How Does Medicare Work?

Key Takeaways:

• Original Medicare is provided to eligible beneficiaries by the federal government

• Some people automatically get Medicare Part A (hospital insurance) and Medicare Part B (medical insurance)

• You will pay a monthly premium for Medicare Part B

• Medicare Supplement plans cover the costs that Original Medicare doesn't

• Original Medicare won't cover your prescription drugs

• Medicare Part D and Medicare Advantage plans will cover some prescription medicines

How does Medicare work? There are so many rules about Medicare, and types of Medicare plans, that it can be confusing when trying to make the best decision for you or a loved one.

We'll Start By Explaining What Original Medicare Is

Original Medicare (Medicare Part A and Part B) is provided to eligible beneficiaries by the federal government. You must be:

• Age 65 or older,

• A United States citizen, or

• An alien who was legally admitted for permanent residence and has resided in the U.S. for five consecutive years before the month of filing an application.

When Do You Sign Up For Medicare?

You can sign up during the seven-month period that:

• Starts three months before the month you turn 65;

• Includes the month that you turned 65; or

• Ends three months after the month that you turn 65.

With Original Medicare, you will be able to go to any doctor, healthcare provider, hospital, or facility that's enrolled in Medicare and accepts new Medicare patients.

You won't need to have a primary care doctor to use Original Medicare. You also won't need a referral to see a specialist. But your specialist must be enrolled in Medicare, just like any primary care doctor you choose.

You won't need to file Medicare claims. Your healthcare providers will do this for you. This includes your doctors, your hospital, any skilled nursing facilities, or home healthcare agencies that accept Medicare.

You Must Consider Other Costs With Original Medicare

There's no yearly limit for what you might have to pay out of pocket. And, your prescription drugs won't be covered by Original Medicare.

Plus, you will have to pay a deductible (a set cost) before Medicare pays for your health care. Medicare pays a share, and you do as well (your coinsurance/copayment) for the covered services and medical supplies.

Your costs for health care will depend upon:

• Whether you're enrolled in Medicare Part A (hospital insurance) and/or Medicare Part B (medical insurance); most people use both.

• Whether or not your doctors and healthcare providers accept Medicare (some don't).

• What kind of health care you require and how often you need it.

• If you want to obtain healthcare services or supplies that Medicare doesn't cover. If so, you'll have to pay for them.

• Whether you are covered by health insurance that works with Medicare.

• Whether or not you have Medicaid or the state helps to pay for your Medicare costs.

• Whether you have a Medicare Supplement plan (Medigap) that covers costs Original Medicare doesn't.

• Whether or not you and your healthcare providers have agreed on a private contract of your own.

How Does Medicare Part A and B Work?

Some people automatically get Medicare Part A and Medicare Part B. Others have to sign up for it. The difference depends on if you are receiving Social Security benefits.

Medicare Part A covers healthcare services for:

• Inpatient hospital care

• Skilled nursing care

• Short-term nursing home care

• Hospice

• Home healthcare

Most people won't have to pay a monthly premium for Medicare Part A. This is because either they or their spouse paid Medicare taxes in their working years.

Those who have to pay a premium for Part A won't automatically get Medicare when they turn 65. These people must:

• Contact the Social Security Administration and apply;

• Enroll during a valid enrollment time; and also

• Enroll in or already have Part B

Medicare Part B covers outpatient care for certain doctors and preventive healthcare services.

Part B also covers:

• Durable Medical Equipment (DME)

• Ambulance services

• Mental health services for inpatient, outpatient, and partial hospitalization care

• Limited outpatient prescription drugs under limited conditions

You will pay a monthly premium for Medicare Part B. However, your Part B premium will be automatically deducted from one of the following:

• Social Security Benefit

• Railroad Retirement Board Benefit

• Office of Personnel Management Benefit

If you don't get these benefit payments, Medicare will send you a monthly bill.

Note that if you don't sign up for Medicare Part B at the beginning of your eligibility, you will have to pay a penalty for late enrollment.

How Do Medicare Advantage Plans Work?

Medicare Advantage plans (or Medicare Part C) are an alternative form of coverage that combines Original Medicare Part A and Part B, but also usually includes Part D prescription drug coverage in addition to extras, such as hearing, dental, and vision coverage.

Medicare Advantage plans are offered by private insurance companies that contract with Medicare to provide Part A and Part B benefits in addition to other offerings, depending on the company.

There are several types of Medicare Advantage plans:

HMO (Health Maintenance Organizations) — These plans provide medical coverage and health care from a specific set of doctors, specialists, and hospitals that are within a plan's approved network.

PPO (Preferred Provider Organizations) — PPO plans offer a network of primary care doctors, specialists, and hospitals.

PFFS (Private Fee For Service) — These plans allow you to access any Medicare-approved doctor, specialist, or hospital as long as it accepts your plan and agrees to treat you.

SNPs (Special Needs Plans) — SNPs provide medical benefits to people with certain diseases, special health care needs, or limited incomes. They offer the same Medicare services that all Medicare Advantage plans provide.

The Medicare Plan Finder decides how much you pay for your covered healthcare services and prescription medications. Your monthly premium for a Medicare Advantage plan is based on the plan you pick and the benefits covered.

As with Medicare Supplement plans, and a Medicare Part D plan, the best time to sign up for a Medicare Advantage plan is the Advantage Open Enrollment Period (October 15 through December 7 each year). If you don't sign up during this period, you might have to pay more for your policy.

Also, keep in mind that if you don't get Medicare drug coverage when you're first eligible, you'll have to pay for a late enrollment penalty to join later. Plus, you'll have to pay the penalty for as long as you have Medicare prescription drug coverage.

How Does Prescription Drug Coverage Work?

Original Medicare won't cover your prescription drugs. So you might want to sign up for Medicare Part D (prescription drug plan) or a Medicare Advantage plan. These are optional benefits offered to everyone who has Medicare. Be sure to do your research because these plans can vary in cost and the drugs that they cover.

Plans that offer prescription drug coverage through Medicare Part D must provide a standard level of coverage set by Medicare. The list of prescription drugs that these plans cover varies, as well as the way they place drugs into tiers (called a formulary). These drugs are placed into different "tiers" on their formularies.

You can compare the prescription drugs you take with the Medicare Part D plans available in your area.

Can You Change Medicare Part D Plans Anytime?

You can, but the best time to sign up or change a Medicare Part D plan is during Medicare Open Enrollment. Otherwise, you might have to pay more for your policy.

When Would You Need a Supplemental Medicare Policy?

Medicare Supplement plans cover the costs that Original Medicare doesn't. A Medicare Supplement plan fills the "gaps" that exist in Original Medicare.

Unless your employer or a union pays the healthcare costs that Original Medicare doesn't pay, you may want to purchase a Medigap policy.

Private insurance companies sell Medicare Supplement insurance plans. They help pay for things like copayments, coinsurance, and deductibles. This makes sense if you're on a budget, and you don't want to be surprised by medical bills that you can't afford.

The best time to sign up for a Medicare Supplement plan is during the Medicare Open Enrollment Period, which is October 15 through December 7 each year. Otherwise, you might have to pay more for your policy.

Jackie Trovato is a healthcare and legal writer with nearly 40 years of experience.