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A Primer on Medicare and Medigap Coverage
Despite all the public discussion about health care, very few
people under the age of 65 understand the basics of Medicare,
the federal health program for seniors and certain disabled
individuals, or Medigap, the supplemental private coverage many
buy to cover treatment that shortfalls what the federal program
doesn't pay.
Even if you have years before you qualify, why focus on
Medicare and Medigap now? Because as big changes happen in our
healthcare system, those who understand the programs and
products ahead of time will not only be better equipped to plan
for their post-retirement healthcare options, but they'll have a
better understanding of these critical federal programs change
over time.
A visit with a CERTIFIED FINANCIAL PLANNER™ professional
can give a broader view of what the federal government will and
won't pay and how you should plan your coverage going forward.
Here's a summary:
Who is eligible for Medicare? More people than you
might think. Medicare is available to anyone over the age of 65
who is a U.S. citizen or a permanent legal resident for five
continuous years. Yet people under the age of 65 qualify under
certain circumstances, including: If they are permanently
disabled and have received Social Security disability payments
for the last two years, or if they need a kidney transplant, are
under dialysis for permanent kidney failure or have Amyotrophic
Lateral Sclerosis, also known as Lou Gehrig's disease.
How does Medicare cover expenses? Medicare coverage is
divided into three primary parts: Part A, Part B and Part D. And
yes, there is a Part C. Here's what each part covers:
- Part A is the segment of the program most
associated with hospital care. It covers hospital inpatient
care, a limited amount of care at some skilled nursing
facilities, some specific home health care alternatives and
hospice care. Most people are enrolled automatically in Part
A when they reach 65 and they get this coverage for free.
What's important is that Medicare doesn't cover long-term
nursing home expenses, so that's why long-term care planning
is necessary for all individuals.
- Part B is all about outpatient services. This is the part
of the plan that covers doctors' visits, outpatient care and
some other medical services that Part A doesn't cover, such
as the services of physical and occupational therapists, and
other aspects of home health care. You do have to pay a
monthly premium for Part B coverage with a deductible —
in
2009, the basic premium is $96.40 per month though it might
be higher for some people based on income. By the way,
you'll sometimes hear people refer to Part A and Part B
coverage as "Original Medicare."
- Part D is Medicare's prescription drug coverage. Part
D is administered by a number of private insurance companies
that operate in various areas of the country, so this requires
some shopping on your part to make sure you're getting the right
drugs at the right price. Financial assistance might be
available if you need it.
- Part C is actually the Medicare Advantage Plan, which
is an optional plan individuals may choose so they receive their
Medicare benefits through private health plans. You'll also hear
this plan referred to as Medicare+Choice. These private plans
include conventional HMOs and PPOs and are required by law to
offer benefits that cover everything that Medicare covers, but
they don't have to cover everything exactly as Medicare Part A
and B do. There might be some customized options that allow for
lower copayments or lower total out-of-pocket expenses. In
simplest language, Medicare Advantage plans blend the benefits
of Original Medicare and Medigap plans (more on this below). By
law, you can't buy Medigap supplemental insurance if you've
chosen Medicare Advantage. However, it's very important to get
some expertise on the choice between Original Medicare and
Medicare Advantage plans based on your anticipated health needs
to make sure the coverage you buy covers what you really need.
What about Medigap? So-called "Medigap" coverage is
supplemental coverage that's available for people who opt to be
covered under Original Medicare - Part A and B coverage. You buy
Medigap insurance from a private insurer, and your primary goal
is to determine whether that supplementary coverage actually
pays for the things you know you'll need that Medicare doesn't
cover. You do have to pay a monthly premium for this coverage.
And again, if you choose Medicare Advantage (Part C) coverage,
you're not allowed to buy Medigap coverage.
To compare Medicare and Medigap coverage, visit the Medicare
Personal Plan Finder on the Medicare.gov website.
When do I enroll for Medicare? You have a six-month window to
enroll for Medicare that starts three months before your 65th
birthday and ends three months after. As mentioned above, if
you're already receiving Social Security at age 65, you'll
automatically be enrolled in Part A, but if not and you enroll
more than three months after your 65th, you may be subject to a
late enrollment penalty.
By the way, what's Medicaid? This is the name for the federal
program — and corresponding state programs — that pick up
healthcare costs for indigent children and adults. Unless you're
below the poverty line or you spend out your assets in your
senior years, this won't be part of the discussion.
October 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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