Detailing Medicare Basics

February 12, 2014

Medicare is important to retirees because health care costs are a big chunk of expenses during retirement. Let’s begin with eligibility.

Who is eligible? Most individuals age 65 and older, as well as certain individuals under age 65 who qualify for Social Security disability benefits. Also, individuals with amyotrophic lateral sclerosis (also known as Lou Gehrig’s disease), or end-stage renal disease (permanent kidney failure) are eligible.

Now for the alphabet.

Part A is hospital insurance. It covers hospital stays, skilled care nursing, home healthcare and hospice care.

Part B is medical insurance. It covers doctor services, outpatient medical/surgical services, diagnostic tests and outpatient therapy. How does one get Part B?

In most cases, you enroll in Medicare Part B when you enroll in Medicare Part A, unless you are still covered by your or your spouse’s group medical plan. If you don’t enroll in Medicare Part B when you are first eligible, you can either sign up during the General Enrollment Period from Jan. 1 to March 31 each year, or during the Special Enrollment Period which extends up to eight months after your group coverage ends.

However, be aware that if you do not enroll when you are first eligible, premiums will increase 10 percent for each full 12 months until you do enroll!

Medicare Part C is a different animal. It is also known as Medical Advantage. It provides medical and hospital insurance through private companies. Part C covers everything in Medicare Parts A and B. It may also cover other medical expenses like vision or dental. It may also provide cost-sharing such as co-insurance or co-pay, but may add additional expense. Also, it may have premiums that will vary on individual county basis.

Most Medicare Advantage Plans are managed care plans, usually a health maintenance organization (HMO), or a preferred provider organization (PPO). These plans may require that you choose a primary care physician (PCP), get a referral from your PCP to see a specialist, and use only doctors, hospitals, and other medical facilities and services that are part of that health plan’s provider network.

Now we come to Medicare Part D. Part D is prescription drug coverage. How much does it cost? Part D benefits can be purchased in two different ways. One is through a Medicare Advantage program (MAPD). Another is through a stand-alone prescription drug plan (PDP) offered by an outside provider.

Costs will vary based on which plan you choose. There may be an additional charge depending on your income. If you do not apply for coverage when you become eligible, you may have to pay a penalty. Lastly, you can change your plan during the Annual Coordinated Election Period (Oct. 15 – Dec. 7) each year).

The cost for Part B is based on your income. If you earn below $85,000, there is no cost. As your income rises, the cost ranges from $12.10 per month to $69.30, which you will pay if you are single and you earn above $214,000 or married earning above $428,000.

Now we come to the coverage gap that carries the moniker “doughnut hole.” Here’s how it works. After total retail costs for your prescriptions reach $2,850, you will have to pay the full amount until you’ve paid a total of $4,550. At that point, catastrophic coverage will pick up most of the additional prescription drug costs.

In 2014, there is assistance for individuals who reach the “donut hole.” You’ll get a 52.5 percent discount on brand-name drugs and a 28 percent discount on generic drugs. You still receive credit for the full cost in meeting the “donut hole” exclusion amount.

Lastly, we come to Medigap insurance. You have a six-month open enrollment period during which you can buy a Medigap policy. The period starts the month you’re 65 and enrolled in Part B. You have a guaranteed right to buy any Medigap policy sold in your state regardless of your health status during that time.

If purchased after the initial enrollment period, the insurance company can require underwriting, set waiting periods for pre-existing conditions, set different terms or premiums, or may not accept your application at all.

How does one enroll in Medicare? The Social Security Administration handles Medicare eligibility and enrollment. You can contact the Social Security Administration at 800-772-1213 to enroll in Medicare, or ask questions about whether you are eligible. You can also enroll online at

You are eligible when you turn 65. You can either sign up 3 months prior to your birthday to avoid delaying your coverage, or you can sign up the month you turn 65 and 3 months after.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann is a financial professional with and securities offered through LPL Financial, member FINRA/SIPC.