Understanding Medicare Coverage


Medicare can be complicated and confusing to navigate and is almost an afterthought to most. If people are working and covered by an employer plan, they don’t take the time to think about how their health insurance might change once they turn 65 or leave employment, which can lead to multiple mistakes. The following provides an overview of the different parts of Medicare.

Original Medicare Part A and B

Original Medicare consists of Parts A and B and are administered by the Federal Government. Part A is hospital care insurance and Part B covers doctor visits and outpatient services. To be eligible for Original Medicare, you must be 65 or older, under 65 with a qualifying disability, or have end stage renal disease (ESRD). ESRD is the final, permanent stage of chronic kidney disease, where kidney function has declined to a point where the kidneys can no longer function on their own.

For most people, there is no premium for your Part A hospital coverage. However, before Part A covers your hospital expenses, you must first pay a deductible for each hospital stay. If your stay is longer than 60 days, you will have a per-day copay.

Each year the standard monthly premium and annual deductible for Part B coverage is determined according to the Social Security Act. In 2023, the standard monthly premium is $164.90, and the annual deductible is $226. After an individual pays the deductible, Medicare covers 80% of the Part B eligible expenses. Keep in mind that there is no limit on an individual’s annual out-of-pocket costs if they only have Original Medicare coverage.

Medicare Part C

Medicare Part C is also known as the Medicare Advantage plan. This plan combines Part A and B coverage and may include enhanced coverage for items such as doctor visits and hospital stays. Medicare Part C may also provide prescription drug coverage and additional benefits such as dental, vision, and/or hearing coverage. Medicare Advantage plans are offered through private insurance companies. To purchase a Medicare Advantage plan, an individual must be enrolled in Parts A and B and also live in the plan’s service area.

Medicare Advantage is available as an HMO or PPO plan.

HMO: Health Maintenance Organization
  • Individuals need to use doctors that are in the network.
  • There are options in some markets which may allow an individual to go to a doctor out of the network for a higher copay and/or with a referral.
PPO: Preferred Provider Organization
  • Individuals have the option to use doctors and hospitals outside of the network.
  • Using doctors outside of the network may result in having to pay a higher share of the costs.

The benefit of Medicare Advantage is that it covers the same benefits as Original Medicare and may include the following additional benefits:

  • Low or no-cost doctor visits.
  • Lower costs for inpatient hospital stays.
  • Prescription drug coverage.
  • Dental, hearing, and/or vision care.
  • Gym membership discounts, transportation, and telehealth options.
  • Yearly limits on out-of-pocket costs for covered medical expenses.

Medicare Part D

Medicare Part D is a plan to cover prescription drugs, which is offered through private insurance companies. This plan can be purchased as a stand-alone prescription drug plan or can be included as part of a Part C Medicare Advantage plan. The following is a basic outline for Part D plans:

  • The beneficiary will pay an annual deductible up to $505.
  • Once this deductible is met, the Part D plan will track the combined amount both the beneficiary and the Part D plan pays up to the initial coverage limit of $4,660 in 2023.
  • Once the initial coverage limit has been reached, the beneficiary will pay 25% of the cost of brand and generic medications until the annual out-of-pocket costs reach $7,400. This is known as Coverage Gap.
  • Once the annual out-of-pocket costs have been reached, the coverage gap ends. The beneficiary will then pay a small coinsurance percentage or copayment for covered drugs for the remainder of the year. This is known as Catastrophic Coverage.

Medigap Plan

If an individual chooses the Original Medicare plan, they may also want to purchase a Medigap Plan (can also be referred to as Medicare Supplement).

  • Medigap plans cover some of the gaps in Original Medicare coverage, such as copayments, deductibles, or a portion of the coinsurance expense.
  • Medigap plans do not include Part D (prescription drug coverage). This will need to be purchased separately.
  • Medigap plans are sold by private insurance companies.
  • Medigap plans cover visits to any doctor that accepts Medicare.
  • If a Medigap plan is purchased within the first 6 months of enrolling in Part B, there will be guaranteed coverage. If purchased after 6 months, the individual may be denied based on health status and may never be able to qualify for one.

Income-Related Monthly Adjusted Amount (IRMAA)

IRMAA is a surcharge added to the Part B and Part D premiums for individuals who earn over a certain amount per year. IRMAA is determined by income from the individual’s federal income tax returns two years prior, which means that the 2023 Medicare premiums are determined from an individual’s 2021 tax return.

Enrolling In Medicare

Most individuals who are 65 and older can enroll in Medicare.

  • You are automatically enrolled when you turn 65 if you are currently receiving Social Security. If you are not getting Social Security when you turn 65, you need to sign up for Parts A and B by contacting Social Security. You have a seven month open enrollment period; 3 months before you turn 65 and ending three months after the month you turn 65.
  • If you are working at age 65 and have creditable health insurance from your employer, you will be entitled to a special enrollment period to sign up for Medicare. This begins eight months after your employer coverage ends or you leave your job, whichever happens first.
  • You may have to pay penalties if you do not enroll during your enrollment period.

Medicare is complex and difficult to understand. Schedule a meeting with your MAI Wealth Advisor to discuss the best strategies that will benefit you.

Information as of Wednesday, September 20, 2023.

The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

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