Chapter 3 Getting the Most Out of Medicare

Understanding Part A

Part A covers hospitalization and similar services and is the simplest part of Medicare. In general terms, it covers the following:

Inpatient care in hospitals (including critical access hospitals and inpatient rehabilitation facilities)
Inpatient stays in skilled nursing facilities (but not custodial or long-term care)
Hospice care services
Home healthcare services
Inpatient care in a religious nonmedical healthcare institution (a facility providing nonmedical, nonreligious healthcare items and services to people who need hospital or skilled nursing facility care that wouldn’t be in agreement with their religious beliefs)

Part A is free, which means that unlike other parts of Medicare, most beneficiaries don’t pay premiums. Of course, it’s not really free; you paid for the coverage with taxes while working.

The following sections provide everything you need to know about Part A, including who’s eligible and what coverage you can expect to have.

Seeing who’s eligible and signing up for Part A

For most people, eligibility for Part A depends on being eligible for Social Security. To receive Part A premium-free, you must be eligible for Social Security. That means you must have paid taxes into the system for at least 40 quarters (10 years) while either an employee or self-employed. (See Book 4, Chapter 4 for more on Social Security.)

Most people who are eligible for Part A are automatically enrolled. Here’s the lowdown on automatic enrollment for the different groups:

Anyone receiving Social Security benefits or Railroad Retirement benefits is automatically enrolled on the first day of the month he turns age 65. Your Medicare card should arrive in the mail three months before your 65th birthday.
If you’re under 65 and received disability benefits from Social Security (or in some cases Railroad Retirement disability benefits) for 24 months, you’re automatically enrolled after those 24 months. You should receive your Medicare card during your 25th month of disability.
If you have ALS (Lou Gehrig’s disease), you’re automatically enrolled in Part A the month disability benefits begin.

If you don’t qualify for Part A but want to be covered under it, you may be able to enroll and pay premiums. To do so, you must still meet one of the following criteria:

You must be 65 or older, entitled to enroll or be enrolling in Part B, and be a citizen or resident of the United States.
You’re under 65 and disabled and your premium-free Part A coverage ended because you returned to work.

If you choose to pay for Part A, you also must enroll in Part B and pay its premiums. The premiums change each year. The premiums for Part A in 2017 are $413 monthly for those with less than 30 quarters of Medicare covered employment and $227 monthly for those with 30 to 39 quarters of Medicare covered employment. The premiums for Part B are $134 per month in 2017 for most members but increase as your income rises. Your state may help pay the premiums if you meet its income and asset limits.

Most people who get Social Security benefits pay less than $134 because the Part B premium increased more than the cost-of-living increase for 2017 Social Security benefits. If you pay your Part B premium through your monthly Social Security benefit, you’ll pay less ($109 on average). Social Security will tell you the exact amount you’ll pay for Part B in 2017.

If you don’t sign up for Part A when you’re first eligible, your premium will increase by 10 percent for a period of time. If you delayed signing up for two years, for example, you’ll pay the higher premium for four years.

If you aren’t eligible for free Part A and want to buy it, you can enroll only during the following periods:

Initial enrollment period: This is the period you’re first eligible for Medicare, which is three months before you turn 65 to three months after the month you turn 65.
General enrollment period: This period extends from January 1 to March 31 each year.
Special enrollment period: This special period is available to you if you delayed enrolling because you or your spouse was employed and had a group health plan from work. It’s also available if you are disabled but delayed enrolling because you or your spouse was working and had a group health plan. In either case, you can enroll in Part A anytime while working and under the group health plan or during the eight-month period that begins when either the employment or the group coverage ends.
Special enrollment for international volunteers: Generally, if you delayed signing up for Part A because you had health insurance while volunteering in a foreign country for a tax-exempt organization for at least a year, you can enroll in Part A during the six-month period that begins the first month any of the following happened:
- You stop volunteering outside the United States.
- You’re still outside the United States but no longer have medical coverage outside the United States.
- When the sponsoring organization is no longer tax-exempt.

Folks who aren’t receiving Social Security benefits but are eligible for them and for premium-free Part A need to sign up for Part A by contacting the Social Security Administration (SSA) three months before turning 65. For example, you still may be working or decided to wait until a later age to receive Social Security.

Defining Part A coverage

Part A of Medicare generally covers hospital stays and similar inpatient care and services. But the coverage isn’t unlimited. The types of covered care and the dollar amounts are restricted.

Coverage limits for Part A are based on the benefit period. Under Medicare, a benefit period begins the day you enter a hospital or skilled nursing facility. It ends when you haven’t received inpatient care in such facilities for 60 days in a row. If you need inpatient care after that, a new benefit period begins.

Medicare’s coverage and payment limits for the three main types of inpatient care are described in the following sections. Keep in mind that the dollar amounts included are for 2017; they’re adjusted each year. Also, Congress can alter and change what Medicare covers and other details.

In addition to the following three types of inpatient care, Part A also pays for hospice care and the cost of blood after the first three pints in a calendar year.

Hospital stays

Coverage in this category is for a semiprivate room, meals, general nursing, drugs as part of your inpatient treatment, and other hospital services and supplies. Places where these inpatient services are covered include acute care hospitals, critical access hospitals, inpatient rehabilitation facilities, long-term care hospitals, and inpatient care as part of a qualifying clinical research study. Inpatient mental healthcare is also covered.

Items and services that Part A doesn’t cover include private-duty nursing, a television or telephone in your room, or personal care items like razors or slipper socks. A private room isn’t covered unless it’s medically necessary.

Note that services delivered by doctors while you’re in the hospital aren’t covered by Part A. They may be covered by Part B or other insurance. Otherwise, you must pay for them with your personal resources.

Part A doesn’t pay the full cost of all these services. For hospital stays during days 1 through 60 of the benefit period, you pay a deductible of $1,316. For days 61 through 90, you pay $329 per day. After 90 days, you pay $658 coinsurance for each lifetime reserve day. Lifetime reserve days are days when you need inpatient hospital or skilled nursing facility care beyond 90 days in a benefit period. You get 60 lifetime reserve days during your lifetime. After exhausting your lifetime reserve day limit, you pay all costs. Coverage for inpatient mental healthcare in a psychiatric hospital is limited to 190 days in a lifetime. These amounts are for 2017 and are adjusted each year.

Medicare pays all covered costs except for a daily coinsurance amount of $658 for each lifetime reserve day. So you pay $658 per day for each day after 90 days in a benefit period, until your lifetime reserve days are used. You pay all hospitalization costs after using all the lifetime reserve days.

Skilled nursing facilities

This coverage includes a semiprivate room, meals, skilled nursing and rehabilitative services, and other services and supplies for up to 100 days in a benefit period. But the coverage kicks in only after a minimum three-day inpatient hospital stay for a related illness or injury. So only care needed for rehabilitation or recovery from an illness or surgery qualifies. Your doctor must certify that you need daily skilled care, like intravenous injections or physical therapy. Medicare doesn’t cover long-term care or custodial nursing-home care.

The first 20 days of the skilled nursing facility stay are fully covered, and then you pay $164.50 per day for days 21 through 100 of the benefit period. You pay all costs after day 100 in the benefit period.

Home healthcare

As with skilled nursing care, home healthcare is covered only after a hospital stay. Home care is limited to the first 100 home health visits following a hospital stay, and you must be homebound to be covered. The care must be medically necessary part-time or intermittent skilled nursing care or physical therapy, speech-language pathology, or a continuing need for occupational therapy. Care must also be ordered by a doctor and provided by a Medicare-certified home health agency. Home health services also may include medical social services, part-time or intermittent home health aide services, durable medical equipment, and medical supplies for use at home.

Medicare-approved home healthcare services are fully covered, and you pay 20 percent of the Medicare-approved amount for durable medical equipment.

Exploring Parts B and C

Seniors use Part B or C of Medicare the most, whichever one they choose. Parts B and C are considered together, because they’re alternatives; the other parts of Medicare stand alone.

Here’s the process for signing up for Parts B and C:

You first must join Part B and pay the Part B premium.
You then choose to be covered by either Original Medicare under Part B or a Medicare Advantage plan under Part C.

If you join an Advantage plan, the sponsor may pay all or part of your Part B premium.

Part B is a fee-for-service plan run by the government (though it contracts with insurance companies that administer the details). Part C is offered by private insurers and includes the coverage of both Parts A and B and often additional coverage.

About 70 percent of enrollees chose Part B in 2014, and Part C has been growing rapidly since being introduced in 1997. Its growth rate increased in recent years; only 16 percent of beneficiaries were enrolled in Advantage plans in 2006. The enrollment percentage varies greatly among the states. The following sections review Part B first and then Part C. Each discussion reviews the main features of each plan and the factors to consider when making a choice.

Scoping out Part B

Part B, which is also referred to as Original Medicare, helps cover medical care received outside a hospital or similar facility. It covers medically necessary services like doctors’ services, outpatient care, and other medical services. Medically necessary services are services or supplies needed for the diagnosis or treatment of a medical condition and that meet accepted standards of medical practice. Part B also covers some preventive services, which are to prevent illness or detect it at an early stage. Recently, it began to cover yearly wellness visits.

Part B is a fee-for-service plan. Under a fee-for-service plan, you pick the doctor or other medical provider. However, the doctor must choose to participate in Medicare and must be accepting new Medicare patients. You don’t need a referral for a specialist or approval from Medicare before incurring an expense. If Medicare covers the care, the program pays its share of the cost. You pay any deductibles, copayments, or other amounts for the covered care. (These costs are discussed in the later section “Paying for Part B.”)

The list of care covered by Part B is extensive, but still many medical services aren’t covered. Services not covered include the following: most care needed when traveling outside the United States, acupuncture, most chiropractic services, cosmetic surgery, custodial care, most dental care, eye exams and eyeglasses, foot care, hearing aids, long-term care, many laboratory tests, orthopedic shoes, most prescription drugs (though these may be covered under Part D or a Medicare Supplement policy), many procedures in ambulatory surgical facilities, and syringes or insulin. You must pay for noncovered care with your own funds or by purchasing other coverage, such as a Medicare Supplement policy.

A summary of covered and noncovered services under Part B is in the book Medicare & You, which is available free online at www.medicare.gov or by calling 800-MEDICARE (800-633-4227). You can also obtain this book through your local Medicare office or area Office on Aging. The Medicare website also has many details about coverage.

Signing up for Part B

If you want to be covered by Part B, you generally don’t have to take action. If you’re receiving Social Security benefits or Railroad Retirement benefits, you’re automatically enrolled in Part B on the first day of the month you turn age 65.

You’ll receive a Medicare card in the mail about three months before your 65th birthday. Instructions accompanying the card tell you what to do if you don’t want Part B, including returning the card. If you keep the card, you’ll be enrolled in Part B. Your premiums will be deducted from Social Security benefits.

You may be eligible for Part B even though you aren’t receiving Social Security or Railroad Retirement benefits. In that case, you need to sign up for Part B during the initial enrollment period that begins three months before your 65th birthday and ends three months after your 65th birthday.

If you missed the initial enrollment period, you have other opportunities to sign up:

General enrollment period: Between January 1 and March 31 each year, any eligible person can enroll in Part B.

You’ll incur a penalty for missing the initial enrollment period and signing up during this period. Your premium will increase 10 percent for each 12-month period you didn’t sign up for Part B after you could have. The penalty usually lasts as long as you’re enrolled in Part B. You may avoid the penalty if you qualify for the special enrollment period.
Special enrollment period: You may delay signing up for Part B without penalty if you or your spouse were working at the time of your initial eligibility and were covered by a qualified medical plan through work. You may sign up for Part B anytime while you’re covered under those circumstances or during the eight-month period, which begins the earlier of two times, when the employment ends or when the qualified group medical coverage ends.
Special enrollment for international volunteers: Generally if you delayed signing up for Part A because you had health insurance while volunteering in a foreign country, you can enroll in Part A during the six-month period that begins the first month any of the following happens:
- You stop volunteering outside the United States.
- You no longer have medical coverage outside the United States.
- When the sponsoring organization is no longer tax-exempt (whichever comes first).

Medicare reimbursements to doctors have been an issue for years. As a result, a number of doctors won’t accept new Medicare patients; some won’t accept any Medicare patients at all. Before deciding to join Original Medicare under Part B, check with any doctors you want to verify that they participate in Medicare and will accept you as a Medicare patient.

Paying for Part B

Part B shares most covered costs with the beneficiary — it pays about half the total medical costs of its beneficiaries and requires a 20 percent copayment on most covered care. Part B has three expenses: monthly premiums, a deductible, and copayments. The following sections outline them. The specific amounts generally change annually.

PREMIUMS

Part B has a monthly premium that’s deducted from your monthly Social Security benefits. If you’re a Part B member not receiving Social Security benefits, you’re billed for the premium. The basic premium, which is determined each year, is set so that it covers 25 percent of the actual cost of Part B. In 2017, the basic premium was $134.00.

Medicare became a means-tested program beginning in 2007. Instead of everyone paying the same premium, those with higher incomes pay higher premiums. (The higher premiums are also called a surtax.) The premiums are based on a person’s modified adjusted gross income, or MAGI. Modified adjusted gross income is the adjusted gross income on your tax return increased by any tax-exempt interest, EE savings bond interest used for education expenses, and excluded foreign earned income you earned.

The higher premiums begin for single taxpayers with a MAGI of $85,000 and for married taxpayers filing jointly with a MAGI of $170,000. The premiums increase on a sliding scale as the MAGI rises; beneficiaries in the highest income bracket are estimated to pay 80 percent of the per capita cost of Medicare for the year.

A 2015 law increased the means-testing of the program. Single beneficiaries with MAGI above $133,500 and married beneficiaries with MAGI above $267,000 will pay higher premiums beginning in 2019.

You’ll notice a two-year lag between when your income is earned and when it affects your Medicare premiums. For example, the 2016 income tax returns will be used to determine 2018 Medicare premiums. The Internal Revenue Service (IRS) receives your tax return and transmits the information to the SSA. Then, the SSA processes the information and sends you a letter sometime after mid-November listing your monthly Medicare premium for the following year. You can choose to have the higher premium withheld from your Social Security benefits as with the regular premiums, or you can pay the amount separately. Table 3-1 lists the premiums and surtaxes for different income levels in 2015.

TABLE 3-1 Part B Premiums and Surtaxes Due, According to MAGI

You Pay	If Your MAGI Is:
	Single	Married Couples
$134.00	$85,000 or less	$170,000 or less
$187.50	$85,001–$107,000	$170,001–$214,000
$267.90	$107,001–$160,000	$214,001–$320,000
$348.30	$160,001–$214,000	$320,001–$428,000
$428.60	Above $214,000	Above $428,000

You can avoid higher Medicare premiums in two different ways. The following list spells out your two options:

Plan your finances to minimize MAGI. Most basic tax planning strategies that reduce adjusted gross income (AGI) will also reduce MAGI. The exceptions are for the items that are added back to AGI:
- Tax-exempt interest
- EE savings bond interest used for education purposes
- Foreign-earned income
You can limit withdrawals from retirement plans and annuities to only the amounts needed for spending and required by law or contract. Avoid selling assets to recognize capital gains in taxable accounts, or sell assets with losses to offset the gains. Losses from business activities also will reduce MAGI.

Itemized deductions on Schedule A of the tax return, such as mortgage interest and charitable contributions, don’t reduce MAGI.
Appeal the decision. Because the income used to determine the premiums is two years old, you can appeal the premium if your financial situation has changed. Changes that result in lower premiums include
- Divorce
- A spouse’s death
- Job loss
- Reduced working hours
- Retirement
- Bankruptcy
Details about the factors that will be considered regarding the appeal and how to file it are included with the letter announcing your premium.

DEDUCTIBLE

Medicare Part B doesn’t begin paying benefits until you pay the annual deductible, which was $183 in 2017. In other words, you pay the first $183 of covered care, and then Part B’s coverage kicks in after that. The deductible may be adjusted annually as Medicare’s costs change.

COINSURANCE

Many services covered by Part B carry a coinsurance or copayment. The coinsurance usually is a percentage of the Medicare-approved amount for the service. A copayment is a fixed amount you pay per treatment or service. The Medicare-approved amount is the price Medicare sets for the service. For most covered services, you pay 20 percent of the Medicare-approved amount as coinsurance.

Ask your doctor or other provider whether she accepts the Medicare assignment. If she does, that means she agrees to charge you no more than the Medicare coinsurance or copayment after Medicare pays its share. Providers that don’t accept the assignment can charge you a higher amount than the coinsurance percentage of the Medicare-approved amount. The additional charge, however, is limited to an additional 15 percent of the Medicare-approved amount.

Probing Part C: Medicare Advantage

Part C is better known as Medicare Advantage. Medicare beneficiaries choose between Part B and Part C. The main difference between the two is this: With Part C, rather than the government offering a plan, many private insurers, both for-profit and nonprofit, offer different plans. You choose which plan to join. The number of plans offered depends on where you live. Areas with a large number of Medicare beneficiaries offer dozens of plans. Some sparsely populated rural areas offer few or no Medicare Advantage plans.

The plans offered under Part C, including their costs, are approved by Medicare before they’re offered. Plans must meet certain guidelines for coverage and other features before receiving approval. The plans receive a fixed amount per Medicare member from Medicare every month.

Most Advantage plans charge a monthly or annual premium. It could be the same or less than the monthly premium for Part B. Clarify whether the premium is in addition to the Part B premium or in lieu of it. (Even though you aren’t in Part B Original Medicare when you join a Part C plan, you still must enroll in Part B and pay the Part B premium. Either you pay the premium, or the plan pays it on your behalf.)

A number of members of Congress don’t like Medicare Advantage plans and regularly propose rules that would make them less attractive. The Affordable Care Act of 2010 contained provisions that would reduce their reimbursements from Medicare but also contained provisions allowing bonus payments for those plans that have better healthcare outcomes. The changes were fully phased in in 2017. It’s possible that these changes will reduce the attractiveness of Advantage plans. That happened to Medicare + Choice programs, a predecessor to Advantage plans.

The following sections give you the rundown of the Part C details, including the coverage you can expect, how to change plans, and the best ways to research the different plans.

Becoming familiar with the Part C plans

All Medicare Advantage plans must provide at least the same coverage as Original Medicare, both Parts A and B. However, one appeal of Medicare Advantage plans is that they usually cover more than Original Medicare and at a lower out-of-pocket cost to most members. They often have additional coverage, such as prescription drugs, dental, vision, hearing, and health and wellness programs. The Advantage plans set their own deductibles, copayments, and coinsurance. Often, you pay a fixed amount or percentage for a doctor’s visit or other treatment.

Most Medicare Advantage plans are a version of managed care in the following two forms:

Health maintenance organizations (HMOs): If you belong to an HMO and want to use a doctor or other provider who doesn’t belong to the network, you pay the full cost. HMOs often must approve certain types of care and treatment by specialists before they’re covered.
Preferred provider organizations (PPOs): If you’re covered by a PPO and want to see an out-of-network professional, you pay a higher cost than you would for seeing an in-network provider.

You have a few other choices with the different Advantage plans available. The following are also options, although they’re less common:

Private fee-for-service (PFFS) plans: This type was the fastest-growing Part C plan until 2009. Now they have less than 2 percent of Medicare beneficiaries. They used to be allowed to cover treatment by any Medicare-approved medical provider. But a rules change in 2011 forced them to create their own networks of doctors and other care providers. So before signing up for a PFFS plan, Be sure that any doctors, hospitals, and other medical providers you prefer are in the PFFS network.
Medical savings accounts (MSAs): These plans combine a high-deductible insurance policy and a bank or savings account. Medicare pays the plan a fixed amount annually for each member, and the plan deposits a portion of this money into your MSA. You pay for all your care until you reach the deductible for the year, using your choice of money from the MSA and personal funds. The amount deposited in your MSA is likely to be less than the deductible for the year. If you don’t use the entire MSA during the year, the balance is carried forward to the next year. After your medical spending for covered services reaches the deductible, the plan pays for any care that would be covered under Part B. You pay for any medical care you receive that isn’t covered by Medicare. Keep in mind that you may need to pay copayments for some care.
Special needs plans (SNPs): These plans are for people who live in institutions such as nursing homes, who are eligible for both Medicare and Medicaid, or who have certain chronic conditions such as diabetes or congestive heart failure. Members generally have a primary doctor who coordinates all their care. Treatment generally must be by doctors and hospitals in the plan’s network.

Before choosing an Advantage plan, make sure you investigate the following two important issues:

Verify limits on service providers. Verify that primary doctors and specialists you like are in the network and, if not, what your cost would be to use them. Most HMOs and PPOs limit specialist treatment and referrals. Be sure you understand the rules and are comfortable with them. Also, ask which hospitals in the area participate. This information is especially important in areas where some hospitals have better reputations than others.
Estimate your out-of-pocket costs under different levels of care. The array of copayments and deductibles in some plans is confusing. Estimate how much you’re likely to pay in a typical year. Add up the copayments for your typical annual doctor visits, medications, and any other medical services you normally receive. Assume that your health will change and you need more care. Estimate your out-of-pocket costs for different types of care and treatment. Compare the out-of-pocket costs of an Advantage plan with Original Medicare.

Joining or changing Advantage plans

You are free to join or change membership in Advantage plans or switch from traditional Medicare to an Advantage plan, but you can take the actions only at certain times. You can make your moves during the following times:

Initial enrollment period: When you’re first eligible for Medicare, you can join either Original Medicare or an Advantage plan during the usual Medicare sign-up period of three months before the month you turn 65 through three months after turning 65.
Annual open enrollment season: Medicare has an annual six-week enrollment period, which usually is from October 15 through December 7. During this period, you can switch from Part B to Part C, from Part C to Part B, or from one Part C plan to another. If you missed your initial enrollment period, you can join a plan during this period. The coverage under your new plan begins January 1 of the following year.
General enrollment period: An enrollment period for Part C takes place between January 1 and March 31 each year. You can join, switch, or drop a plan during this period, but the change won’t be effective until July 1. During this period, there are a few actions you can’t take. During this period, you aren’t allowed to join, switch, or drop a Medicare MSA plan. Also, you can’t join or switch to a plan with prescription drug coverage unless you already have prescription drug coverage under Part D.

Generally, a choice under Medicare is fixed for the calendar year. You can’t change until the next enrollment period — and that change isn’t effective until January 1 of the following year. At other times, you can change only under the following exceptions:

When you move out of a plan’s service area
When you’re covered under both Medicare and Medicaid
When you live in an institution, such as a nursing home
When you qualify under Medicare’s program for help to those with limited income and resources

Researching Part C plans

Medicare reviews and approves all Part C plans and has most of the information about them. Medicare offers the following two ways for you to find out about and compare the plans offered in your area:

You can visit the Medicare website. This site (which can be found at www.medicare.gov) has a feature called “Medicare Plan Finder.” This feature does the following:
- Provides a summary of each plan and lets you dig deeper into the details of individual plans
- Estimates annual out-of-pocket costs if you enter information about your health and medications
- Allows you to compare up to three plans on one screen and to sort the plans for certain features that are priorities for you
The Medicare website also has contact information for each plan so you can get any information you don’t find on the website.
You can call 800-MEDICARE (800-633-4227). If you’re not computer-savvy, don’t worry. The operators at this toll-free number have the information from the website available to them, so they can discuss all the options with you.

Don’t buy Part C or Part D by phone. The law contains some protections to consumers considering the purchase of Part C Medicare Advantage plans and Part D prescription drug plans. Sellers and sponsors of these plans aren’t allowed to initiate sales contact by telephone or by visiting your home. Anyone who contacts you in these ways representing an insurer or selling these policies is violating the law unless you contacted them first. Make sure you don’t buy a policy from them.

You may be able to enroll in the Medicare Advantage plan of your choice directly from the Medicare website. Otherwise, you contact the plan through the mail, telephone, or its website. Most plans allow you to enroll through any of these media.

As you’re researching the different plans, don’t automatically choose the policy with the lowest premium. Check the other costs and estimate your total out-of-pocket costs for the year. Also, look at the details of the plans, not just the summaries. Examine the coverage for hospital stays and skilled nursing facility care. Check out limits on items such as chemotherapy, blood transfusions used in transplants or other major surgery, and elective treatments such as hip replacement. Under some plans, if you need these types of care, you could pay more than you would under Original Medicare.

Qualifying for Prescription Drug Coverage with Part D

You can get prescription drug coverage under Medicare in two ways. We discussed one way earlier in this chapter: Join a Medicare Advantage plan under Part C that covers prescription drugs. The other way, for those who chose Original Medicare coverage under Part B, is to buy a prescription drug coverage policy under Part D of Medicare. This section discusses Part D.

Examining Part D plans

Medicare prescription drug plans have similarities to Medicare Advantage plans under Part C. Consider the following details about Part D plans:

They’re offered by private insurers or other companies.
The plans are reviewed and approved by Medicare before they can be offered to the public.
Coverage, premiums, and other features of each plan differ.
In areas with many Medicare-eligible people, dozens of plans are available. In rural areas, few plans are available.

Unlike Part C plans, however, some national Part D plans are available to every Medicare beneficiary in the country. Medicare requires the plans to provide a minimum level of coverage, and it can ask for other changes and terms in the plans. Providers are free to add coverage beyond the minimum.

The following sections outline how Part D works, explain how to get the coverage you want at the lowest cost, discuss how to deal with Part D’s coverage gap, and show you how to compare plans.

Reviewing premiums and other costs

The following list outlines the different costs associated with Part D plans. As with other medical expense plans, make sure you estimate your total out-of-pocket costs when comparing prescription drug plans. With Part D plans, this means comparing several possible types or tiers of expenses. Keep these costs in mind:

Premiums: Many plans charge a premium, or a monthly fee, that varies depending on the plan sponsor and the amount of coverage. Generally speaking, the more coverage under the plan, the higher the premium. The median monthly premium has been around $40 in recent years. As with other plans and policies, don’t choose a policy primarily based on the monthly premium. Consider all your potential out-of-pocket costs.

You have several options for the way you pay your premiums. You can use one of the following:
- Automatic drafts from a checking or savings account
- Automatic charges to a credit or debit card
- Monthly billing statements
- Deductions from Social Security benefits
You’ll pay a higher premium as your income rises. As with the Medicare Part B premium, your income from two years earlier is used to determine your premium. Table 3-2 shows the additional premiums for 2015.

TABLE 3-2 Part D Premiums and Monthly Adjustments According to MAGI

You Pay	If Your MAGI Is
	Single	Married Couples
The plan premium	$85,000 or less	$170,000 or less
$13.30 plus the plan premium	$85,001–$107,000	$170,001–$214,000
$34.20 plus the plan premium	$107,001–$160,000	$214,001–$320,000
$55.20 plus the plan premium	$160,001–$214,000	$320,001–$428,000
$76.20 plus the plan premium	Above $214,000	Above $428,000

Deductibles: The deductible is the annual amount you have to pay before insurance kicks in. You pay all prescription drug costs up to the deductible each year. After you incur the deductible, the plan coverage kicks in. The deductible often is around $250.
Copayments or coinsurance: On prescriptions covered by the policy, you may have to pay part of the cost of each prescription. Often this copayment or coinsurance is a relatively small amount, such as $5 per prescription. A copayment is a flat dollar amount per prescription, and coinsurance is a percentage of each prescription. The difference is important, especially if you’re prescribed an expensive drug. With a copayment, you pay the same amount regardless of the cost of the drug. With coinsurance, you pay a percentage of the cost, so the more expensive the drug, the more you pay.

This factor is important because of the doughnut hole or coverage gap we discuss next. If you aren’t responsible for a copayment or coinsurance for most prescriptions, it’s unlikely you’ll spend enough to reach the coverage gap.
Doughnut hole or coverage gap: This facet of Part D is undergoing changes through 2020. Part D was set up as a catastrophic coverage plan. That means the bulk of its coverage kicks in only after your out-of-pocket payments exceed several thousand dollars. Policyholders are expected to make a significant contribution to the cost of their medicines to that point, and then the coverage pays most of the costs. That’s why Part D has a provision often known as the coverage gap or doughnut hole. After your total prescription costs for the year equals a floor amount, you pay all the prescription costs between that amount and the top of the coverage gap (unless your income is less than a minimal level, which changes each year). A few plans offer some coverage in the gap. When yours doesn’t, you aren’t allowed to buy separate insurance to pay for the coverage gap. The levels of the coverage gap are indexed for inflation each year. In 2018, the floor of the gap was $3,750. These levels are likely to change each year.

Once you’re in the coverage gap, you pay no more than 35 percent of the plan’s cost for brand-name prescription drugs in 2018. You’ll also pay 44 percent of the cost of generic drugs in 2018. You pay these percentages until your total out-of-pocket drug spending for the year pushes you above the coverage gap. But for the brand-name drugs, even though you’re paying only 35 percent of the price, 85 percent of the price counts toward your out-of-pocket spending.

The coverage gap is being reduced gradually through 2020, when you’ll pay only 25 percent of both generic and brand-name prescription drug costs in the coverage gap. Check out www.medicare.gov/part-d/costs/coverage-gap/part-d-coverage-gap.html for updated information on this moving target.

Part D policies are allowed to pay for all or some of the drugs in the coverage gap, but less than one-third do. A plan that offers doughnut hole coverage usually has higher premiums than other plans. For ways to handle the doughnut hole, check out the “Dealing with the doughnut” section later in this chapter.
Catastrophic coverage: After your prescription payouts exceed the limit of the coverage gap for the year (the amount changes with drug costs each year; it is up to $5,000 for 2018), you generally will pay the greater of 5 percent of covered costs above the coverage gap or a maximum amount per prescription, with the dollar amount changing each year.

The costs you pay under a policy are important, but so are other features. We explore these other features in the next section.

Looking at other terms

Out-of-pocket costs may seem low when you examine only the premiums and other costs. However, other policy terms can boost your costs or restrict coverage if you don’t examine them closely. When determining which plan is right for you, check out these other policy terms:

The formulary: The formulary is a fancy term for the drugs the policy will cover. A plan doesn’t cover all the prescription drugs you order just because it’s a prescription drug policy. The plan will pay only for covered drugs. When several brand-name drugs compete, the plan may cover only one of them. And when they’re available, sometimes only generic drugs may be covered. New, experimental, or expensive drugs may not be covered or may require you to pay heftier coinsurance or copayments. The plan may exclude certain drugs or drugs in certain categories.

If you currently take medication, be sure it’s covered under the plan you’re looking into. If you aren’t taking prescriptions, review the formulary to get an idea of how restrictive the plan is. You can see whether the drugs used by friends or relatives are covered.
Step therapy: Some plans have a preferred drug in one or more treatment categories. Other competing drugs are covered only if the preferred drug is ineffective for you or you have an adverse reaction to it. A number of plans also may require you to first try a generic drug if one is available.
Authorization: Your doctor may need to get approval from the plan administrator before a prescription is covered.
Quantity limits: Some plans limit the quantity of a medicine you can order at one time and the frequency with which you can order. This policy term can be more than inconvenient. If you’re charged a copayment for each order, a limit on the quantity of an order means you make more orders and incur more copayments.
Inpatient care: Often a plan doesn’t cover drugs received in an emergency room or in other inpatient situations. These drugs are supposed to be covered under other parts of Medicare. Or your plan may cover them but only after you pay for them out of pocket and seek approval and reimbursement.
Pharmacy restrictions: Some plans limit the pharmacies from which you can order medications if you want them covered.
Mail order only: For medications used regularly, many plans require mail order, and usually from a specific pharmacy. Although this term may seem like a limitation, most folks enjoy the convenience and cost savings.

Under some plans, a prescription that isn’t covered won’t be paid for at all by the plan. You pay the full cost. The plan may only partially cover other drugs, such as by imposing higher copayments on you.

Dealing with the doughnut

A concern of some seniors considering Part D policies is what to do about the coverage gap. This gap is the range of your annual drug expenses in which Medicare or your plan pays a limited share. A few plans cover some or all drugs in the gap. When a plan doesn’t offer coverage in the gap, the law prohibits you from buying a separate policy specifically to provide coverage in the gap. You have only a few courses of action available:

Buy a Part D policy that covers the gap. A minority of Part D policies provide full or partial coverage for expenses in the doughnut hole. Because Medicare reimburses fewer drug expenses in the doughnut hole, the insurer charges higher premiums to offer this coverage. You have to decide whether the higher premiums are worth the coverage. For most people, it’s not.
Economize in the gap. You can take several actions that may reduce medicine expenses. A couple of options are that
- You can buy generic drugs whenever they’re available.
- Your doctor can prescribe a 40 milligram pill when you need only a 20 milligram dose. The more potent dose often is cheaper than the less potent dose. Then, you can split the pills in half. Discuss this fully with your doctor, however, because some pills can’t be split safely.
Self-insure for the gap. Congress intended that Part D be primarily for catastrophic, or expensive, prescription drug coverage. Seniors are supposed to save for the bulk of their medicine coverage below the top of the gap. You could do what Congress expects and factor this level of medication expense into your retirement spending plan.
Apply for help. Medicare has an “Extra Help” or Low-Income Subsidy program for those who are in the coverage and have lower incomes. Details are available on the Medicare website or by calling Medicare.

Comparing plans

Medicare has all the information you need about Part D plans. You can research all this information and compare plans in the following ways:

On Medicare’s website: The site (www.medicare.gov) has a feature listing all the Part D policies available in your area. You can read summary descriptions of each policy to narrow your choices. You can also search by policy features. Detailed descriptions of any policies that interest you are on the site. A policy comparison feature allows you to compare several policies on one screen.
By calling the helpline: If you aren’t comfortable using computers, keep in mind that Medicare’s telephone operators have the same information that’s on the website. You may call 800-MEDICARE (800-633-4227) to receive the information you need.

Enrolling in a Part D plan

You can join a Part D Medicare prescription drug plan when you first become eligible for Medicare. If you decide to do so, you can sign up for it during the same period that you can sign up for the rest of Medicare: the three months before the month of your birthday and the three months after the month of your birthday. You can also sign up for a plan in the annual enrollment period from October 15 through December 7. Most plans allow you to enroll over the phone, through the web, or by mail.

The membership period is the same as for Medicare Advantage plans. Your enrollment begins January 1 of the year following the enrollment period (except when you’re first eligible for Medicare and it begins soon after you enroll), and you’re enrolled in that plan for a year. The exceptions to the one-year enrollment period are when you move out of the coverage area, live in an institution such as a nursing home, or need financial assistance to afford the plan. You can change when any of these events happen, and coverage begins shortly after you complete the paperwork. Medicare will send you a letter stating when the new coverage begins.

The Medicare law encourages you to join a Part D plan when you’re first eligible. Its encouragement comes in the form of a penalty that increases your premium when you enroll in Part D after the initial enrollment period. The penalty is 1 percent of the national base premium amount for each month you delayed signing up for Part D. The national base premium amount basically is the average premium nationwide and usually is around $35 per month. In 2017, the penalty was $0.35 per month for each of the full months you delayed joining. The penalty continues as long as you have a Part D policy and can increase or decrease each year as the base premium changes.

The main way to avoid the penalty is if the reason you delayed enrolling in Part D was that you had creditable coverage. Creditable coverage is prescription drug coverage offered by a current or former employer, a union, or the Department of Veterans Affairs. Plans that offer prescription drug coverage are supposed to send letters to their Medicare-eligible members telling them the coverage is creditable. If you don’t have such a letter, ask your plan sponsor for one. Without a letter, assume that you don’t have creditable coverage.

This issue is tricky, so don’t make assumptions. For example, if you’re employed when eligible for Medicare Part D, the employment coverage might not be creditable. Not all coverage is creditable under Medicare. If you don’t receive a letter from your plan saying that the coverage is creditable under Medicare, then you should sign up for Part D.

Here’s a simple, low-cost way to deal with the penalty. Suppose you become eligible for Part D and don’t have a big need for prescription drugs. But you want to preserve the option to buy a comprehensive Part D policy in a few years without incurring the penalty for waiting. To avoid the penalty, buy the most basic Part D policy that carries the lowest premium. You can always switch to another Part D policy during a future annual enrollment period, and you won’t pay the penalty because you bought a basic policy when first eligible.

Eyeing a Medicare Supplement

Parts A and B of Medicare don’t pay all your medical expenses. You have to pay for premiums, deductibles, copayments or coinsurance, and care that simply isn’t covered. Medicare pays about half the medical expenses of the typical beneficiary, and a beneficiary on average spends around $7,000 or more out-of-pocket on medical care. Some seniors pay much more for medical care and some much less, depending on how healthy they are.

Depending on your financial situation, you may not want the risk that comes with your noncovered medical expenses being close to $10,000 per year. If you’re enrolled in Original Medicare, you can buy a Medicare supplement policy, or Medigap policy, from a private insurer. This section analyzes Medicare supplement insurance so you can determine whether it’s appropriate for you.

Understanding Medigap policies

Medicare supplement policies, which are often referred to as Medigap policies, are so named because they cover the gaps in Medicare’s coverage — the expenses not covered by Medicare. The coverage can include monthly premiums, deductibles, copayments, and care not covered by Medicare.

You need to be aware of the rules associated with these supplement policies. They’re subject to some basic federal rules, but the states also regulate them, and your state may have additional rules. The states also regulate the financial condition of the insurers. Because states can vary so much, and we have only limited space, we concentrate on the federal rules. Questions about state rules and regulations can be answered by the state insurance commissioner. You also may get information from your Area Office on Aging.

A Medicare supplement policy must be clearly identified as Medicare Supplement Insurance. To purchase it, you generally must be enrolled in Parts A and B of Original Medicare (not Part C, Medicare Advantage). The policies are sold by private insurers, and you pay premiums directly to the insurers. The policies aren’t reviewed or approved by Medicare. State insurance regulators are the primary regulators of the insurers and the policies.

Standardizing Medigap policies

Medicare law makes comparing Medigap policies somewhat easier than you would expect given the wide range of policy options. A policy must fall into one of the categories defined by Medicare and designated by letters of the alphabet. Note: The categories and choices change from time to time. For example, policies E, H, I, and J are no longer available. This section gives you an overview of the plans currently available.

Plan A, the basic plan, covers the fewest items, and coverage items are added on each of the higher-letter categories. Plan F covers the most gaps with G, M, and N leaving some of the gaps uncovered. Plans K and L offer broad benefits but have higher deductibles, but they also have annual out-of-pocket maximums, which none of the other Medigap plans offer. Insurers are also allowed to offer high-deductible versions of Plan F that carry lower premiums in return for requiring you to cover more of your initial expenses before the insurer begins coverage. In 2017, the deductible was $2,200. The deductibles may increase over the life of the policy. The most frequently purchased policies are probably Plans C and F, according to the Medicare Rights Center, because most people seem to like their trade-offs between higher but still affordable premiums and broader coverage.

The following basic benefits must be offered by all the Medigap plans from A through L:

Hospital coinsurance coverage.
An additional 365 days of full hospital coverage.
Payment of the 20 percentage coinsurance under Part B for doctors’ charges and other Part B services. Under Plans K and L, this coverage kicks in only after you’ve met the deductible for the year.
First three pints of blood needed for the year (full coverage except for plans K and L).

Table 3-3 summarizes the coverage of the different plans.

TABLE 3-3 Coverage for Medigap Plans

Coverage Category	Medigap Plan Type
	A	B	C	D	F	G	K	L	M	N
Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up	✓	✓	✓	✓	✓	✓	✓	✓	✓	✓
Part B coinsurance or copayment	✓	✓	✓	✓	✓	✓	50%	75%	✓	✓
Blood (first 3 pints)	✓	✓	✓	✓	✓	✓	50%	75%	✓	✓
Part A hospice care coinsurance or copayment	✓	✓	✓	✓	✓	✓	50%	75%	✓	✓
Skilled nursing facility care coinsurance			✓	✓	✓	✓	50%	75%	✓	✓
Part A deductible		✓	✓	✓	✓	✓	50%	75%	50%	✓
Part B deductible			✓		✓
Part B excess charges					✓	✓
Foreign travel exchange (up to plan limits)			✓	✓	✓	✓			✓	✓
Out-of-pocket limit							$5,120	$2,560

* Plan F also offers a high-deductible plan. If you choose this option, this means you must pay for Medicare-covered costs up to the deductible amount of $2,200 (in 2015) before your Medigap plan pays anything.

** After you meet your out-of-pocket yearly limit and your yearly Part B deductible, the Medigap plan pays 100% of covered services for the rest of the calendar year.

*** Plan N pays 100% of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that don't result in inpatient admission.

remember The standardization of these policies forces each insurer to offer essentially the same benefits for competing policies. The insurers compete on price, service, financial stability, and other factors. Studies show that many people overpay for Medigap policies because they don’t shop around. (The standardized policies are different in Massachusetts, Minnesota, and Wisconsin.) In some states, Medicare SELECT policies are available that in return for lower premiums require policyholders to use only select hospitals and doctors to receive coverage.

Choosing a Medigap policy

Selecting a Medigap policy is a four-step process:

Decide whether you want a policy to cover Medicare’s gaps or whether you want to self-insure for any costs that aren’t covered.

Self-insuring is lower cost in the short term. You save the higher premium and keep your money until you actually incur costs. A Medigap policy provides some certainty. You pay the premium and know that if you incur covered expenses, the insurer will pay for them. Your annual fixed costs are higher with a Medigap policy. But if you can afford the higher premiums, you may want the certainty of having additional medical expenses covered.
Narrow the standardized policies to one or two that interest you.

Coverage differs under each policy. When you aren’t concerned about the cost or probability of incurring an expense, you probably don’t want to pay premiums to cover it, For example, you probably don’t need emergency care covered while traveling overseas if you don’t travel overseas much. Buying an individual policy whenever you make a trip would be cheaper. Of course, when you’re trying to hold down premium costs, you would gravitate toward policies with less coverage.
Compare the premiums offered by different insurers for the standardized policies that interest you.

These are easily available on the Medicare website or by calling Medicare.
Consider other factors to get the best value.

With Medicare’s standardized policies, insurers compete on cost, service, history of premium increases, and financial stability. Information on each of these is available from most state insurance departments, and the insurer offering a policy should also have the information.

These factors may help you decide which plan to go with:

Plans F and G pay the difference when a doctor doesn’t accept Medicare’s rates. A growing percentage of doctors won’t participate in Medicare or accept its reimbursement rates. However, these policies may cover only care from doctors in their networks. Don’t assume that the policies will let you see any doctor at Medicare’s rates.
You aren’t allowed to have drug coverage under both a Medigap policy and a Part D prescription drug program.
If you don’t travel much outside the United States, a policy covering foreign travel emergencies won’t be cost-efficient. Instead, purchase an individual policy when you travel overseas.

After determining which Medigap plan you want, be sure to shop among insurers. The premiums differ significantly among insurers for the same policies.

Obtaining quotes for Medigap insurance

After selecting a plan you want, the next step is to get premium quotes from insurers. Medicare has details about each plan available, including premiums, on its website or through its toll-free telephone service. The plan comparison feature on the website is a good way to evaluate both features and premiums at the same time.

Be sure to look beyond the quotes for additional details before choosing an insurer. You want to know the history of premium increases for your type of policy from each insurer. Some insurers initially underprice their policies, either to gain market share or because they underestimate costs. An affordable policy today may, through steep future price increases, be unaffordable in a few years.

You also want to know the method used to calculate premiums. Insurers can use three main methods to calculate premiums:

Community rating: This method charges everyone the same premium regardless of age. With these policies, younger, healthier policyholders essentially are subsidizing older policyholders. The advantage of these policies is that the premium may be more stable over time.
Issue age: This type of premium is computed based on the insured’s age when the policy is issued. After that, premiums are increased based only on increases in medical costs and the insurer’s claims and investment experience.
Attained age: This type of premium is based on the insured’s current age. The premium rises as you get older. Premiums using this method are likely to be the lowest when a policy is purchased, but they’ll rise the most as you age. This can be an advantage when you first buy the policy, but increases can be steep as the years pass. A policy that was affordable at 65 may be significantly more expensive at 75 or 80.

Not all states allow all these methods to compute premiums. Some allow only two, and some states require all insurers to use one method. You should find out how the insurer determines premiums to get an idea of how premiums are likely to change over the years. Doing so can help you avoid having the policy become a financial burden in the future.

Resolving Some Sticky Issues

Some issues regularly cause confusion or problems for Medicare beneficiaries. These issues don’t have to be a problem for you. Check out the following sections in which we provide some quick pointers to guide you.

Changing plans

Medicare provides a number of choices and flexibility. It also gives you the ability to change your plan choices. Making a change, though, can have unintended consequences if you aren’t careful.

You’re allowed to change your Medicare choices during the annual enrollment period from October 15 to December 7. However, doing so can create problems for you if you switch between Original Medicare (Part B) and Medicare Advantage (Part C), especially if you bought Part D prescription drug coverage or a Medigap policy to go with your Original Medicare. Consider these changes and the issues they raise:

Start with Part C and purchase a Part D plan: Prescription drugs are usually covered as part of an Advantage plan under Part C. If you’re enrolled in a Part C plan and purchase prescription drug coverage under Part D, Medicare automatically drops you from the Part C plan and enrolls you in Original Medicare. You lose the additional coverage you may have in Part C and also may lose access to doctors who work only under the Part C plan. Your premiums, copayments, and other features also all change.
Start with Parts B and D and switch to Part C: Suppose that you’re in Original Medicare with Part D prescription drug coverage. The next year you switch to an Advantage plan with prescription drug coverage. You let the Part D policy lapse, because it duplicates your Advantage coverage. In a subsequent enrollment period, you decide to switch back to Original Medicare. You can purchase a Part D prescription drug policy at that point, but you’ll pay the premium penalty on your future Part D premiums. The amount of the penalty will depend on how long you went without a Part D policy.

Switching between Original Medicare and Medicare Advantage can also affect your Medigap policies. In most cases, if you drop a Medigap policy after joining an Advantage plan, you may not be able to get the Medigap policy back. You may get the old Medigap policy back or be able to buy a new one if this is the first time you joined an Advantage plan and you choose to leave the plan within the first 12 months of joining. But the new Medigap policy can’t include prescription drug coverage. Under other circumstances, you aren’t guaranteed a right to buy a Medigap policy. If the insurers decide you’re medically unqualified for a policy, you won’t be able to buy one. Your state may offer additional protections, but check it out before you make any changes.

Monitoring changes at work

Changing your employment or your employer medical coverage can cause some confusing situations. Suppose that you’re still working when you turn 65, and you plan to continue working. If your employer has a medical plan covering you, you need to ask the employer whether turning 65 changes the plan coverage. Under many employer plans, when an employee turns 65, Medicare becomes the primary plan, and the employer plan only backs it up. In that case, you have to sign up for Part B (Original Medicare) or Medicare Advantage (Part C).

However, some employer plans in this situation remain the primary health plan. If that describes your plan, you may not have to sign up for Medicare Part B as long as the employer plan is primary and is qualified under Medicare to delay your enrollment period. You won’t incur a penalty for waiting to sign up for Part B until after the employer coverage ends.

When you work past age 65, the situation for Part D is different. You incur the penalty for waiting to sign up for Part D unless your current or former employer or union had a prescription drug plan Medicare considers creditable coverage. (Creditable coverage is drug coverage that Medicare considers similar to its own.) You need a letter from your employer stating that the coverage is creditable. Otherwise, when you try to join Part D later, you’ll pay a penalty. Don’t make assumptions or rely on verbal assurances. If you didn’t have creditable coverage and you buy a Part D policy after your initial eligibility period, you’ll pay the premium penalty.

Making a foreign move

If you move overseas any time after age 65, you face difficult decisions. Medicare Parts A and B don’t cover most care received overseas, whether you’re traveling or a resident overseas, though some care received in Canada and Mexico may be covered. A Medigap policy may cover care received when traveling outside the United States, but you aren’t eligible to take out a Part D policy when you’re a resident overseas.

You could withdraw from Part B while overseas. But if you move back to the United States and re-enroll in Part B, you would owe a re-enrollment penalty that could reach 10 percent for each 12-month period you could have been enrolled but weren’t. You may find it cheaper to continue paying Part B premiums while overseas even though Part B won’t cover you for any care received there.

Part D is more generous to overseas residents. After you return to the United States, you can purchase a Part D policy during a special enrollment period and won’t owe any penalty. The enrollment period begins when you return to the United States and continues for two months.

Getting the Most Out of Medicare

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