Everything You Need to Know About Medicare

Key Takeaways:

• Medicare includes four parts: Part A and B (Original Medicare), Medicare Part C, and Medicare Part D.

• For most people, there's no monthly premium with Medicare Part A hospital insurance. But since Medicare Part B is medical insurance, it usually has a monthly premium.

• If you've been receiving Social Security benefits because of a disability, you're automatically enrolled in Medicare Parts A and Part B when you turn 65. If not, you must sign up or enroll during a specific enrollment period.

• Medicare Advantage plans, also known as Medicare Part C, is health coverage that you purchase from a private insurance company that's authorized to offer additional coverage to qualifying Medicare plans.

• Medicare Part D is prescription drug coverage to reduce the cost of medication. It's unique because you can purchase this coverage as part of a Medicare Advantage plan or as a standalone prescription drug plan.

If you'll soon become eligible for Medicare, it's important to understand your coverage options.

Before now, you probably didn't give much thought to the different types of health plans offered by Medicare, likely because you had coverage through an employer or your spouse's employer.

However, your options for health insurance change with age, as do your healthcare needs. The right coverage can help meet these changing needs while minimizing your out-of-pocket expenses.

What is Medicare?

Medicare is a US federal health insurance program for individuals 65 and older and some younger adults with certain disabilities.

Some people confuse Medicare with the government program Medicaid. The difference is that Medicaid is US health insurance coverage for low-income individuals, whereas Medicare is for retirees and individuals with qualifying disabilities.

Medicare includes four parts:

• Part A and Part B (Original Medicare)

• Medicare Part C (also known as Medicare Advantage)

• Medicare Part D (prescription drug plans)

Medicare also has supplemental insurance plans to reduce the out-of-pocket cost of certain medical expenses.

What is Original Medicare?

Medicare has many different parts, and it's important to know how each plan works and what the different coverage options entail.

Original Medicare includes Part A and Part B. Part A is hospital insurance and Part B is medical insurance.

Part A (hospital insurance) covers typical hospital expenses you incur after an illness or surgery. This includes:

• Semi-private hospital room

• Stays in a skilled nursing facility

• Home health care

• Hospice care

• Blood transfusions up to 3 pints or more

Part A also covers any meals or medical services you receive while hospitalized.

Medicare Part B, on the other hand, covers outpatient services you receive. Since this is medical insurance, it covers visits to your doctor — whether it's your primary care doctor or a specialist.

Part B also covers the cost of the following:

• Diagnostic imaging

• Ambulance rides

• Lab testing

• Preventative care

It's also important to know that Part B covers these medical expenses even when they take place inside a hospital. For example, mammograms fall under preventative care, yet your doctor may not perform these tests in-office. In this case, Medicare Part B will cover the expense even if it's outside your primary physician's office.

Do You Pay for Medicare Part A and Part B?

Knowing how Medicare works is also important for understanding your out-of-pocket costs. For most people, there's no monthly premium with Medicare Part A hospital insurance. But since Medicare Part B is medical insurance, it usually has a monthly premium. Your yearly adjusted gross income determines your monthly premium.

If you have Original Medicare, you can go to any doctor or hospital that accepts Medicare patients.

How to Enroll in Original Medicare?

There are different ways to enroll in Original Medicare. If you've been receiving Social Security benefits because of a disability, you're automatically enrolled in Medicare Part A and Part B when you turn 65. In this situation, you don't have to do anything.

On the other hand, if you do not receive Social Security benefits, you must sign up or enroll in Original Medicare through the Social Security Administration.

You can visit your local Social Security office, call Social Security at 1-800–772-1213, or enroll in Medicare online.

Be mindful that there are specific periods for enrolling in Medicare. You will need to enroll or apply during your Initial Enrollment Period (IEP). This is the seven-month window that starts three months before your 65th birthday and ends three months after your 65th birthday.

At this point, you can opt to enroll in both Medicare Part A and Medicare Part B, or only Part A. Some people delay enrolling in Part B if they have health insurance through an employer or a spouse's employer.

You can sign up for Medicare Part B at a later time, but it will likely result in a late enrollment penalty.

If you don't enroll in Original Medicare during your Initial Enrollment Period, you can enroll during the General Enrollment Period (GEP) between January 1 and March 31 of each year, with coverage beginning July 1.

Once you're already enrolled in Original Medicare, you can then make changes to your coverage during the Medicare Annual Open Enrollment Period (OEP) between October 15 and December 7 of each year, with new coverage going into effect on January 1.

You can switch from Original Medicare to a Medicare Advantage plan and vice versa, or drop a Medicare Part D prescription drug plan.

What is a Medicare Advantage Program?

Although Original Medicare is available once you turn 65, you might find that coverage is limited and doesn't allow you to seek the exact care you need. Depending on your healthcare needs, you may require a Medicare plan with more coverage and benefits. If this applies to you, you can sign up for a Medicare Advantage plan.

Medicare Advantage plans, also known as Medicare Part C, is health coverage that you purchase from a private insurance company that's authorized to offer additional coverage to qualifying Medicare plans.

Medicare Part C plans include the benefits of Medicare Part A and Part B. Some plans also include Medicare Part D, which is prescription drug coverage.

Some people prefer a Medicare Advantage plan for the additional coverage. Plans vary depending on provider, but typically include extra benefits like:

• Routine dental care

• Routine vision care

• Routine hearing care

• Health and wellness benefits

Health and wellness benefits may include a free membership to select fitness centers. Keep in mind that while you can use Original Medicare at any doctor or hospital that accepts Medicare, many Part C Medicare Advantage plans are either HMOs (health maintenance organization) or PPOs (preferred provider organization). So you must use doctors and hospitals within a certain network.

With an HMO you must see your primary doctor before seeing a specialist or having special testing. PPOs also have a network of providers, but there's a bit more flexibility when choosing your doctor or hospital.

How to Enroll in a Medicare Part C Advantage Plan

Like Original Medicare, you can enroll in a Medicare Part C Advantage plan when you're first eligible for Medicare: during the six-month period of time starting three months before your 65th birthday and ending three months after your 65th birthday.

After this Initial Enrollment Period, you can only enroll in a plan during Medicare Annual Open Enrollment from October 15 to December 7 each year. At this time you can also switch from a Medicare Advantage plan with drug coverage to one without, change insurance carriers, and add or drop a Medicare prescription drug plan.

Medicare Advantage also has an Open Enrollment Period from January 1 to March 31 of each year — but it's only for those already enrolled in a Medicare Advantage plan. During this period, you can switch to another Medicare Advantage plan or switch back to Original Medicare.

There also may be an opportunity to enroll during a Special Enrollment Period (SEP) if you've experienced a qualifying life change. This normally applies to people who move to areas not covered by their Part C insurance provider and for people who lose health insurance through their employer.

Special enrollment allows you to enroll in, switch or drop a Medicare Part C plan outside normal enrollment windows

What is Medicare Part D Prescription Drug Coverage?

Medicare Part D is prescription drug coverage to reduce the cost of medication. It's unique because you can purchase this coverage as part of a Medicare Advantage plan or as a standalone prescription drug plan.

Several drug plans are available, so it's important to compare benefits and premiums. Some prescription drug plans have $0 deductibles and no monthly premiums, whereas others may have a low monthly premium of $33.

You can enroll in Medicare Part D during the seven-month window starting three months before the month you turn 65. If you don't enroll when you're first eligible, you can sign up during Medicare Annual Open Enrollment between October 15 and December 7 of each year, or during the Special Enrollment Period.

You may qualify for special enrollment if you lose your prescription drug coverage through your employer, move to an area that your provider doesn't service or your provider ends its contract with Medicare.

What is Medicare Supplement Insurance (Medigap)?

Original Medicare Part A and Part B don't cover all of your medical expenses. If you have a chronic illness and frequently see a doctor, you might need coverage to pay some of the costs that Medicare doesn't — coinsurance, deductibles and copays.

Also, when traveling outside the US, you might prefer coverage that works abroad. If so, consider Medicare Supplement insurance or Medigap. These plans are designed to reduce your out-of-pocket healthcare expenses. Keep in mind that these plans don't cover the costs of certain benefits like hearing, dental, vision or prescription drugs.

In most cases you'll have 10 different Medigap plans to choose between. Some plans are more comprehensive than others, so consider your individual healthcare needs, compare options and choose a plan accordingly.

Plans vary by state and there isn't a set premium. Instead, monthly premiums vary depending on ZIP code and whether you're a tobacco user.

A sample of a Medigap plan:

When to Enroll in a Medicare Supplement Insurance Plan?

Similar to Original Medicare and Medicare Part C, Medigap has an Initial Enrollment Period. You must enroll during the seven-month period that starts on the first day of the month you turn 65. You are also required to sign up for Medicare Part B before you can enroll in a Medicare Supplement insurance plan.

It is possible to enroll in a Medicare Supplement insurance program after this enrollment period. But if you enroll at a later date, your approval will be subject to additional medical underwriting, which means there may be a risk that providers may deny your application if you have chronic health problems.

Another thing to keep in mind is that Medigap can only be used with Original Medicare. You are not eligible for supplemental insurance if you have a Medicare Advantage plan or Medicare Part D prescription drug coverage.

Learn More About Medicare

When you're ready to enroll in Medicare, you'll need to provide certain information, whether applying in person, online or over the phone. This includes:

• An original or certified copy of your birth certificate

• Proof of US citizenship

• Your Social Security card

• Tax returns for the previous year or W-2

• Military discharge papers

• Current health insurance information

If you're approaching 65, now is the time to start learning about your Medicare options. This way, you'll have a general understanding of the different plans available to you, which will then help you apply for adequate coverage.

Original Medicare is sufficient for some, but others require additional coverage, such as a Medicare Advantage plan, Part D prescription drug coverage, or Medicare Supplement insurance.

Valencia Higuera is a personal finance writer with more than 10 years of professional writing experience. She resides in Chesapeake, Virginia.