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 enough taxes into the system to earn at least 40 credits (10 years of work) while either an employee or self-employed. (See Chapter 10 for more information 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 receive 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. In order 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, disabled, and 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. About 99 percent of Medicare beneficiaries do not have a Part A premium since they have at least 40 quarters of Medicare-covered employment. The premiums for Part A in 2021 are $471 monthly for those with fewer than 30 quarters of Medicare-covered employment and $259 monthly for those with 30–39 quarters of Medicare-covered employment. The premiums for Part B are $148.50 per month in 2021 for most members but increase as your income rises. Your state may help pay the premiums if you meet its income and asset limits.

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 from 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 U.S. 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. (See Chapter 10 for discussions of when you may want to delay Social Security benefits. We also provide SSA contact info there.)

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 we include are for 2020; 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.

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 they must 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, including 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. The doctor must choose to participate in Medicare and must be accepting new Medicare patients, however. You don’t need a referral for a specialist or approval from Medicare before incurring an expense. If the care is covered by Medicare, 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 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, most acupuncture, most chiropractic services, cosmetic surgery, massage therapy, custodial care, most dental care, eye exams and eyeglasses, foot care, hearing aids, long-term care, 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 (though it does cover insulin pumps). You must pay for noncovered care with your own funds or by purchasing other coverage, such as a Medicare Supplement policy. Over the years Medicare expanded its coverage of preventive services, so be sure you are using current information when considering whether a treatment or service will be covered by Medicare.

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 also can obtain this book through your local Medicare office or Area Office on Aging. The Medicare website also has many details about coverage.

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 as 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.)

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

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.

In the following sections, we 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.

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 you can sign up for the rest of Medicare: from the three months before the month of your birthday through the three months after the month of your birthday. You also can 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 $30 to $35 per month. In 2021 the penalty was $0.33 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 you delayed in enrolling in Part D because 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 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, your employment coverage may 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 you were first eligible.

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 no longer are available, and Plans C and F aren’t available to anyone who became newly eligible for Medicare after 2019. 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 being the next most comprehensive. Plans M and N leave some of the gaps uncovered. Plans K and L have higher deductibles, but offer broad benefits and have annual out-of-pocket maximums, which none of the other Medigap plans offer. Insurers also are 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 2020 the deductible was $2,340. 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. With those plans not available to new Medicare beneficiaries after 2019, Plan F offers the broadest coverage available and will likely be the most popular plan.

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 have met the deductible for the year.
• First three pints of blood needed for the year (full coverage except for plans K and L).

Table 11-3 summarizes the coverage of the different plans.

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:

1. 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 costs less 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. The Medigap policy protects you from having to pay a high amount for medical expenses in years when you have a major medical issue.

2. 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.

3. Compare the premiums offered by different insurers for the standardized policies that interest you.

   These are easily obtained on the Medicare website, by calling Medicare, or by contacting an insurance agent who offers Medigap policies.

4. Consider other factors in order 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 also should 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 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.

Changing plans

Medicare provides a number of choices and flexibility. It also gives you the ability to change your plan choices. Making a change, however, 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 usually are 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 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 may not be able to qualify for a Part D policy or may have to pay a higher premium because your medical condition has changed.

  Switching between Original Medicare and Medicare Advantage also can 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 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.