How Medicare Works
There are four “parts” to Medicare which are cleverly named A, B, C and D. Parts A (in-hospital care), B (out-of-hospital medical care) and D (prescription medicine) fit together, while Part C combines all of these into one plan. It’s best to think of Part C as a senior “HMO” and separate from Parts A, B and D. In fact, if you’re not interested in an HMO, you don’t have to think about Part C at all.
Here’s a thumb nail sketch of the cost and benefits of the four parts of Medicare (if you want more detail, check out Medicare Premiums and Deductibles):
Medicare Part A covers in-hospital treatment. There is no additional cost for Medicare Part A when someone has worked 10 years (40 quarters) and has paid FICA employment taxes (generally 2.9%) during that period. If you didn’t pay the Medicare tax for a full 10 years then you may be able to purchase Part A. In 2014 Part A costs $426/month for those who didn’t pay for it while they were working, e.g., someone who recently moved to the US from another country.
Medicare Part B pays charges for physician services, outpatient hospital bills, some home health services and durable medical equipment like wheel chairs and walkers. In 2014 the standard monthly cost or “premium” – the amount you pay for Medicare Part B is $104.90. People who enrolled in Medicare Part B before January 1, 2010 only pay $96.40/month. People who continue to work and earn more than a specific amount will pay more for Part B – up to $335.70/month. See the Part B Premium Chart. This is called “means testing” i.e., if you earn more it means you pay more…
Medicare Part C is called “Medicare Advantage” or “MA” and it’s easiest to think of these plans as HMO-type plans where you select a primary care doctor who coordinates all of your medical care. (See this handy chart to learn about HMO plans.) Medicare Advantage (Part C) plans usually include coverage for in-hospital care, out-of-hospital medical care (doctor and specialist visits), and a whole host of other services. Often, your prescription medicine (Rx) benefit is included in the MA plan you select. As an HMO, however, you must agree to receive medical services from the doctors and hospitals in the closed network. In California, some of the most popular Medicare Advantage plans are Blue Shield of California’s 65 Plus HMO and Anthem Blue Cross’s Senior Secure. Anthem Blue Cross also offers the “Freedom Blue” plans which are Medicare Advantage Preferred Provider Organization (PPO) plans with a Medicare contract. The cost of MA plans varies by region, age and plan benefits.
You should know that when you enroll in an MA plan you will be disenrolled from Original Medicare (Parts A & B) and cannot purchase a supplemental policy. All of that is replaced by the Medicare Advantage plan. One important limitation on MA plans is that you can only change plans during the open enrollment period which in 2014 will be from October 15 – December 7. So, unless you are newly eligible for Medicare, you’ll have to wait until the open enrollment period to change MA plans. BenefitsCafe.com can assist you with selecting and enrolling in an MA Part C plan.
Medicare Part D covers prescription medicine (Rx) and Congress added this benefit in 2006. You will need to purchase a separate Part D plan from a private insurance company if you want to get prescription medicine covered. Rx is usually included in the monthly premium for MA (Part C) plans and likely won’t require a separate premium. Prices for Part D (Rx) plans vary by benefits and region. The “national base beneficiary premium” for Part D is $32.42 in 2014, which gives you some idea of the monthly cost. The base rate is important also, because it’s used in the calculation of the penalty for not purchasing a Part D (Rx). The Federal government doesn’t want people to wait until they get sick and need prescription medicine to sign up. So, they charge a 1% per month penalty for each month you went without coverage. The 1% penalty is applied to the base rate. Also, beginning January 1, 2011, as part of the new Federal health insurance reform, PPACA, Congress applied “means testing” to Part D. Like Part B, you’ll pay extra for Part D if you earn more than $85,000/year. See the Part D (Rx) Premium Chart.
Part B Monthly Premium 2014
|If your yearly income in 2012 was |
|File individual tax return ||File joint tax return ||File married & separate tax return ||In 2014, you would pay |
|$85,000 or less ||$170,000 or less ||$85,000 or less ||$104.90 |
|above $85,000 up to $107,000 ||above $170,000 up to $214,000 ||Not applicable ||$146.90 |
|above $107,000 up to $160,000 ||above $214,000 up to $320,000 ||Not applicable ||$209.80 |
|above $160,000 up to $214,000 ||above $320,000 up to $428,000 ||above $85,000 and up to $129,000 ||$272.70 |
|above $214,000 ||above $428,000 ||above $129,000 ||$335.70 |
Source: page 131, Medicare & You
Part D Monthly Premium 2014
If your filing status and yearly income in 2012 was:
|File individual tax return ||File joint tax return ||File married & separate tax return ||You pay (in 2014) |
|$85,000 or less ||$170,000 or less ||$85,000 or less ||your plan premium |
|above $85,000 up to $107,000 ||above $170,000 up to $214,000 ||not applicable ||$12.10 + your plan premium |
|above $107,000 up to $160,000 ||above $214,000 up to $320,000 ||not applicable ||$31.10 + your plan premium |
|above $160,000 up to $214,000 ||above $320,000 up to $428,000 ||above $85,000 up to $129,000 ||$50.20 + your plan premium |
|above $214,000 ||above $428,000 ||above $129,000 ||$69.30 + your plan premium |
Source: page 134, Medicare & You