coverage for services received in a long-term care facility, such as medical for skilled nursing services, but it does not cover custodial care like bathing, help getting dressed, etc…. Long-Term Care Insurance is available for an extra monthly premium.

4.2 Most Dental expenses

With the exception of emergency work deemed medically necessary, you’re on your own with dental.

4.3 Most routine Eye, Vision, and Hearing exams

Routine eye exams are not covered by Medicare. Glaucoma screening tests are available once every 12 months for those at risk for glaucoma. Eye prostheses, macular degeneration, and some post-cataract services will also be covered.

Routine hearing exams and hearing aids are not covered by Medicare. If a participating provider orders a diagnostic hearing test to see if medical treatment is needed, Medicare will generally cover it.

4.4 Routine foot care

Medicare will only cover podiatrist foot exams if you have diabetes-related nerve damage or need medically necessary treatment for foot injuries or disease.

4.5 Acupuncture

Not covered.

4.6 Cosmetic Surgeries/procedures

Medicare doesn’t cover this type of procedure unless it’s medically necessary due to an accidental injury or to improve the function of a malformed body part. Breast prostheses are also covered if you have had a mastectomy because of breast cancer.

4.7 Prescription drugs picked up at the local pharmacy

Some prescription drugs administered as an in-patient may be covered. Drugs administered by your provider, such as dialysis, and certain oral cancer drugs may also be covered. For your everyday prescriptions filled at the local pharmacy, you’ll need a Part D drug plan.

4.8 Services not deemed medically necessary by your doctor or health care provider

If it’s not medically necessary, it’s not covered.

5. How Does Medicare Work With Other Insurance

If you have coverage through a current employer, retiree coverage, VA benefits, or even Tricare you may have some questions about whether or not you need Medicare.

5.1 Do I need Medicare Part B if I have other insurance?

Most people opt to carry Medicare Part A even when they have other insurance because most people qualify for it premium-free (assuming they don’t have an HSA). Medicare Part B, on the other hand, carries a monthly charge and if you’re already paying for other insurance, is it really necessary to carry Medicare Part B as well?

The answer is: it depends.

5.2 You or your spouse are currently working

If you’re currently working, or you’re covered under your spouse’s current employer-provided plan you may not need to. If the employer has fewer than 20 employees then you should sign up for Part B because Medicare is the primary coverage. If the employer has more than 20 employees, talk with your benefits coordinator. Usually, Medicare is secondary in that case and Part B may not be necessary. It’s always good to weigh the costs and benefits of each one to see if it makes more sense to leave your employer-sponsored plan and switch to Medicare or stay put.

5.3 You have retiree coverage

If you have retiree coverage it’s often beneficial to enroll in Medicare. Usually, retiree coverage pays as a secondary insurer, and some employers require that you enroll in Medicare in order to continue retiree coverage. Whether it makes sense to carry both or not largely depends on what your retiree coverage offers. Some retiree coverage pays your Medicare cost-sharing and acts as a supplemental health insurance policy. Sometimes it has prescription drug coverage that is superior to a Medicare Part D plan as well. The best thing to do is to contact your benefits administrator and find out!

Some companies enroll you in an employer-sponsored Medicare Advantage plan or group Medigap policy. You can opt out of this plan and choose your own Medicare Advantage or Medigap plan, but once you make the that choice you may not be able to get back on your group-sponsored plan. So, make sure you do your due diligence in comparing the costs and benefits of your retiree benefits against the Medicare plan you are considering.

5.4 You have COBRA coverage

If you currently have COBRA coverage due to a recent end to employment, it makes sense to switch over to Medicare sooner than later. You generally have 8 months after you stop working, or your current employer coverage ends, whichever happens first, to enroll in Original Medicare by way of a Special Enrollment Period.  If you wait until your COBRA coverage ends you will not be granted a Special Enrollment Period, which can cause a delay in your coverage starting as well as a hefty late enrollment penalty.

5.5 Tricare and Medicare

If you or your spouse are currently active duty, you can delay your enrollment in Part B. To remain eligible for Tricare you must enroll in Medicare Part B prior to the active duty status ending. If you have Tricare I urge you to read Tricare’s Turning 65 brochure.
 

5.6 Tricare for Life and Medicare

In order to be eligible for Tricare for Life, you must be enrolled in Medicare Part A & B. Tricare acts as a supplemental health insurance policy for Medicare, so a Medigap policy is unnecessary. Tricare for life also includes creditable drug coverage, so there is no need for a separate Part D policy. Some members will enroll in a Medicare Advantage plan if the dental, vision, and hearing are comprehensive enough. I recommend reading Tricare’s Tricare For Life Handbook.

5.7 Veteran’s Benefits and Medicare

If you have Veteran’s benefits it is a good idea to enroll in Medicare. Veteran’s benefits are not considered an insurance plan, so without Medicare, you can not receive treatment outside of the VA system. You may also be on the hook for a late enrollment penalty should you decide to enroll in Medicare Part B at a later date. Having both Medicare and Veteran’s benefits provides you with the flexibility of receiving treatment at either a VA hospital or provider within the Medicare network. Medicare may also cover services that the VA will not; or cover the portion the VA doesn’t for services that are authorized in a non-VA facility.
 

5.8 Medicaid and Medicare

Medicaid and Medicare together can provide a very comprehensive coverage set. Medicaid is secondary and can cover some or all of your Medicare co-insurance costs, and may help to cover the expense of prescription drugs and prescription drug coverage. Medicaid also helps fill the gaps in Medicare’s coverage for at home care and nursing home stays. The only caveat is that you normally have to see a health care provider that is in-network for both programs.

6. Who Qualifies for Medicare?

  • People who are age 65 and older
  • Certain people on Social Security Disability
  • People with End-Stage Renal Disease (ESRD)
  • People with Amyotrophic Lateral Sclerosis (ALS) also known as Lou Gehrig’s disease

6.1 Can I get Medicare at age 62?

Early retirement benefits from Social Security are available to people at age 62. It is common for people to think that since they can get early retirement benefits from Social Security, they can receive their benefits from Medicare as well. However, unless you qualify for Medicare due to a disability you will not be entitled to receive your Medicare benefits until age 65.

7. How Much Does Medicare Cost? (Updated for 2019)

7.1 Medicare Part A monthly premium for 2019 is $437*

*Keep in mind that most people will qualify for premium-free Part A. In order to qualify you or your spouse must have paid Social Security income tax for at least 40 quarters, which is 10 years. If you worked less than 10 years, but at least 7.5 years your cost would be $240 per month. If you worked any less than that you are subject to the full premium.

7.2 Medicare Part B monthly premium for 2019 is $135.50

$135.50 is the standard amount payable for your Medicare Part B premium. It is possible to pay more depending on your income. Medicare can access what’s called an Income Related Monthly Adjustment Amount (IRMAA). The IRMAA is based on your modified AGI (Adjusted Gross Income) from 2 years ago. So, in 2019, they will look at your 2017 tax return. A list of income-related premiums follows.

7.3 Medicare Part B IRMAA


FIND YOUR 2017 Filing STATUS AND INCOME
Individual tax return
joint tax return
Married
Filing separately
YOUR 2019 MONTHLY PREMIUM IS
$85,000 or less$170,000 or less$85,000 or less$135.50
  over $85,000 up to $107,000over $170,000 up to $214,000N/A$189.60
over $107,000 up to $133,500over $214,000 up to $267,000N/A$270.90
over $133,500 up to $160,000over $267,000 up to $320,000N/A$352.20
   over $160,000 and less than $500,000over $320,000 and less than $750,000Over $85,000 and less than $415,000$433.40
$500,000 and over $750,000 and over$415,000 and over$460.50

7.4 Medicare Part C cost

The pricing varies for Medicare Advantage plans. Medicare.gov has a tool called the Medicare Plan Finder to help you find pricing for a Part C plan or you can request a quote.

7.5 Cost of Medicare Part D

The price you pay will vary based on which plan you choose. You can also use the Medicare Plan Finder to help find pricing for Part D plans or request a quote here as well.

7.6 Medicare Part D IRMAA

In addition to your base premium, Medicare Part D also has an IRMAA that can apply based on your tax return from the two years ago.


FIND YOUR 2017 Filing STATUS AND INCOME
Individual tax return
joint tax return
Married
Filing separately
YOUR 2019 PART D IRMAA
$85,000 or less$170,000 or less$85,000 or lessYour plan premium
over $85,000 up to $107,000over $170,000 up to $214,000N/A$12.40 + your plan premium
over $107,000 up to $133,500over $214,000 up to $267,000N/A$31.90 + your plan premium
over $133,500 up to $160,000over $267,000 up to $320,000N/A$51.40 + your plan premium
over $160,000 and less than $500,000over $320,000 and less than $750,000Over $85,000 and less than $415,000$70.90 + your plan premium
$500,000 and over$750,000 and over$415,000 and over$77.40 + your plan premium

 

7.7 Medicare Supplement premium

Pricing for Medicare Supplements also varies per plan. You can use Medicare’s Medigap Policy Search to find pricing or you can request a quote.

8. Medicare Cost-Sharing (Updated for 2019)

In addition to monthly premiums, you will have costs in the form of deductibles, co-pays, and co-insurance.

8.1 Medicare Deductible for 2019

Your Part A Medicare deductible is $1,364
Your Part B Medicare deductible is $185

Deductibles vary by Medicare Part D plan. The maximum allowable deductible for Medicare Part D in 2019 is $415

Medicare Advantage plan deductibles vary. Some even carry no deductible.

8.2 Medicare Part A Cost Sharing

  • Hospitalization Days 1-60 – $0 co-pay per day
  • Hospitalization Days 61-90 – $341 co-pay per day 
  • Lifetime Reserve Days – $682 co-pay per day*
  • Skilled Nursing Facility (SNF) Care Days – 1-20– $0 co-pay
  • Skilled Nursing Facility (SNF) Care Days 21-100 – $170.50 co-pay

*Once you pass 90 consecutive days you are in a period defined as lifetime reserve days. You are only eligible for 60 lifetime reserve days over your lifetime. After you’ve exhausted your lifetime reserve days you are responsible for 100% of all costs.

8.3 Medicare Part B Cost Sharing

  • 20% coinsurance for the Medicare-approved amount for:
    • Most outpatient and Doctors’ services
    • Durable Medical Equipment (DME)

8.4 Medicare Part C Cost Sharing

Co-pay and co-insurance depend on which plan you choose. However, there is a maximum out of pocket allowed per year of $6,700 in 2019.

8.5 Medicare Part D Cost Sharing

Co-pay and co-insurance amount vary per plan, but there are some general cost-sharing guides all plan must follow.

  • Initial Coverage Limit $3,820
  • True Out-of-Pocket (TrOOP) – $5,100
  • Donut Hole:
    • 25% for brand-name drugs
    • 37% for generic drugs
  • Catastrophic Coverage:
    • 5% of each brand-name drug, or $8.50, whichever is greater
    • 5% of each generic drug, or $3.40, whichever is greater

9. Medicare Enrollment

Before I begin this section of the guide, I have a quick disclaimer; Medicare enrollment is quite the involved subject. I have a separate guide called, “The Ultimate Guide to Medicare Enrollment“. It’s about the same length as this article and it covers everything in great detail. Below I’ll highlight the most common scenarios and link you to places in the Enrollment guide for greater detail. 

9.1 Do I automatically get Medicare when I turn 65?

If you are receiving Social Security at least 4 months prior to your 65th birthday you will automatically be enrolled in Medicare. If not, you’ll need to enroll yourself. The process is simple and takes less than 10 minutes. I’ve created a video outlining how to sign up for Medicare online and you can watch it here.

9.2 When can I enroll in Medicare

There are three time periods where you can enroll in Original Medicare.

9.3 Initial Enrollment Period

You can enroll in Original Medicare for the first time during your Initial Enrollment Period (IEP). This period is defined as the three months prior to your 65th birthday, the month of your birthday, and the three months after your birthday. It is recommended that you enroll during the first three months prior to your birthday to avoid a delay in coverage.

Initial Enrollment Period for Medicare chart

9.4 Special Enrollment Period

Failure to enroll during your Initial Enrollment Period can result in late enrollment penalties and a delay in your coverage starting. Since more and more people are working past 65 and continue to have employer-provided health coverage, Medicare allows a Special Enrollment Period for those coming off of group coverage provided by a current employer. This allows you to enroll in Medicare without incurring any late enrollment penalties.

9.5 General Enrollment Period

You can enroll in Original Medicare during the General Enrollment Period which runs from January 1st – March 31st of each year. Bear in mind that when you enroll during this time-frame your coverage is not effective until July 1st. This makes enrolling during your Initial Enrollment Period or Special Enrollment period paramount to avoiding a delay in coverage.

9.6 When can I enroll in Medicare Advantage & Medicare Part D

There are five time periods where you can enroll in a Medicare Advantage or Part D prescription drug plan.

9.7 Initial Coverage Election Period

This period usually runs alongside your Initial Enrollment Period. If you delay your Medicare Part B enrollment then your Initial Coverage Election Period will be defined as the three months prior to your Medicare Part B effective date.

9.8 Medicare Advantage Open Enrollment Period

From January 1st through March 31st of each year you have the option to switch from one Medicare Advantage plan to another. Or, you can switch from Medicare Advantage to Original Medicare and a Part D plan. If you have Original Medicare, you’re not eligible to enroll in a Medicare Advantage plan or Part D drug plan during this time period.

9.9 Annual Election Period

From October 15th through December 7th of each year you can enroll in or dis-enroll from both a Medicare Advantage plan and Part D plan.

9.10 Special Enrollment Period

There are many different Special Enrollment Periods which can be found in detail here.

9.11 5 Star Enrollment Period

From December 8th of the current year through November 30th of the following year you will have a one-time enrollment opportunity to switch to a 5-star-rated Medicare Advantage plan or prescription drug plan.

9.12 When can I enroll in a Medicare Supplement plan

You can enroll in a Medicare Supplement plan at any time. In order to do so, you must be able to qualify based on health questions.

9.13 Medicare Supplement Open Enrollment Period

During the 6 months following your Part B effective date, you have a Guarantee Issue Right. This means that you can not be denied a policy due to medical underwriting. They also can not charge you more due to pre-existing health conditions.

9.14 Medigap Protections

Many scenarios exist where you can get a Medicare Supplement plan with a Guarantee Issue Right called Medigap protections. These also can be found in The Ultimate Guide to Medicare Enrollment.

9.15 Late Enrollment Penalties

If you delay your coverage you can be assessed a late enrollment penalty.

If you do not qualify for premium-free Part A and you also don’t qualify for a Special Enrollment period, you will pay a late enrollment penalty. The fee is assessed as 10% of your Part A premium, and you pay the fee for twice as long as you went without coverage.

If you delay Part B and do not qualify for a Special Enrollment period, you will pay a late enrollment penalty for as long as you carry Part B. The increase is a 10% increase for every 12 months you go without Part B coverage. So if you go five years without coverage, you could pay up to 50% more.

If you delay Part D and do not qualify for a Special Enrollment period, you will pay 1% of the National Base Beneficiary Premium for every full month you went without Part D coverage. You will pay this for as long as you carry Part D coverage.

I go into greater detail here, where I give exact figures and show you how to calculate the penalty. 

10 Medicare vs. Medicaid

10.1 What is the difference between Medicare vs. Medicaid?

What is Medicaid and Medicare? For starters, Medicare is defined as a health insurance program provided to those age 65 and older, or with certain disabilities. Medicaid, on the other hand, is generally available based on household size and income, disability, and family status. Because of the similarity in names they are often confused with one another. To simplify things Medicare is generally based on age while Medicaid is based on income. Medicare is a federally run program whereas Medicaid is administered on the state level, allowing states flexibility in establishing eligibility requirements.

10.2 What does Medicaid cover that Medicare doesn’t?

Medicaid provides additional benefits that Medicare does not, such as prescription drug coverage, long term care, dental, vision, and hearing.

10.3 Can you have Medicaid and Medicare?

Yes, you can, and some seniors try to “spend down” in order to qualify since Medicare and Medicaid offer some seriously comprehensive coverage together. To see if you qualify for Medicaid visit Healthcare.gov/lower-costs. They’ll ask you a few questions to determine if you may be eligible. If you don’t meet the income requirements you can check to see if your state offers a “medically needy program”.  To learn more about “spend downs” and “medically needy programs” visit this page at Medicaid.gov.

Sean Senseman

Sean Senseman

Close Menu
Call Now Button

Compare Plans Now!

You’re one step away from finding the best companies with the lowest cost.