Medicare is a federal health insurance program for people 65 years or older, or people with disability or ESRD. It is funded by the Medicare tax collected by the IRS as a part of the income tax. Medicare has 2 parts: part A for hospital coverage, and part B for outpatient coverage. People who have worked for 10 years are entitled to premium-free part A, but everybody has to pay a monthly premium for part B. Part A & B are called the original Medicare, as opposed to the Medicare plans offered by private insurance companies, e.g., Medicare Advantage plans, Medicare supplement plans (Medigap), etc.
If you are already getting Social Security benefits, you will be automatically enrolled in the premium-free part A. You have the choice to enroll in part B or not. Be aware that you can be assessed a late enrollment penalty (LEP) if you don’t enroll in part B when you first become eligible, depending on your situation. If you are not already getting Social Security benefit, you most likely have to sign yourself up for part A (by contacting the Social Security either by phone or on their website).
The original Medicare
Coverage of part A includes inpatient hospital care (semi-private room, meals), skilled nursing facility (after 3 days of hospital stay, within 30 days of discharge), hospice, and home health care (part-time skilled nursing care, physical therapy), and unlimited blood after the first 3 pints. Part B coverage includes outpatient services such as doctor visits, lab tests, diagnosis screening, medical equipment, preventive care, home health care (if participant does not have part A). Part B also does not cover the first 3 pints of blood (transfusion).
The original part A has high deductibles (around $1500 for the first 60 days of stay) for hospital admission, and there is a daily co-pay after 60 days. Part B pays about 80% of eligible outpatient/doctor costs. Beneficiary is responsible for the other 20%. There is no limit on the (total) out-of-pocket (OOP) costs. So even with the coverage, you are running a potentially serious risk. A serious illness can become very costly. That is why beneficiaries need to get additional private Medicare plans, which can further limit your risk by either paying your cost share or set a manageable OOP limit.
Medicare Plans
The 2 most popular (widely available) Medicare plans are Medicare Advantage plans (aka Medicare Part C) and Medicare supplement plans, aka Medigap or Med-sup. Each of them has its advantages. The Advantage plans usually come with a prescription-drug coverage. They have a set annual maximum OOP. Advantage plans are usually significantly cheaper than Medigap plans. Many of them have zero-premium, or even part-B buy back. (i.e., the plan pays back your part B premium.) However, this type of plans usually have a network restriction on doctors, clinics, and hospitals.
There are also advantage plans designed for specific group of people who have special needs. Special Needs Plans (SNP) include plans for beneficiaries with chronical diseases (C-SNP), beneficiaries who are (also) eligible for Medicaid or dual-eligible (D-SNP), and institutional special needs plans (I-SNP).
Medicare Supplement policies are more expensive in premium and subject to change anytime, but many of them cover all or most out-of-pocket medical expenses providing you with peace-of-mind. However, they do not cover prescription drugs, for which you will have to get a separate drug plan (part D). There is no network restriction. Participants can visit any doctors or facilities anywhere in the United States as long as the health providers accept Medicare.
Enrollment Periods
Medicare Advantage plans can accept enrollment only during certain time periods even though they are guaranteed issue. When an enrollee is newly eligible for Medicare, there is an Initial Coverage Election Period (ICEP). There is also a Medicare Annual Enrollment Period (AEP) each year between October 15th – December 7 during which participants can enroll in or disenroll from Advantage plans and/or prescription drug plans. The General Enrollment Period is between Jan 1st and March 31 of each year when enrollees of Advantage plans or drug plans can make a change for the remainder of the year. This is also the opportunity for eligible participants that have not yet enrolled in part B to enroll in part B (though late enrollment penalty might apply). Special Enrollment Periods are available for certain life events such as enrollee moving out of service area, transitioning from employee group plans, involuntary disenrollment from plan, etc. The AEP sometime is also referred to as Medicare Open Enrollment Period (OEP).
Unlike Advantage plans and prescription drug plans, Medicare supplement plans do not have all these time restrictions. Participants can apply for coverage from Medigap plans anytime. However, only during certain periods do they have to offer a guaranteed issue. Without guaranteed issue, applicants are subject to medical underwriting. The insurance company, depending on the outcome, can reject your application or simply raise the premium based on your health condition.
Medigap Guaranteed Issue
There are however some special circumstances during which Medigap plans have to accept your enrollment application (guaranteed issue). These situations include: You decide to change from an Advantage plan within 12 months if this is the first time you enroll in an Advantage plan. (This is called a trial right.) If you are involuntarily disenrolled from your Medicare plans for any reason, generally you will be given a Medigap guaranteed issue right. There is also the Medigap open enrollment period starting from the month you turn 65 and enroll in part B original Medicare. You have the guaranteed issue right in the open enrollment period.
For more detailed discussions see Medicare and Plans. Private plans’ enrollment can only be done during some specified periods of time, see Medicare enrollment periods.