What is Medicare?

Medicare is a complex government program administered by the CMS (Center for Medicaid & Medicare Services) and the Social Security Administration. The program is meant to provide a safety net for seniors.

Eligibility. There are two types of Medicare eligibility: free coverage and paid coverage. If you qualify, you are automatically enrolled in the free coverage.

The free coverage is essentially Part A hospital insurance. You do not have to pay a monthly premium. You are eligible if you are 65 years or older and are eligible for Social Security retirement benefits. Why Social Security? That’s because Medicare is an entitlement that you pay into during your working life. As you worked you built up a work record including work credits. Once you earned enough work credit and reached age 65 you are eligible.

Paid coverage is for those not automatically enrolled. As such you will be required to pay a premium. The amount of the premium is dependent on your work credits (basically a number based on how many years you’ve worked). In 2011, if you earned 30 to 39 work credits then your premium would be $248 per month. If you do not have 30 work credits you will have to pay a $450 dollar premium per month. That is a steep cost. Part A has a penalty for enrolling a year later. They will add a 10% surcharge on the premium

Parts of Medicare. Medicare is divided into four “parts”, each covering some aspect of healthcare coverage.

Part A. Also called “Original Medicare” or “hospital insurance”. Any person age 65 or older and who has enough work credits will automatically receive their Medicare Part A card in the mail within three months of their 65th birthday. Part A covers hospital stays along with specified costs approved by the CMS, such as medicines (while staying at a hospital),

Part B. Also called “Original Medicare” to distinguish it with more comprehensive Medicare Advantage plans, Part B covers outpatient services such as doctor visits, diagnostic testing (i.e. x-rays, MRIs, etc.) durable medical equipment, etc.

Part C. Also called “Medicare Advantage”, Part C refers to the managed health care plans that are hybrids of a traditional health insurance and Medicare. Medicare Advantage is not the same thing as Medigap. Both are designed to fill coverage gaps but they work differently. Medicare Advantage merges Medigap and Medicare together into one entity. A Medigap plan is different from Medicare and works in conjunction. Also with a Medigap plan, the Medicare enrollee still answers to Medicare but with Medicare Advantage, determinations about your health care are determined by the insurance company that administers your plan. I go over Part C Medicare Advantages in more depth in another article.

Part D. This is Medicare’s prescription drug plan and it can be very complex. The day-to-day operations of Part D are run by insurance providers. These companies sell PDPs or “prescription drug plans”. PDPs can be combined with Medicare Advantage in what are called MA-PD plans. Medicare has a complex payment schedule, coverage gaps, rules for what type of drugs can be bought, and myriad other details. I will go over the Part D plans in depth in another article.

Cost of Medicare. On average, a Medicare recipient will end up paying for 50% of their medical care. This is due to Medicare’s coverage rules, which could leave out your medical care needs. I go into greater detail about the cost of Medicare in each of their specific plans.

Coverage. Medicare coverage depends on several factors: what Part is paying for the medical service? Do you have a Medigap plan? Do you Medicare Advantage? These are just a few of the questions that you should ask when figuring out your health care coverage with Medicare. You should also be aware of the strange little gaps in Medicare that may strike you as odd and overly specific. For example, in Part A, you have to purchase the first 3 pints of blood you require for transfusion during surgery. Also, Part A will not cover television, phone, or other such services.

Having a firm grasp of Medicare will allow you to make wise healthcare decisions and increase the chances that you'll save money rather than lose money.